Adam Jonas, a stock analyst at Morgan Stanley, released a research note for his clients on Thursday. Jonas has been consistently bullish on the prospects for Tesla stock and currently has a target price of $305 per share on its shares. His latest note says:
“We think the Model 3 will feature hardware and software that provide a level of active safety that could significantly lead all other cars on sale today and could, if the company achieves its goal, be an order of magnitude (i.e. 10x) safer than the average car on the road. According to nearly every OEM we talk to, safety is the number 1 determinant of car purchases. Look for safety to be the ‘ah-hah!’ moment for this car due to launch this year.”
The Model 3 will have all the sensors needed to provide true self-driving capability. It will feature a liquid cooled supercomputer manufactured by NVIDIA that is capable of processing 40 times more data than the the first Autopilot computer introduced in October, 2015. Model 3 owners will be able to select enhanced Autopilot or “full self driving capability.” Both are extra cost options but are expected to be popular with Model 3 customers.
Elon Musk tweeted 2 months ago that he expects a 90% reduction in collisions in cars equipped with what the company calls its Hardware 2 package of cameras, forward looking radar, and ultrasonic sensors. The software to manage all those inputs is gradually being optimized to provide enhanced Autopilot operation. Once approved by regulators, it will be capable of true Level 5 autonomous driving.
Our target is a 90% reduction with HW2 as the software matures
— Elon Musk (@elonmusk) January 19, 2017
What most people don’t realize is that data from every mile driven by a Tesla automobile equipped with Autopilot is transmitted wirelessly to the factory, where Tesla engineers use it to improve the self driving software. Tesla has a huge lead over all other car makers because it now has over 4 billion miles of data available to it. Elon Musk says regulators will need access to 20 billion miles worth of data before approving full self-driving operation. Once the Model 3 goes on sale, the amount of data Tesla collects daily will skyrocket, bringing the day when true self-driving operation can begin closer to reality.
Jonas had one other thing to be bullish about. The Model 3 is a sedan. The market for sedans is falling rapidly as customers flock to SUVs and crossover vehicles. Tesla is already working on an crossover version of the Model 3 which will be known as the Model Y. Whether it will come with the iconic falcon-wing doors of the Model X is still a matter of conjecture (despite an Elon tweet in 2015 that seemed to indicate it would), but Jonas believes the Model Y will be the best-selling Tesla of all.
“We believe the small SUV segment will eventually be the largest segment in the world across all OEMs,” Jonas wrote. “We also expect Model Y to be at the center of an on-demand ride sharing service (“Tesla Mobility”) due to its larger passenger compartment, luggage space, and modular seat configuration.” If Jonas is correct, his target price of $305 per share may be too low.