Morgan Stanley's Tesla Thesis Is As Flawed As They Come

| About: Tesla Motors (TSLA)

I have serious doubts that things can get even loonier in Tesla (NASDAQ:TSLA) land. Yesterday, Morgan Stanley came out with a massive price target upgrade, pushing its price target from $157 to $320.

The main thesis on this Morgan Stanley upgrade was that Tesla had two tremendous opportunities outside selling cars. These were autonomous (self-driving) cars and energy storage.

Autonomous cars

Apparently, Morgan Stanley believes that Tesla is the OEM that's better placed to dominate self-driving cars. This might seem realistic on the surface, since Tesla projects an image of the future, of a car more intertwined with technology than anything else out there. As such, it seems realistic that Tesla might have the upper hand regarding the technology-intensive task of building self-driving cars. But does it really?

It doesn't. There is already massive research into self-driving cars. Google (NASDAQ:GOOG) has their now-famous self-driving cars in the road. BMW has shown a self-driving car that is even able to drift around a circuit. Volvo has shown self-driving cars on a convoy among real traffic. As for Tesla, Tesla is at the absolute zero.

I mean the absolute zero. Tesla's Model S doesn't even have adaptive cruise control. It has no lane-departure alerts. Or automatic braking. All of these technologies are in road-going cars today. And have been for nearly a decade! These are the first commercial steps of self-driving cars, and yet Tesla has none of it. Yet Morgan Stanley goes around saying that Tesla is the better-placed company to dominate autonomous cars?

It simply makes no sense.

Energy Storage

Then there's the story that Tesla is going to build the "Gigafactory" for making Li-ion batteries. And as such it will somehow be the great leader in battery technology and cost, and hence able to potentially disrupt another market - that of large-scale energy storage in utility networks. Energy storage in utility networks is bound to see an explosion in usage due to intermittent energy sources such wind or solar energy.

Again this is hogwash. There are a significant number of technologies already available for large-scale energy storage, and nearly all of them are more competitive than Li-ion, some by a very significant margin that's not likely to go away. The following report shows how this space looks like: "Utility Scale Energy Storage Systems: Benefits, Applications, and Technologies", State Utility Forecasting Group (Orange highlight is mine)

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The result is that Li-ion is mostly only suited to end-user power leveling (UPS, Uninterruptible Power Supplies), or at most for frequency/voltage regulation. It's clearly not for large-scale energy storage.

Indeed, only a minor part of the energy storage market is expected to be served by Li-ion:

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Conclusion

Morgan Stanley's promotion of Tesla stock based on an utopian world where Tesla dominates not only cars but also associated industries like autonomous self-driving cars and large-scale energy storage seems as loony as they come.

Tesla is not well positioned to dominate either of those industries. In autonomous cars it has nearly zero technology against other companies that already have very complex autonomous cars in the road today. In large-scale energy storage Li-ion is structurally ill-suited for most of the applications.

Either way, the market clearly shows a massive will to believe in spite of these conclusions being tremendously obvious. It is my opinion that this promotion of Tesla stock is happening because soon Tesla will be issuing equity, and there will be commissions to be had from such issuance.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in TSLA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.