Published on June 25th, 2020 | by Steve Hanley
June 25th, 2020 by Steve Hanley
If you are a regular reader of CleanTechnica, you are probably familiar with Adam Jonas, the auto analyst for Morgan Stanley famous for asking “interesting” questions of Elon Musk during earnings calls. This week, Jonas is advising his clients that sales of electric vehicles will make General Motors a $100 billion company (it presently has a market cap of around $38 billion). At the same time, he warns that Tesla stock is set to lose about a third of its value.
The Case For GM & EVs
Jonas said this week that he expects electric car deliveries will hit 50,000 in 2020 (most of them in China, obviously, since GM can’t seem to sell its Bolt EV and has put an $8,500 hickey on the car every month since March). 50,000 is 1% of GM’s annual sales, but Jonas says by 2040 EVs will account for 80% of GM’s business, according to a report by Barron’s.
To get to that $100 billion number, GM stock would have to hit $68 a share — a far cry from its present value of about $25 a share. In fact, since the beginning of the year, GM has underperformed the market, losing nearly 30% of its value since January 1. After Jonas issued his research note, shares of GM plunged another $3 a share.
But investors are looking at GM through the wrong end of the telescope, Jonas says. He thinks they should think of GM as more of a tech stock, like Tesla — which currently has a market cap 5 times greater than GM’s. Warren Buffett famously likes long-term investments — buy well managed companies, then sit back and let them perform. But most investors don’t have a 20 year timeline. In fact, many observers question whether GM will still be around at all in 2040.
Barron’s is skeptical. They note that Jonas’s own price target for GM is $43 a share. They seem to imply that Jonas’s analysis is little more than magical thinking.
Much of Jonas’s thinking seems to be based on the fact that electric car companies are enjoying solid gains on Wall Street so far this year. Tesla is up 140%, NIO is up 80%, and BYD has posted a 58% gain. But Tesla stock is ready for a retreat, Jonas says. Now that it is planning to deliver half a million cars this year, Jonas thinks investors should value it more like another car company instead of a tech company. He is suggesting the stock could lose about a third of its value in the near term.
Speaking in his “royal we” voice, Jonas wrote to clients this week, “We understand the attraction of the Tesla story. We think investors may have a chance to revisit the stock at a more attractive price. We believe $1,000/share discounts outcomes that, while plausible, may ignore a host of execution/market risks,” according to Business Insider.
Morgan Stanley has set a price target of $650 on Tesla stock, equivalent to a Sell recommendation. While many investors think of Tesla like another Apple or Google or Amazon, “One would have to consider (or ignore) significant inherent differences in Tesla’s business model and capital intensity” compared to other tech names, according to Jonas. “One must also take into account many of Tesla’s business objectives face a degree of execution risk that may be significantly higher than many of the more proven/mature companies in this analysis.”
In other words, investing is a crap shoot. Place your bets and good luck.
The author has a modest stake in NIO. Hat tip to Chanan Bos.
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