Tesla Surges as Morgan Stanley Says Electric Cars Will Gain Market Share

Tesla Motors Inc. (TSLA) rose the most in more than four months after a Morgan Stanley analyst said the unprofitable electric-car maker will benefit from a shift away from internal-combustion engines.

Tesla surged $4.04, or 17 percent, to $27.75 at 4 p.m. New York time in Nasdaq Stock Market composite trading, the biggest gain since Nov. 10.

Electric vehicles may rise to 5.5 percent of global sales by 2020 and more than 15 percent of deliveries by 2025, Adam Jonas, a Morgan Stanley analyst based in New York, wrote in a note today. Tesla, which makes the $109,000 Roadster and will begin selling the lower-priced Model S sedan next year, may sell 500,000 vehicles by 2025, Jonas said.

“Tesla has a viable opportunity to be a significant volume player in the global auto industry,” Jonas wrote. “The transformation from California startup to global auto player may require well more than a decade to achieve -- not unlike the genesis of many of today’s established automotive companies.”

Tesla said earlier this week it has delivered more than 1,500 of the Roadster since the model was introduced in 2008. The company aims to produce as many as 20,000 Model S sedans a year by 2013.

Jonas upgraded the company’s rating to “overweight” from “equal-weight” and said the shares may rise to $70.

Photographer: Tony Avelar/Bloomberg

A Tesla Model S electric car sits on display in the Tesla Motors Inc. auto plant. Close

A Tesla Model S electric car sits on display in the Tesla Motors Inc. auto plant.

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Photographer: Tony Avelar/Bloomberg

A Tesla Model S electric car sits on display in the Tesla Motors Inc. auto plant.

Tesla’s Obstacles

Morgan Stanley’s expectations for electric-vehicle demand may be “a stretch,” Mike Omotoso, senior manager of the global powertrain section of consultant J.D. Power & Associates, said in an interview. Electric vehicles will make up 2 percent of the global market by 2020, J.D. Power estimates.

“The obstacles are high up-front costs of the vehicle, the limited driving range, and the lack of infrastructure,” said Omotoso, who’s based in Troy, Michigan. “All those obstacles are going to take 10 years or more to overcome, and there are a lot of other alternatives consumers have to reduce gas consumption.”

Morgan Stanley’s Jonas called Tesla “a highly speculative investment” due to the risks of slow electric vehicle adoption, model-introduction delays and balance sheet “difficulties.”

Tesla, which is backed by Daimler AG (DAI) and Toyota Motor Corp. (7203), may need to raise additional capital because liquidity could fall to $146 million by the end of 2013, Jonas wrote.

‘Room for Error’

“Will Tesla run out of money?” he wrote. “We don’t think so. But there’s also not much room for error.”

Tesla, based in Palo Alto, California, in February said its fourth-quarter net loss widened to $51.4 million from $24.2 million a year earlier as it increased investment in the Model S sedan, its next all-electric model that will start at about $57,400. The Model S will be profitable even on the base model, J.B. Straubel, Tesla’s chief technology officer, said March 17.

Tesla posted revenue of $116.7 million for 2010 and has said sales may increase to $160 million to $175 million this year. Morgan Stanley’s Jonas wrote that revenue may climb to $9.5 billion by 2020 with a 3.6 percent share of the global electric vehicle market by that time.

To contact the reporter on this story: Craig Trudell in Detroit at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Kevin Orland at korland@bloomberg.net

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