(This story is for CNBC PRO subscribers only.) Morgan Stanley's widely followed auto analyst Adam Jonas upgraded Tesla to a buy-equivalent overweight rating Wednesday after remaining on the sidelines for the stock's 500% surge in the last 12 months. Jonas raised his price target to $540 from $360. The new target represents a 22% gain from Tuesday's close. The stock jumped 8% on Tuesday after finally getting the nod to join the S & P 500 . It was up 2.2% to $451.80 a share in early trading Wednesday following the Morgan Stanley call. Here's how Jonas explained his change of heart: "Tesla is on the verge of a profound model shift from selling cars to generating high margin, recurring software and services revenue," he said. Adding in the valuation of that software business gets Jonas to his new price target. It's been years since the firm has had a buy rating on the stock. While Jonas has been at a hold or sell rating during Tesla's recent surge, his notes are still followed for their insight on the long-term future of Tesla, which he has described as more than just a car company. "Tesla has continued to develop its services/platform business to a level where we feel that it is appropriate for investors to consider to change how they model the company's revenue and profit streams," he said in a note. Jonas said Tesla is already highly profitable but services such as its full self-driving package, performance upgrades as well as other additional network services will only help sell more cars and add to Tesla's bottom line. "The internet-of-cars opportunity is real and, in our opinion, is a prerequisite to unlock further upside to the stock," he said. Jonas did a sum-of-the-parts analysis to get to his new bullish forecast: Tesla auto is worth $254 a share, he estimates. Tesla energy (solar, etc.) is worth $12 a share. The insurance business is worth $15 a share. A potential mobility/ride-sharing business is worth $38 a share, he speculates. Tesla software/network services equals $164 a share. Tesla's 3rd party supplier business is potentially worth $58 a share. "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, driven by best in class software and ancillary services," he wrote. Jonas also has a bull case scenario that takes Tesla to $1,068 a share.