Tesla Hit With Back-To-Back Downgrades: Why Morgan Stanley Is Stepping To Sidelines Despite Touting EV Stock As 'Must-Own'

Tesla, Inc. TSLA stock is in pause mode as traders take profits off recent gains on the pretext of two downgrades in two sessions.

The Tesla Analyst: Morgan Stanley analyst Adam Jonas downgraded Tesla shares from Overweight to Equal-Weight Thursday, citing “relatively full valuation and a more balanced risk-reward.” He increased the price target from $200 to $250. Morgan Stanley’s bull and bear case price targets went up to $450 and $90, respectively.

On Wednesday, Barclays analyst Dan Levy downgraded Tesla from Overweight to Equal Weight. The analyst attributed the downgrade to the stock run-up and some near-term challenges.

Tesla Valuation Worries: The 111% year-to-date rally in Tesla stock compares to the 14% gain for the S&P 500 Index, Jonas said in a note. Against this backdrop, there is a significant degree of investor skepticism and lack of exposure around Tesla, he said.

The current stock price values Tesla at 100 times Morgan Stanley's 2023 GAAP earnings per share forecast, Jonas said.

As the stock approaches the $300 level, it begins to discount a business, based on recurring software-derived/software-delivered revenue from its vehicle network and other services beyond just the one-time sale of automobiles, the analyst said.

See Also: Everything You Need To Know About Tesla Stock

Additionally, material downward adjustment to consensus earnings estimates may prove more challenging, Jonas said. The analyst sees a long-term trend of lower prices and average transaction price declines due to competition with Chinese EV players and slowing auto consumer spending.

Tesla A Must-Own Stock? Despite moving to the sidelines, the analyst said Tesla remains a “must-own” company in any electric vehicle portfolio.  Tesla is emerging as an industrial "standard bearer" for electric transport and renewable energy economy, he said.

This goes beyond supercharging deals, with companies such as Ford Motor Co. F and General Motor Corp. GM looking for other potential areas of collaboration such as battery supply, operating system and full self-driving, Jonas said. Tesla is an “AI beneficiary” and an auto company, he added.

TSLA Price Action: Tesla stock is down 1.27% at $256.16 Thursday morning, according to Benzinga Pro data.

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Photo courtesy of Tesla.