Tesla is one of the companies that ended with many expectations in stock market terms, which came to lose 72% from all-time highs, to later recover 132%. A movement that has led many investors to keep an eye on it once again to see what its path may be from this particular moment. One of the analysis firms that has revised its strategy regarding the company led by Elon Musk is Morgan Stanley.
In this case, with a reduction in the recommendation, due to the “high expectations” that continues to rise, despite the fact that in the long term it is considered a company with great potential. “We see Tesla as a beneficiary of AI and the automotive industry,” they state, before clarifying that their very high forecasts for the first factor have led to the company having a fair value in the markets.
“Although the team has advocated considering overweighting Tesla all year, we didn’t expect this 111% rally so far this year (the S&P 500 is up 14% in 2023, for context), so we think it’s understandable. change the narrative on value on this point”, points out the North American bank.
Following Nvidia’s spectacular quarter, stocks exposed to AI have generally outperformed and investors are building portfolios with such thematic exposure. “While we understand why Tesla is receiving interest in the AI trend, we think the bullish arguments are already reaching their peak. We think that the current price, of more than 100 times our US EPS forecast for fiscal year 2013, discounts Tesla much more than simply as a dominant electric vehicle company, “says the team of analysts of the bank.
For Morgan Stanley, autonomous driving and generative AI remain two very different technology disciplines. “Even if the market wants to dream about AI, we would be prepared to wake up to the sound of a car horn,” he says. In his view, as Tesla approaches the $300 level, the stock begins to discount a business based on recurring revenue from its software, vehicle network, and other services beyond the one-time sale of cars. cars.
Although these experts did not expect the recent rally in the company’s shares on the stock market, they suspect that many investors may be looking for new ways to justify valuation beyond the vehicles/hardware and price pairing. Ford, GM and, most recently, Rivian have joined Tesla’s increasingly ubiquitous supercharging network in the past month.
The China factor and the benefits
In this sense, from Morgan Stanley they point out that Tesla’s benefits are still in danger. Despite the recent rebound, they anticipate significant negative revisions to Tesla’s earnings forecasts and continue to expect a long-term downward trend in prices and the total sales price of its cars, driven by intensifying competition with manufacturers. Chinese electric vehicle manufacturers and the slowdown in car consumption.
“It appears that the market is either overlooking potential revisions or assuming a less severe earnings decline than expected… Our earnings per share forecast is $3.03 for 2023, which is 10% below the consensus estimate of 3.36 dollars”, they forecast.
The main risk, in this way, would be in the competition that comes from China. As the world’s largest and most saturated EV market, the slowdown in China’s domestic EV market has fueled investor doubts about a possible release of Chinese supply into the export market, years earlier than expected.
Yet no other manufacturer has yet been seen to rival Tesla with an electric vehicle that offers attractive unit economics. “Tesla’s hegemony in the West has made the company appear invulnerable to competition, but Chinese manufacturers are among the first who may have the opportunity to alter investors’ view of Tesla’s hegemony in the electric vehicle sector. ”, warns the bank.
Of course, it recognizes that there are many factors that contribute to Chinese OEMs gaining share in their domestic market (incentives, increased capacity of multiple players, etc.). “The reality is that Tesla has been losing share in China since peaking in 2020… Our message is that investors would be comfortable with the company sharing space with other competitors in China in the coming quarters and years,” he concludes.
