Tesla's Near-Term Challenges Prompt Bearish Outlook, Potential 40% Stock Drop


Morgan Stanley's Adam Jonas highlights Tesla's near-term challenges but maintains long-term optimism, adjusting price target to $310.

By Barry Stearns

4/4, 10:12 EDT
Tesla, Inc.

Key Takeaway

  • Morgan Stanley's Adam Jonas highlights Tesla's near-term challenges, suggesting a bear case with a potential 40% stock drop.
  • Despite short-term concerns, Jonas remains optimistic about Tesla's long-term potential, adjusting the price target to $310.
  • The analyst consensus on Tesla shows mixed opinions, with an average price target of $190.60, indicating market uncertainty.

Tesla's Uncertain Road Ahead

Tesla Inc., the electric vehicle behemoth, finds itself at a crossroads, with Morgan Stanley casting a shadow over its near-term prospects despite acknowledging its long-term potential. Adam Jonas, a well-regarded analyst and Tesla supporter, has voiced concerns that could dampen investor enthusiasm in the short term. His analysis suggests that Tesla's journey towards being recognized as an AI powerhouse is fraught with challenges, primarily due to downward revisions in its core auto earnings.

Earnings and Competition Concerns

Jonas's report paints a picture of a company struggling to maintain its momentum amid increasing competition, especially from China, and softening demand. This year has seen Tesla's shares plummet by 33%, a significant setback attributed to these mounting pressures. The recent 8.5% decline in first-quarter deliveries compared to the previous year further exacerbates the situation, signaling potential hurdles that Tesla may face in the near term. Jonas anticipates that the second quarter might mark a turning point for deliveries, but the path to recovery appears fraught with uncertainty.

A Bearish Outlook

The analyst's bear case scenario, which suggests a potential 40% drop from Wednesday's close, underscores the gravity of Tesla's current predicament. This stark projection is a testament to the challenges Tesla faces, with its valuation and investor confidence at risk of being further eroded if the company fails to navigate through these turbulent times effectively.

Diverse Valuation Drivers

Despite these concerns, Jonas remains optimistic about Tesla's diversified business model, which spans autos, energy, AI, and robotics. He argues that Tesla's auto business, which constitutes only 20% of Morgan Stanley’s $310 price target valuation, is just one facet of its broader potential. The analyst emphasizes the importance of Tesla's other ventures, including the recurring revenue opportunities from the Tesla fleet, as critical components of the company's valuation. However, the recent adjustment of the price target from $320 to $310, albeit still suggesting an 84% upside from Wednesday’s close, indicates a cautious stance towards Tesla's growth trajectory.

Market Sentiment and Analyst Consensus

The current analyst consensus on Tesla presents a mixed bag, with a spectrum of opinions ranging from strong buy to sell. The average price target stands at $190.60, offering a modest 13.08% upside, which contrasts sharply with Jonas's more optimistic view. This divergence in analyst opinions reflects the broader market's uncertainty about Tesla's future, underscoring the challenges the company faces in convincing investors of its growth prospects amidst the current headwinds.