Morgan Stanley Increases Valuation of Tesla’s Energy Storage Business Amid AI Boom

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Morgan Stanley has significantly raised its valuation for Tesla’s energy storage business, anticipating a substantial increase in global demand for power driven by the burgeoning artificial intelligence (AI) sector. The brokerage firm now values Tesla’s energy storage unit at $50 per share of its $310 price target, up from its previous estimate of $36 per share. This adjustment comes even as Morgan Stanley reduces its forecast for Tesla’s 2030 automotive sales.

 The Potential of Tesla’s Energy Storage

According to Morgan Stanley, the profit potential from a fully utilized “megafactory,” which manufactures large-scale storage batteries, is comparable to the profit from selling one million Tesla vehicles. “It’s no wonder that investors are starting to consider the real possibility that Tesla Energy may be worth more than Tesla Auto,” stated Adam Jonas, a Morgan Stanley analyst.

Tesla’s shares have experienced a nearly 44% surge over the past 10 trading sessions, marking the longest such streak in more than a year, following a slow start to the year. The daily trading turnover for Tesla shares recently surpassed that of AI giant Nvidia for the first time in six months, according to LSEG data.

Market Expectations and Future Outlook

Oppenheimer, in a note released on Tuesday, projected that Tesla’s energy storage sales would exceed $3 billion in the current quarter. However, Oppenheimer emphasized that “the value of its full-self driving/AI platform is the key to whether shares will continue moving higher or begin to moderate again.” 

In April, Tesla CEO Elon Musk indicated that the company might launch its full-self driving software this year, a development expected to be a significant profit driver.

Energy Storage Deployment and Product Offerings

Tesla deployed 9.4 gigawatt hours of energy storage products in the second quarter of 2024, more than double the amount deployed in the January-March period. Tesla’s energy storage products include the Powerwall home power backup system and the Megapack, which is designed for large-scale commercial projects and utilities.

In 2023, energy storage and generation accounted for 6% of Tesla’s revenue, with the remaining revenue coming from the automotive segment, according to LSEG data.

Summary

Morgan Stanley’s enhanced valuation reflects the growing importance and potential of Tesla’s energy storage business amidst the rising demand for power driven by AI advancements. As the market evolves, the future of Tesla’s share value will likely hinge on the success of its full-self driving technology and continued expansion in the energy storage sector. With significant deployments and a diverse product portfolio, Tesla’s energy division is poised to play a critical role in the company’s overall growth strategy.