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Morgan Stanley upgrades Tesla and makes it a top pick with analyst Adam Jonas predicting 60% rally

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Morgan Stanley’s widely followed auto analyst Adam Jonas thinks Tesla is on the verge of a major leap in autonomous driving. The analyst upgraded Tesla stock to overweight from equal weight, with a new $400 per share price target, up from $250. The analyst also moved Tesla to the top pick column at Morgan Stanley. Jonas’ forecast implies about 61% upside from Friday’s $248.50 close. Jonas previously downgraded Tesla stock in June over worry that shares were overheated after a massive rally. Tesla shares are down about 5% this quarter. TSLA YTD mountain Tesla stock is up more than 5% in premarket trading. Jonas highlighted Tesla’s Dojo, an in-house supercomputer that powers the autonomous driving functions of its vehicles. The project can help Tesla gain further exposure to software and services profit, Jonas added, while simultaneously remaining the premier electric vehicle maker. “Investors have long debated whether Tesla is an auto company or a tech company,” Jonas wrote in the Sunday note. “We believe it’s both, but see the biggest value driver from here being software and services revenue.” Meanwhile, the Dojo project alone could be with $500 billion in enterprise value to Tesla, according to Jonas. The semiconductor team at Tesla has also built its own custom chip to power the supercomputer, Jonas added, which he lauds as more efficient for energy consumption compared to the current market-leading chips from Nvidia. “While it is difficult to explicitly validate the many claims Tesla has made about Dojo’s cost and performance, we believe Tesla has a chance of bringing forth a competitive customized solution given the company’s innovation track record and capabilities,” Jonas added. Tesla shares were up more than 5% in premarket trading on the Morgan Stanley call. — CNBC’s Michael Bloom contributed to this report.

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