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Electric vehicle manufacturer Tesla is at the center of a bearish analyst note by one of its biggest fans, Morgan Stanley, who has reduced its share price target for the company. Tesla, the world’s largest EV manufacturer, struggled during 2023 as high inflation coupled with a slow credit environment led to a sales slowdown. Now, Morgan Stanley believes that Tesla is in for more pain this year, as the bank reduces the firm’s share price target by 9.2% to $345 from an earlier $380.
Global EV Market Is Facing Demand Supply Mismatch Says Morgan Stanley As Part Of Its Tesla Downgrade
2024, despite being less than a month old, is already shaping up to be quite controversial for Tesla. The year started out by its chief Elon Musk sharing on X that Tesla’s share structure makes him uncomfortable to scale the firm as a leader in artificial intelligence and robotics. As opposed to traditional car companies such as Ford, Musk’s Tesla runs one of the largest supercomputers in the world as part of its autonomous driving project and is also making a humanoid robot.
Both are high growth industries, and a large portion of Tesla’s $664 billion market capitalization is also based on the treasure trove of driving data it controls.
In its note, Morgan Stanley shares that it is adjusting its valuation estimate for Tesla in light of the potential troubles that lie ahead. However, the firm’s note also explicitly mentions artificial intelligence and robotics, indicating that Musk is on the right track with his approach, at least as far as Morgan Stanley’s Adam Jonas is concerned.
The text of the note, courtesy of Stock Talk, is as follows:
The market is over-supplied vs. demand. We anticipate Tesla’s 2024 outlook to be cautious on volume and profitability. Our FY24 non-GAAP EPS falls below $2. PT to $345 (incl. core auto of $75). Tough sledding for EVs, but we remain OW on AI and robotics optionality. Tesla reports 4Q results this coming Wednesday January 24th. Rather than wait for what we expect to be a clearly cautious outlook for FY24, we wanted to mark-to-market our FY24 and FY25 estimates ahead of time. There is continually growing evidence that the global EV market is in an unfavorable balance of supply (growing) vs. demand (slowing).
As the note also shares, Tesla’s earnings call are due later this week, and Jonas appears to be providing readers with an opportunity to be cautious ahead of the results. Tesla’s third quarter of 2023 earnings saw the firm report $23.35 billion in revenue and miss consensus analyst estimates. It ended 2023 on a strong note by delivering 484,507 cars in the fourth quarter. This set a new record and came despite Musk complaining about high interest rates affecting costs and demand during the third quarter earnings call.
Tesla’s shares so far seem to be unaffected by Morgan Stanley’s bearishness, with the stock showing little change in pre market trading. Despite having reduced the price target to $345, Morgan Stanley’s estimate prices in a 63% upside to Tesla’s latest share price of $212. Its upcoming earnings have seen analysts estimate a 2024 delivery target of more than two million vehicles, and Tesla has also passed on the lower commodity costs as of late to consumers by reducing the prices of its cars.