Morgan Stanley Reduces PT for Tesla $TSLA Ahead of Earnings, Slows Down Optimism

Tesla shares have seen a 15 percent decline in value so far this year, although they have risen by 66 percent over the past year. As we enter 2024, some investors, including Morgan Stanley, are exercising caution. While Tesla achieved its delivery goal of 1.8 million units in 2023 and dominated EV deliveries in the US, Europe, and China, there are concerns about the changing landscape, increased competition, and other factors that have led Morgan Stanley to approach the year with caution.

In a note from analysts at Morgan Stanley, they mentioned potential risks for Tesla stock in 2024, including a slowdown in global EV momentum and an oversupply of EVs compared to demand. They anticipate that Tesla’s outlook for the year will be cautious in terms of volume and profitability. However, they remain optimistic about the company’s AI and robotics options.

Adam Jonas, an analyst at Morgan Stanley, outlined several risk factors for Tesla stock in the same note. These include potential price cuts, a weakening or expiration of EV incentives, excess capacity in China, residual value risks, and fleets reducing their concentration of EVs. While lower prices may lead to increased EV adoption, they also put pressure on Tesla’s margins and profitability. Tesla has already announced price cuts in China and Europe, which raised concerns for Morgan Stanley. Residual value volatility is also seen as a negative, as it affects the value proposition for consumers and creates uncertainty for leasing partners.

Morgan Stanley highlights that Tesla’s leasing penetration is low globally, and one-third of its EV fleet will be sold off, with a portion of the proceeds going toward combustion engine vehicles. This approach is not unique to Tesla, as other companies are also selling off EVs from their fleets. While fleets provide advantages, such as boosting orders for EV makers and giving drivers the opportunity to experience EVs before buying, this practice will likely become less widespread.

In conclusion, Tesla’s stock has experienced a decline in 2024, leading to cautiousness among investors like Morgan Stanley. Concerns over the global EV market, price cuts, residual value risks, and fleets reducing their EV concentration have contributed to this cautious outlook. However, the company’s focus on AI and robotics options remains a positive factor.

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