Morgan Stanley Analyst Warns If Tesla 'Doesn't Drive Lower' On Prices, The Chinese Will

Morgan Stanley analyst Adam Jonas on Monday said that Tesla Inc TSLA must drive its vehicle cost lower to battle competition from Chinese automakers.

The Tesla Analyst: Jonas maintained an ‘overweight' rating on Tesla with a price target of $200.

The Tesla Thesis: “If Tesla doesn’t drive lower, then someone else (China OEMs) will,” said Jonas.

The analyst noted that the EV giant has been losing market share in China since the peak in 2020 and Chinese OEMs have a shot at disrupting investor perception of Tesla’s dominance, unlike in the west where Tesla’s hegemony seems invulnerable to competition.

But Chinese EV makers are here to stay and investors must ‘get comfortable’ with Tesla sharing the ‘EV sandbox’ in the years to come, Jonas said.

Over the weekend, Tesla updated that all versions of its Model 3 are now qualified for an EV tax credit of $7,500. The analyst offers three possible explanations; either Tesla is now manufacturing battery packs in the U.S. using Chinese cells or the export of Chinese vehicles to Canada freed up U.S. battery production for local deliveries or the EV giant has used an alternate method for calculating critical mineral content in its batteries.

With the starting price of the Model 3 RWD now at $34,130 including the destination fee, Tesla is beginning to fill the gap in the market for affordable vehicles vacated by the Detroit 3, said Jonas. The analyst is now eyeing further price cuts and a sub-$25 k Model 2 to continue to fill that gap.

The benefits from government incentives and price cuts are enabling the EV maker to not burn cash in a difficult market at this point, the analyst said.

Price Action: On Monday, Tesla shares closed 3.1% higher at $220.52 in the regular session.

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