Morgan Stanley On Tesla Hitting $420: 'Fundamentally Overvalued, Strategically Undervalued'

It’s been over a year since Elon Musk foretold a $420 stock price, and Tesla Inc TSLA has finally followed through. Here is what one of Tesla’s most critical analyst teams has to say about it.

The Rating

Morgan Stanley analysts Adam Jonas and Armintas Sinkevicius maintained an Equal-Weight rating on Tesla and a $250 price target.

The Thesis

Tesla’s valuation represents the best auto performance of 2019. The company climbed more than 25% year to date, while Ford Motor Company F rose 23% and General Motors Company GM 11%. It also represents a swelling enterprise value (EV) — $85 billion, by Morgan Stanley’s estimate.

“For comparison, the combined EV of Ford and GM (defined as market cap plus net industrial debt, excluding pensions) is less than $80 billion,” Jonas and Sinkevicius wrote in a note. “By this definition, Tesla isn´t just the most valuable US auto company… but it´s worth materially more than GM and Ford COMBINED.”

In their best-case scenario, Tesla’s EV maxes out at $100 billion, near but shy of Toyota’s $130 billion.

Morgan Stanley’s clients generally interpret Tesla news positively, and they largely disagree with the analysts on Tesla’s risk. Neither bulls nor bears see a potential path to the analysts’ $10 bear-case valuation. Their confidence only reinforces the experts’ skepticism.

“We are not bullish on Tesla longer term, especially as, over time, we believe Tesla could be perceived by the market more and more like a traditional auto OEM,” Jonas and Sinkevicius wrote. “We are prepared for a potential surge in sentiment through 1H20 but question the sustainability. We believe 2020 offers a strong event path for the stock; there are a number of catalysts over the next year, whether it be China milestones, Model Y, or new technology announcements that would allow Tesla to potentially test the upper bound of our admittedly wide bull-bear skew.”

They perceive threats in China-U.S. trade policies and Model Y’s cannibalization of Model 3 demand, and they expect the Berlin Gigafactory to trigger a narrative shift from tech company to auto company.

“We still see Tesla as fundamentally overvalued, but strategically undervalued,” the anaysts wrote.

Price Action

At time of publication, Tesla shares traded around $417.64.

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