Tesla Weakness Could Be 'One Of The Buying Opportunities Investors Have Been Waiting For,' Says Morgan Stanley

Morgan Stanley wants lemonade, and Tesla Inc TSLA’s got plenty of lemons.

The automaker’s shares continued to fade toward 12-month lows Wednesday amid concerns around the Model 3 ramp, a federal investigation into a fatal California crash, a credit downgrade from Moody's and general tech sector weakness.

The Rating

Morgan Stanley analyst Adam Jonas maintained an Equal-weight rating on Tesla with a $379 price target.

The Thesis

The recent sell-off opens an entry point for potential buyers.

“We think that we are looking at one of the buying opportunities that many investors have been waiting for,” Jonas said in a Wednesday note. “We'd use further weakness from here as an opportunity to build an Equal-weight position in the stock.”

Morgan Stanley considers Tesla modestly undervalued, with the stock accounting only for the core auto business. By their assessment, the valuation does not reflect the value of Tesla's solar, energy or mobility businesses.

Morgan Stanley anticipates 36-percent upside, but it maintains a sober view of Tesla’s health.

A dip in share price for a company reliant on market capital raises can precipitate a chain of valuation drops and increase volatility. At the same time, the firm faces threats of Waymo competition and sentiment headwinds for self-driving technology.

Some risks are already baked into the share value, though. Expectations are low for the Model 3 production ramp, which will impact both near-term revenue and access to market capital, and Morgan Stanley considers the low bar and anticipation of delay announcements a positive.

Price Action

At the time of publication, shares were trading down premarket by 4 percent at $268.

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Photo by Brett Hershman.