Tesla’s (NASDAQ: TSLA) price target was cut by Morgan Stanley, a firm that has had a bullish outlook on the automaker’s stock for several years.
In a new note to investors released this morning, Morgan Stanley analyst Adam Jonas reduced the firm’s price target to $320 from $345, with the main thesis of the writing being concerned with EV demand.
“EV demand continues to decelerate despite continued price cuts,” Jonas wrote. “Fleets are dumping EVs and strong hybrid momentum is competing for the marginal EV buyer. Could Tesla lose money (sometime) this year?”
Jonas makes several points throughout the note, including Tesla’s aging product lineup, oversupply in key markets, and increasing demand for hybrids.
Tesla’s Aging Product Lineup
We have discussed this point of view in the past, and it’s hard to agree with it. While Tesla has had the same four vehicles in its lineup for several years now, the automaker has done nothing different than any other automaker in terms of refreshing and introducing new designs.
In the past, we’ve discussed how the Honda Civic has gone through generational changes every 4-7 years. Tesla has made routine changes to the Model S and Model X in that same timeframe, the Model Y is only a few years old and rumoredly in the process of a refresh with Project Juniper, and the Model 3 just received a complete overhaul via the Highland refresh.
Not to mention, the Cybertruck has been on the market for less than six months.
“Aging” is a tough word to use in order to describe this lineup correctly. It is hard to even consider it stale. While Tesla is working with a vehicle lineup that has been around for a few years, updates and refreshes are happening regularly.
Jonas mentions that Tesla’s lineup “may be the oldest of any major OEM,” but with the Cybertruck just launching and Model 3 just recently getting an in-depth overhaul, it is difficult to agree.
Oversupply in Key Markets
Jonas specifically mentions China here, and for good reason. Tesla is still very popular in China, but there are simply more affordable options, and consumers may not be able to justify spending three or four times the money.
In order to get back to its competitiveness, Tesla will need to launch a vehicle at this sort of price point, which would fall between $15,000 and $25,000.
What is going on in China is something Tesla could encounter in the United States in 5-10 years. Eventually, more companies will have EVs out there, and not everyone will want to pay a premium. Of course, Tesla plans to launch the next-gen platform sometime in 2025, so it is also a possibility that the company completely averts this situation in North America.
Hybrid Demand Increases
Hybrid sales increased five times faster than EVs last month, Jonas writes in the note. Some consumers may look at the best of both worlds for their next car, and hybrids may fit the bill of what they want. As someone who drove a Ford Escape Hybrid for seven years, it offered a lot of positives, including better fuel economy than the same model in an ICE version.
Jonas believes that Toyota will outpace any major automaker in the U.S. this year in terms of growth due to its focus on hybrid powertrains.
Price Target
Jonas reduced Tesla’s price target to $320 from $345.
“Our thesis on Tesla is that it is both an auto stock + an energy, AI/robotics company … Negative developments in the global EV market very much matter to Tesla and should reasonably have a negative near-term impact on the price of the stock. At the same time, however, we believe investors should not ignore the continued developments of tesla’s other plays,” Jonas writes.
While the firm reduced its price target to $320, it also believes that Tesla will not “get credit as an AI company as long as core auto earnings are being revised down.”
This makes it seem like the “$100 bear case may be in play,” Jonas said.
Disclosure: Joey Klender owns Tesla stock.
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