Tesla Faces Declining Demand and Hybrid Competition Amidst Price Target Cut

Key Takeaway

• Morgan Stanley's Adam Jonas cuts Tesla's price target by 7% to $320, still sees a 77% upside despite a 27% stock decline this year.
• Tesla faces potential losses amid declining demand and stiff competition from hybrids, especially in key markets like California and China.
• Despite short-term challenges, optimism remains for Tesla's long-term prospects due to its leadership in technology and AI potential.

Challenging Times for Tesla

Tesla is facing a challenging period as it grapples with a decline in demand for its electric vehicles amidst stiff competition from hybrid cars. Analyst Adam Jonas from Morgan Stanley has revised the stock price target for Tesla by 7% to $320, indicating a 77% upside from the recent close. The company's stock has experienced a 27% decline this year, reflecting the struggles it faces in the electric vehicle market.

Jonas highlighted concerns about Tesla potentially posting losses in its auto business this year due to an aging product lineup and slowing demand in key markets like California. The need to attract buyers in less EV-friendly regions poses a significant challenge for the company. Additionally, the rise of hybrid vehicles as strong competitors to electric vehicles adds further pressure on Tesla's market position.

Market Dynamics and Competition

The U.S. market is witnessing a surge in hybrid vehicle sales, outpacing the growth of electric vehicles. This trend poses a threat to Tesla's market share and profitability. In China, the electric vehicle market is oversupplied, leading to price cuts among manufacturers. Tesla is facing intense competition in the world's second-largest economy, further impacting its financial performance.

Long-Term Outlook and Technological Advancements

Despite the current challenges, Morgan Stanley remains optimistic about Tesla's long-term prospects. The company is recognized as a leader in technological advancements, encompassing energy, artificial intelligence, and robotics. While the valuation of Tesla's auto business is a modest portion of the overall price target, the potential for Tesla to leverage AI technologies in the future remains a key factor in its valuation.

Street Views

• Adam Jonas, Morgan Stanley (Neutral on Tesla):

  "Tesla could lose money in the coming quarters as price cuts fail to boost demand for its electric vehicles in the face of strong competition from hybrid cars... Demand is also slowing in key U.S. markets such as California... Hybrid sales increased five times faster than electric vehicles last month." "We believe Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first."