Charged: Tesla remains top auto pick at Morgan Stanley

Institutional investors and professional traders rely on The Fly to keep up-to-the-second on breaking news in the electric vehicle and clean energy space, as well as which stocks in these sectors that the best analysts on Wall Street are saying to buy and sell.

From the hotly-debated high-flier Tesla (TSLA), Wall Street’s newest darling Rivian (RIVN), traditional-stalwarts turned EV-upstarts GM (GM) and Ford (F) to the numerous SPAC-deal makers that have come public in this red-hot space, The Fly has you covered with “Charged,” a weekly recap of the top stories and expert calls in the sector.

TOP PICK: Morgan Stanley says Tesla shears have significantly underperformed its mega cap technology cohort for the past three years with the stock down nearly 50% from its all-time highs. A nearly 50% drop in consensus estimates over the past year “may go some way to explain this,” the firm tells investors in a research note. Morgan Stanley believes it is important for Tesla to continue to demonstrate cost control in the business for investors to begin to appreciate the expanding “surface area” between its business model and the artificial intelligence theme. The firm is bullish on the “very long-term potential” for autonomous vehicles to transform surface transport networks, but urges investors to keep expectations “well managed” for the near term. Tesla remains its “top pick in U.S. autos. The company continues to take steps to mitigate downside risks to the core auto business while shifting resources to stationary energy, compute infrastructure and robotics and other expressions of embodied artificial intelligence, contends Morgan Stanley. The firm keeps an Overweight rating on Tesla with a $310 price target.

XAI, TESLA REPORTED TALKS: Elon Musk’s AI startup xAI has discussed a deal where it would get some Tesla revenue in exchange for providing the carmaker access to its technology and resources, the latest example of the growing interconnectedness of Musk’s companies, The Wall Street Journal’s Berber Jin and Becky Peterson report. Under a proposed arrangement as described to investors, Tesla would license xAI’s AI models to help power its driver-assistance software, called Full Self-Driving, and share some of that revenue with the startup, according to people familiar with the matter. xAI would assist in developing other features for Tesla, including a Siri-like voice assistant inside its electric cars and software to power its humanoid robot Optimus, the people said.

Meanwhile, Elon Musk has denied a report that his xAI has held talks for a share in future Tesla revenue in return for giving the EV maker access to technology and resources. Musk said on X that, “Haven’t read the article, but the above is not accurate. Tesla has learned a lot from discussions with engineers at xAI that have helped accelerate achieving unsupervised FSD, but there is no need to license anything from xAI. The xAI models are gigantic, containing, in compressed form, most of human knowledge, and couldn’t possibly run on the Tesla vehicle inference computer, nor would we want them to. The Tesla AI models have incredibly “dense” (in a good way lol) intelligence, as they compress video of reality into driving commands, but must operate on a ~300W computer with memory size and bandwidth far lower than say an H100 GPU. Tesla real-world AI also has a vastly larger context size than an LLM, as the combined video history from all cameras is several gigabytes in size.”

FSD IN EUROPE: In a post on X, Tesla said it will launch its Full Self Driving driver assistance product in Europe and China early next year. Tesla said the launch of the service is expected in the regions in 1Q25 “pending regulatory approval.”

Click here to check out Tesla’s recent Media Buzz Sentiment as measured by TipRanks.

FEDEX PURCHASE: Workhorse Group (WKHS) announced that FedEx (FDX) has issued a purchase order for 15 W56 step vans to be delivered in 2024. This milestone order follows a successful demonstration in which the Workhorse W56 step van met FedEx operation duty cycle requirements. The addition of these 15 W56 step vans will support the FedEx goal to achieve carbon neutral global operations by 2040, the company said in a statement. “FedEx is cultivating a strong roster of electric vehicle models that can meet the demands of our network,” said Pat Donlon, Vice President, Global Vehicles, FedEx. “In joining our fleet, the electric Workhorse W56 will be part of our story as we aim to transition our global parcel pickup and delivery fleet to all zero-tailpipe emissions vehicles by 2040.”

POSITIVE CATALYST WATCH: Citi opened a “30-day positive catalyst watch” on shares of Nio (NIO), while keeping a Buy rating on the shares with a $7 price target following the Q2 report. The firm expects product mix improvement with higher selling prices and better scale effect in Q3. It forecasts no refinancing plan in the short-term as it thinks Nio’s working capital in Q3 and Q4 will keep improving as revenue grows sequentially with volume and price hikes. Nio is currently trading at a 30%-40% discount versus XPeng (XPEV), which opens up an arbitrage opportunity for Nio, Citi tells investors in a research note.

BUY XPENG: JPMorgan upgraded XPeng to Overweight from Neutral with a price target of $11.50, up from $8. The company’s upcoming new models in Q4 – Mona M03 and P7 plus – should increase quarterly deliveries from about 45K units in Q3 to about 80K in Q4, which will then be followed by full year contribution in 2025, the firm tells investors in a research note. JPMorgan adds that its store visits and test drive of the M03 raises its confidence on Q4 delivery momentum.

MOVING TO THE SIDELINES: Citi downgraded Li Auto (LI) to Neutral from Buy with a price target of $21.60, down from $26.20. Based on learning from Li ONE’s model cycle of around 16 months, the firm thinks the L7/8/9 may repeat Li ONE’s historical aging trend, but given that the L series models now face increasing competition from Huawei, Denza, and others, the L7/8/9 model cycle could potentially be shorter than the Li ONE model cycle before, Citi tells investors.

EV RECESSION: TD Cowen downgraded ChargePoint (CHPT) to Hold from Buy with a price target of $2, down from $3, following the Q2 report and job cut announcement. The electric vehicle “recession” continues to weigh on the company’s results, the firm tells investors in a research note. TD Cowen says that while management notes green shoots are emerging suggesting a bottom, it is hard to envision a near-term reacceleration in the company’s growth.

‘OPAQUE’ PATH FORWARD: Jefferies initiated coverage of SolarEdge (SEDG) with a Hold rating and $27 price target. While the shares are down 90% from the highs, the path forward is “opaque” with continued negative free cash flow, the firm tells investors in a research note. Jefferies says its estimates for SolarEdge are below consensus, creating a challenging setup.

BULLISH ON ARRAY: Jefferies upgraded Array Technologies (ARRY) to Buy from Hold with an $11 price target after a different analyst at the firm assumed coverage of the name. Array is a solar tracking company in a concentrated market with a focus on building a higher quality backlog, Jefferies tells investors in a research note. The firm believes the stock’s “discounted valuation” versus its clean peers offers an attractive entry point. Array’s “weak guidance track record is a concern, but we believe the worst of revisions has passed,” Jefferies adds.