Morgan Stanley has changed its stance on Tesla’s stock, downgrading it to “equal weight,” meaning a hold position, while simultaneously raising its price target from $410 to $425. This decision, however, suggests a potential downside of approximately 3.32%, as Tesla’s stock closed around $439.60. Analysts argue that despite the increased price target, they believe the stock is overvalued and set for a lower trading range amid a backdrop of declining demand in the electric vehicle (EV) market and limited tax incentives.
Analyst Andrew Percoco highlighted that Tesla is currently trading at an extraordinary valuation of nearly 276 times its forward non-GAAP earnings, significantly exceeding the S&P 500 median of 17 times. While recognizing the potential of Tesla’s AI and robotics initiatives, Percoco expects a 12% decline in North American EV sales next year, tightening the outlook for the company.
The broader context reveals a challenging environment for the EV sector, which is experiencing an “EV winter.” Morgan Stanley’s downgrade extends beyond Tesla. Rivian’s stock was cut due to concerns about its future cash flow, while Lucid received a harsher downgrade amid doubts about profitability in the luxury EV segment. Conversely, General Motors was upgraded based on its strength in internal combustion engine and hybrid vehicles, which may be better suited to the current market conditions.
As the EV market matures, recent trends show a slowdown in sales and consumer interest shifting back towards traditional combustion engines, indicating significant challenges ahead for pure-play EV manufacturers.
Why this story matters
- The stock downgrade and revised price target reflect broader market trends impacting the EV sector.
Key takeaway
- Morgan Stanley’s mixed signals on Tesla highlight concerns about overvaluation amidst a cooling EV market.
Opposing viewpoint
- Despite the downgrade, some analysts believe Tesla’s innovations in AI and robotics could provide long-term value.
