Morgan Stanley analyst and Tesla bull Adam Jonas projects that Tesla and CATL, the “power couple,” will significantly recharge the electric vehicle market in the United States.
Morgan Stanley analyst is bullish on Tesla and CATL’s partnership
Analyst Jonas strongly believes that Tesla and CATL will aid the US’ wider shift to electric vehicles through cheaper batteries, which will drive down the cost of electric vehicles.
“We’ve long written about the need for the US to engage with (‘on-ramp’) Chinese EV technology to drive higher EV penetration.
In our view, this will require a degree of westernization of Chinese tech to be palatable in the US given the rising protectionist sentiment (both in the US and Europe).”
Morgan Stanley wrote in its note
Market situation
The Morgan Stanley analyst claims that the electric vehicle market in the US badly needs high-quality but more affordable batteries.
Therefore, the local industry must once again depend on China despite the ongoing geopolitics and security concerns between the two nations.
While the US market is currently under-penetrated, China is a fully-penetrated EV market. Moreover, cheaper electric vehicles and batteries are oversupplied in China, unlike in the US.
Analyst Jonas’ forecast comes after reports emerged about CATL’s ongoing collaboration with Tesla to develop fast-charging batteries in Nevada.
In addition, Tesla is also planning to develop and produce a $25,000 electric car. Therefore, it would need a Chinese partnership to successfully hit the set price point.
For context, CATL currently cannot sell its batteries directly to the US. However, it can license its battery technology for a royalty fee.
Political challenges
Despite the US’ need for more affordable EVs and batteries, its ongoing political issues with China continue to impede Chinese battery companies like CATL from supplying their oversupply to the American market.
“In our view, this will require a degree of ‘westernization’ of Chinese tech to be palatable in the US given the rising protectionist sentiment (both in the US and Europe). At the same time, China is experiencing an over-supply in EV batteries and is seeking a conduit to offload (‘off-ramp’) supply via export opportunities.”
Morgan Stanley wrote in its note
That said, CATL might have discovered a feasible approach to offloading its electric vehicle batteries to electric automakers in the US through Licensing, Royalty, and Services (LRS). If this is the case, Tesla will likely be the first OEM to partner with CATL through LRS.
Morgan Stanley reiterated its Overweight rating and $320 price point for TSLA. On Tuesday, Tesla shares closed up 2.92% at $177.67, according to Benzinga.
