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Morgan Stanley Has A New Favorite Carmaker

Morgan Stanley analyst Adam Jonas, one of Tesla’s biggest bulls, has just named Ferrari as a top pick for his firm

Morgan Stanley raised its price target on Ferrari to $310 from $280 on Monday, while Jonas set an overweight rating on the company. 

He notes that the luxury automaker avoids much of the “EV hype and EV risk.” 

"We believe RACE is the best positioned company in our coverage in a highly uncertain macroeconomic and geopolitical tape,” wrote Jonas and peers in their note.

“In addition to its strong fundamentals, we believe RACE has levers to pull for both growth or downside protection, within a wide dispersion of macro outcomes," he added

Ferrari's supercar scarcity, desirability, brand values around performance ("driving thrills"), luxury and exquisite Italian design and engineering are cited as driving demand for the vehicles. These factors make it difficult for competitors to replicate the Ferrari model overnight.

"Ferrari has built its moat on scarcity, desirability, and brand values around performance ("driving thrills") and luxury, which is the key driver for continued demand," said Jonas.

Jonas likes that Ferrari has the lengthiest order backlog, greatest earnings visibility and highest pricing power of any companies he covers.

Long-term opportunities, predictable business models and "near unmatched brand and market moat" were cited as additional factors for believing in Ferrari.

Although investors have concerns about Ferrari shifting from traditional ICE engine vehicles to electric vehicles (EVs), Jonas believes that EVs offer inherent opportunities coupled with continuing ICE business on an exclusive basis with prices approaching $1mn/unit.

"The key concern we field from investors on RACE is the shift to EVs. Although the shift away from the ICE engine which has been at the heart of RACE's brand since inception presents a profound shift in Ferrari's powertrain technology, it need not threaten the company's DNA,” wrote Jonas.

Morgan Stanley also believes Ferrari can avoid some risks associated with shifting from traditional ICE engines to EVs. 

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It concludes that Ferrari "can offer an EV that will be just as high in demand as what investors are used to from ICE."

By Michael Kern for Oilprice.com 

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