The surge in Tesla shares Monday on news of a looming stock split makes little sense based on fundamentals, but could reflect investor expectations that the leader in electric vehicles will better manage raw-material supply problems than rivals.
Morgan Stanley analyst Adam Jonas wrote in a client note Tuesday that Tesla (ticker: TSLA) may spend a combined $200 billion to $250 billion on capital expenditures and research and development through 2030, or roughly the entire market value of Toyota Motor( TM), the No. 2 automaker in market value behind Tesla.
Tesla shares rose $81 Monday to $1,091.84, continuing their recent surge from less than $800 in mid-March. The stock ended Tuesday at $1,099.57, up 0.7%. Market cap still $1.1T trillion. Jonas has an Overweight rating and $1,300 price target.
“We simply cannot fundamentally explain how a stock split can add nearly 1.5x the market cap of GM…to Tesla almost instantly,” Jonas wrote, referring to General Motors (GM). “We’re thinking there may be bigger forces at work in the market on that one.”
Jonas wrote that supply-chain issues highlighted by the recent volatility in the price of nickel, a key battery component, show the EV supply chain is “unsustainable on many levels.” He highlighted the hefty cost of the metal at more than $30,000 per ton, as well as the environmental costs: “We are told that one must drive an EV nearly 2 full years just to offset the carbon emissions from the de-forested/strip-mined Sumatran coal-fired smelting operations [in Indonesia] to get the grade 2 nickel to grade 1.”
However, Tesla, he wrote, “is 5 to 10 years ahead of other industry players in thinking about these issues and many more.”
The stock’s rise appears to reflect that, he adds.
“The winners in the global EV market will be those firms that can guarantee supply of the key raw materials. The stock market is telling you that Tesla is far ahead in this regard,” Jonas wrote.
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