24 (Xinhua) — Analysts at Morgan Stanley warned Tuesday that Tesla’s current share price of more than $1,000 is grossly overvalued and is set to fall sharply. Too many investors ignore the risks of running a car company and treat Tesla as a high-growth technology company.
In a note to clients, Morgan Stanley analyst Adam Jonas warned that while he understood the “attractiveness of the Tesla story” and its high growth potential, it would be difficult to see Tesla justify its high share price in the next decade.
He gave Tesla a “underweight” rating, which equates to a “sell-down” and set his target price at $650, warning investors to ignore the “series of execution and market risks” facing the company.
Mr Jonas said he expected Tesla to produce 2m cars a year over the next 10 years, but its current share price meant higher production: “At $1,000, we think the company should produce about 4m cars by 2030.” “
Jonas said the company’s high valuation came from “technology-oriented investors” who believed Tesla’s valuation was reasonable and compared it to big tech stocks such as Amazon, Google and Apple.
But Jonas points out that comparing Tesla to the tech giants is far from perfect because it still faces a lot of risks associated with running a car company that the market seems to turn a blind eye to.
When comparing Tesla with big technology companies such as Microsoft or Apple, “people have to consider (or ignore) significant internal differences in Tesla’s business model and capital strength,” Jonas said in the report. One must also take into account that many of Tesla’s business objectives are subject to a certain level of execution risk, which is likely to be significantly higher than many of the more mature companies in this analysis. “
Earlier this month, Morgan Stanley downgraded Tesla to “low-ratio” for the first time, pointing to three main risks: short-term risks to demand and pricing, long-term risks to its operations in China and potential competition from other large technology companies. But investors have had little reaction to the bank’s downgrade. Why? “We think investors are in a “wait-and-see” mode in the hope of a clearer understanding of the potential lasting impact of the new crown virus,” Mr Jonas said on Tuesday. “