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Tuesday, April 23, 2024

Morgan Stanley Defends Tesla Amid Growing Wall Street Skepticism

In the high stakes game of the stock market, every player’s move is closely scrutinized, with Tesla being no exception

According to recent reports from Morgan Stanley, Wall Street bears seem to be sharpening their claws against the electric vehicle and clean energy giant. 

While the negative sentiment looms large, analyst Adam Jonas from Morgan Stanley held a meeting that rapidly turned more daunting than expected due to investor’s bearishness.

A Skeptic’s Luncheon: Challenged Outlook for Tesla

Tesla
Credits: DepositPhotos

As Adam Jonas met with various investors, the atmosphere veered toward skepticism. 

A growing consensus suggested the “stock would underperform over 6 months,” which also extended to a broader outlook of 12 months. Such sentiment plays a pivotal role in determining Tesla’s short to intermediate term market positioning.

“Almost everyone felt the stock would underperform over 12 months,” according to Jonas, criticizing the lack of bullish outlook from the investors. 

There were concerns raised about a potential decline in sales despite Tesla’s Q4 run rate approaching 2 million units. 

This, to Jonas, marked a significant shift in sentiment on growth, contrasting significantly with a recent 50% top-line CAGR target set by Tesla’s management team.

Read More: PepsiCo Q4 2023 Earnings: Surpassing Expectations Amid Economic Headwinds

Distractions Afoot: Musk’s AI Focus Shifting Investors’ Attention

Elon Musk
Credits: DepositPhotos

The debate also notably revolved around Tesla CEO Elon Musk’s shifting focus towards Artificial Intelligence, which some investors perceived as an attempt to divert attention from declining demand for EVs. 

They argued that maintaining a positive narrative in the EV sector was essential to underpin the ongoing discourse about AI.

“Investors think Elon Musk is diverting attention away from Tesla’s involvement in the current AI theme, shifting focus to concerns about declining demand for EVs,” Jonas noted.

However, Jonas reaffirmed his year-end forecast for adjusted EPS at $2.04, which is below the consensus of over $3 per share. 

Though most investors seemed to agree with his forecast, there were concerns that negative consensus earnings revisions could negatively impact the stock.

Also Read: Elon Musk’s The Boring Company Shifts Incorporation to Nevada Amid Legal Turbulence

Jonas’ Unwavering Bullish Stance on Tesla

Despite encountering a largely bearish perspective, Jonas remains unwavering in his bullish stance towards Tesla, though acknowledging the potential for negative near-term impacts due to developments in the global EV market.

“Negative developments in the global EV market very much matter to Tesla and should reasonably have a negative near-term impact on the price of the stock,” he clarified.

Even while acknowledging these concerns, he highlighted the continuation of Tesla’s other initiatives, many auto-related and others not factored into his $345 target but might be considered by the market.

The Bottom Line

Jonas keeps his $345 price target, remaining the highest on Wall Street and poised for significant returns up to 72% in the coming months. 

Despite the prevalent skepticism, he proudly wears his ‘bull hat,’ affirming the ‘Buy’ (Overweight) rating on Tesla. 

In contrast, most of Jonas’ Wall Street peers hold a consensus rating of ‘Hold,’ indicating a more cautious outlook, yet suggesting a one-year gain potential of approximately ~10%, bolstered by the $220.26 average target.

In conclusion, Tesla’s future, though marred by prevailing pessimism, is subject to variable factors including the global EV market trends, as well as Tesla’s AI and other unforeseen developments. 

The unfolding narrative is far from linear and awaits further analysis and time to achieve clarity.

Read Next: UK Economy Stumbles: Recession Hits as Consumer Spending Plummets

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