By Michael Elkins
Morgan Stanley reiterated an Overweight rating and $220.00 price target on Tesla (NASDAQ:TSLA) after examining the company’s potential future role in making heat pumps for homes.
Analysts wrote in a note, “During the March 1st Investor Day, Tesla laid out Master Plan 3roadmap to a fully electric economy. Baked into the plan was replacing furnaces with heat pumps in homes, businesses and industrial end markets underpinned by the heat pump's ability to be powered by renewable energy and their superior energy efficiency. Tesla cited heat pumps as being 3x more energy efficient than gas furnaces, contributing to a 22% reduction in fossil fuel use. Following the heat pump presentation, Musk commented that heat pumps are already in Tesla's vehicles by default (for climate control and thermal management of the battery). Tesla's on-board heat pumps are a proprietary design drawing excess heat from the powertrain to optimize supercharging speed and battery range while using excess heat from the battery to warm the cabin). Elon Musk says Tesla ‘might make a heat pump for a home at some point.’”
Although hard to quantify a TAM figure, a report from the IEA calculated that in order to reach Net Zero Emissions by 2050 heat pumps would need to cover at least 20% of global heating needs, growing to global stock of heat pumps from 190 million in 2021 to ~600 million by 2030, requiring a ~14% CAGR between 2021 and 2030.
The automaker did not present any definite plans for a Tesla Heat Pump. However, the concept does seem to fit in with Tesla Energy's product portfolio. The company already has a foot in the door into the home electricity business with Powerwall and solar plus. Tesla also has strong electric and thermal management capabilities from their vehicles and battery manufacturing and, ultimately, they have the manufacturing expertise necessary to produce complicated electrical products at scale.
Analysts are of the view that a heat pump would be more of medium-to-long-termrm endeavor for the company. They note that Morgan Stanley's $220 price target on Tesla does not include any valuation for entering the global heat pump market, including related potential expenses.
Shares of TSLA are down 2.08% in pre-market trading on Wednesday.