5 Reasons Why Morgan Stanley And Goldman Sachs Downgraded Tesla

Tesla Inc TSLA shares broke an all-time high when they crossed $1,000 Wednesday. To some analysts, the bump was warranted. To others, it made little sense.

The Tesla Downgrades: Morgan Stanley analysts led by Adam Jonas downgraded Tesla to Underweight and cut their price target from $680 to $650.

Goldman Sachs analyst Mark Delaney also downgraded Tesla to Neutral but raised his price target from $925 to $950.

The Tesla Theses: Goldman Sachs cites two reasons for the downgrade: Near-term speed bumps in price cuts and Model Y production challenges, but its long-term view is generally positive.

Morgan Stanley is decidedly more critical, suggesting Tesla is worth 33% less than its current valuation.

“We believe the recent run-up in the share price to over $1,000 may not reflect a number of important emerging risks, many of them long-term, that have the potential to impact fundamentals (growth and profitability) in a materially negative way and this drives our downgrade of the shares to UW,” Jonas wrote in a note.

He identifies three risks.

1. A weakened post-pandemic light-vehicle market and related effects on pricing dynamics. The latter inspired the analysts’ $30 price target decrease.
2. Foreign competition.
3. Tech competition.

“Among the many risks facing Tesla at this time, we would rank risks related to US-China relations at the very top,” the analysts wrote, forecasting sympathy trades with Wall Street’s appraisal of the trade, diplomatic and political environment. “We believe any potential deterioration of relations with China could disproportionately impact Tesla vs. other stocks within our coverage.”

Amazon.com, Inc. AMZN has a reported interest in an autonomous vehicle maker, and Morgan Stanley asserts that any entry into the auto market would be as a competitor rather than partner of Tesla.

See Also: Tesla's Stock Closes At All-Time High As Musk Pushes Semi, Employees Reportedly Test Positive For COVID-19

Despite the analysts’ general bearishness, they do confess some value in Tesla.

“Tesla is the global leader in electric vehicles and we believe deserves most of its market cap, which places it among the most valuable auto stocks by enterprise value in the world, even surpassing the enterprise value of Toyota,” Jonas wrote.

“We believe history will look back at the early days of transition out of internal combustion technology and view the team at Tesla with having possibly the greatest role in accelerating EV adoption than any other company.”

TSLA Price Action: At the time of publication, Tesla's stock traded up marginally around $981 per share.