Morgan Stanley Revises Tesla's Target amid Market Uncertainties

Morgan Stanley analysts reduced their price objective for Tesla stock ahead of the automaker's earnings call late this week.

Morgan Stanley Cuts Tesla Stock's Price Target Ahead Of Results

Tesla shares dropped 15% this year. Shares have risen 66 percent in the last year, yet some bulls remain concerned as we approach 2024, as per Teslarati.

Morgan Stanley is one of them. In a letter to investors sent on Monday, the firm's analysts said that numerous factors might jeopardize worldwide demand, including rising competition, pricing volatility, and declining demand for EVs.

Tesla will disclose earnings on Wednesday. The firm met its 1.8 million unit delivery target in 2023. It also topped EV deliveries in the United States and Europe and was at the top of the chart in China.

It introduced the Cybertruck, a new Model 3 design, and has a number of other initiatives planned for 2024. However, an ever-changing landscape, greater competition, and other considerations have prompted Morgan Stanley to approach this year with prudence.

“Global EV momentum is stalling. The market is over-supplied vs. demand. We anticipate Tesla’s 2024 outlook to be cautious on volume and profitability…Tough sledding for EVs but we remain OW on AI and robotics optionality,” they wrote about the potential risks for the stock this year.

Adam Jonas noted various risk reasons for the company in his letter, including price cuts, weakening or expiration of EV incentives, surplus capacity in China, residual value issues, and fleets reducing EV concentration.

Tesla Navigates Price Adjustments Amid Shifting EV Market Dynamics

Tesla is continuing to strive for pricing consistency, which improved significantly throughout 2023 but still raised some concerns with investors. Less-cost EVs encourage adoption, but they also put pressure on the company's profits and profitability. Tesla has already cut prices in China and Europe this year, which is concerning from Morgan Stanley’s standpoint.

In the United States, Tesla is altering the narratives surrounding certain of its vehicles and their eligibility for EV tax credits. Two Model 3 versions lost the tax credit, which is unfortunate given that it is one of Tesla's best-selling EVs, despite the fact that the car remains inexpensive.

Morgan Stanley is equally doubtful about the future of the IRA, arguing that it appears to be "increasingly uncertain."

Some customers require these incentives in order to purchase the car, and even if they are not required, they are beneficial. It has the potential to persuade many customers to choose another automobile. It is crucial to remember that Volkswagen, BMW, Audi, and Ford lost tax credit eligibility for several of their EVs.

OEM price cutbacks have pushed EV residuals lower, and dealerships are less optimistic about electric vehicles than ever. According to Jonas, residual value fluctuation "hurts the value proposition for consumers and creates uncertainty around leasing partners who don't want to hold this risk." This includes Tesla.

Morgan Stanley observes that Tesla's leasing penetration is in the low single digits internationally.

Hertz made an announcement earlier this month, declaring that it would reverse its enormous commitment to EVs because it had not adequately accounted for the cost of damages. One-third of its EV fleet is being sold, with a part of the money going back into combustion-engine cars.

Other firms are doing similar things, but on a lesser scale. Fleets provide several benefits, including a significant rise in orders for EV manufacturers. For example, Hertz had intended to acquire 100,000 Teslas.

They also allow drivers to test-drive electric vehicles before making a purchase. While this will remain available, it will be less prevalent. Morgan Stanley revised its price objective to $345 from $380.

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