Morgan Stanley's Adam Jonas Downgrades Tesla, Says Market Expectations Are Too High

At over $320 per share, Tesla Inc TSLA’s share price has gotten so high that even some of the stock’s most vocal past supporters are getting skeptical. Tesla investors can now consider Morgan Stanley analyst Adam Jonas among the skeptics. In a new research note, Jonas downgrades Tesla stock from Overweight to Equal Weight and said the risks involved in the Tesla story limit the stock’s potential upside in the near term.

According to Jonas, the bull case for Tesla involves the company completely disrupting the auto industry the way Apple Inc AAPL disrupted the smartphone industry or Amazon.com, Inc. AMZN disrupted the retail industry.

Justification For The Downgrade

Not only will large auto makers be fighting to keep their market share, Jonas predicts much larger technology competitors with more resources will also be competing with Tesla.

“There have been numerous developments that suggest to us the continued preparation of an assault by large tech firms on the market for shared autonomous, electric mobility,” Jonas explained.

Related Link: Tesla's Rising Costs Mean More Shareholder Dilution Ahead

In addition to potential competition, Jonas believes expectations for Model 3 deliveries in 2017 have also gotten too high. Morgan Stanley is calling for just 2,000 Model 3 deliveries this year.

Jonas also believes it will be difficult for Tesla to make much progress in China, where the government may be leery of allowing a foreign country access to the Chinese automotive market and the data it could provide.

Finally, Jonas says even the most optimistic scenario for Tesla’s solar and battery storage businesses would still value those businesses at just about 5 percent of Tesla’s current market cap.

Morgan Stanley maintains its $305 price target for Tesla stock.