Morgan Stanley says Tesla will surge 22% from current levels in its first bullish call on the stock

Year-to-date, Tesla is up 428%.

  • Tesla traded higher on Wednesday after Morgan Stanley upgraded the electric-vehicle manufacturer to "overweight" from "equal weight" for the first time since 2017.

  • Morgan Stanley said it sees a budding opportunity in Tesla's high-margin software-and-services business, which it expects to represent up to 20% of total profit by 2030.

  • "To only value Tesla on car sales alone ignores the multiple businesses embedded within the company, and ignores the long term value creation arising from monetizing Tesla's core strengths," Morgan Stanley said.

The upside potential in Tesla remains strong, Morgan Stanley said in a Wednesday note.

For the first time since 2017, the firm turned bullish on the electric-car maker, upgrading Tesla to "overweight" from "equal weight" and assigning a $540 price target, representing potential upside of 22% from Tuesday's close.

In its bull-case scenario, Morgan Stanley assigned a price target of $1,068, representing potential upside of 142% from Tuesday's close.

A bulk of the upgrade derives from Morgan Stanley's inclusion of Tesla's services revenue in its valuation model. Morgan Stanley now expects Tesla's services business to represent 6% of revenue and 20% of profit by 2030.

"Tesla has long been seen as a sum of the parts story given its mix of businesses across a number of business lines spanning from transportation, solar power generation and energy storage," Morgan Stanley said.

Shares of Tesla traded up as much as 10% on Wednesday. Year-to-date, Tesla is up 428%.