After doubling its share price in less than three months, Tesla has been “looked down” by Morgan Stanley, the long-regarded Wall Street giant. Morgan Stanley analysts, led by Adam Jonas, cut Tesla’s stock rating from “take-on” to “down”, the first time the investment bank has given Tesla a sell-off since September 2012, according to a report released Thursday, ET.
Morgan Stanley advised investors to sell. While the report acknowledges that Tesla’s momentum and market sentiment have been strong recently, “we ultimately question momentum continuity.”
According to Morgan Stanley, given Tesla’s leading position in the electric car market, it should be among the world’s most valuable car companies. But for Tesla-interested investors, there are better opportunities for low prices to start in the future. “We believe there will be a more attractive opportunity to hold the individual in the future,” the report reads. “
Morgan Stanley cited the downgrade of Tesla’s self-driving business because the legal and regulatory environment does not support the introduction of a network of self-driving taxis.
The downgrade coincided with Morgan Stanley’s target price for Tesla rising from $250 to $360. That’s still well below Tesla’s current market price.
After Morgan Stanley’s announcement, Tesla opened the day down nearly 4.8 percent, closing nearly $492 at one point in the session and down 5 percent in the day, its biggest intraday decline since November 22, 2019. It closed at $513.49. Although Tesla’s share price has fallen for days, it is still about 30 percent below Thursday’s closing price, based on Morgan Stanley’s target price.
Tesla’s shares have risen 25 per cent in nine trading days from the start of the year to Tuesday, after two straight days of losses. Tesla’s share price has more than doubled in more than two months since it reported a surprise third-quarter turnaround on October 23, 2019, and early trial production at its Shanghai plant.
On Monday, China’s minister of industry and information technology, Miao Wei, said China’s new energy vehicle subsidy policy would not fall sharply this year, the day Tesla’s share price broke through the $500 mark for the first time. On Wednesday, for the first time in its history, Tesla surpassed the combined market capitalisation slot stake of the two big U.S. auto giants, General Motors and Ford Motor Co.
Wall Street, however, has been divided on Tesla’s views, with some downgrading and others choosing to raise their target prices.
Last week Oppenheimer raised Tesla’s target price to $612, the highest target price Wall Street institutions have given to Tesla. It believes Tesla’s successful technology has put the company three years ahead of its competitors over existing vehicles. Tesla has addressed some of the “manufacturing bottlenecks” and has shown strong consumer demand.
Also last week, The CFRA downgraded Tesla’s stock from “hold” to “sell”, and Baird downgraded Tesla’s stock to neutral from “hold.” Baird advised investors to arbitrage after Tesla’s recent share price surge, saying that while it was constructive about Tesla’s long-term prospects, it now believes valuations have been adjusted correctly.
Bernstein, who has a neutral rating on Tesla, said: “We have become increasingly cautious about the stock in light of the recent surge in share prices. Bernstein warned that Tesla’s fourth-quarter 2019 results “could weaken margins” and that the first quarter of 2020 could be “weak” after subsidies were eliminated in the Us and the Netherlands.