Tesla: Musk’s Economy Warning Demands Attention, Says Morgan Stanley
Stock Analysis & Ideas

Tesla: Musk’s Economy Warning Demands Attention, Says Morgan Stanley

As if investors weren’t jittery enough about the state of the global economy, Tesla (TSLA) CEO Elon Musk has now further added to the heebie-jeebies.

In an email to Tesla employees, Musk said the company will not only pause hiring but that it will have to let go of 10% of the workforce. If that wasn’t bad enough, Musk also said he had a “super bad feeling” regarding the economy.

Should investors go into panic mode, then? Maybe not quite yet, although according to Morgan Stanley’s Adam Jonas, with Musk heading the “world’s most vertically integrated car company,” they should pay attention. “In our view,” the analyst went on to say, “Tesla’s not your average canary in the coal mine. It’s more like a whale in the lithium mine.”

With his comments in mind, investors should “reconsider their forecasts on margins and top-line growth.”

More to the point, given the recent Shanghai lockdowns which impeded production at the company’s local Gigafactory, in addition to rising input costs, and the costs associated with ramping both the Berlin and Austin facilities, amongst other factors, Jonas says investors should “discount auto gross margins,” which the analyst believes probably reached a peak in the first quarter.

“While we would still say that demand for Tesla vehicles exceeds their capacity to produce,” Jonas elaborated, “this is not necessarily mutually exclusive with an ability, if not a need, for Tesla to control costs on a go-forward basis.”

So, does the difficult macro landscape in which the supply chain remains pressurized, inflation is impacting demand, geopolitical risks are heightened, and capital markets remain depressed require some lowering of expectations for the EV segment?

Jonas thinks so. “It is possible to be a long-term EV bull while revising down the adoption curve through mid-decade,” the analyst summed up.

That said, Jonas refrains from making any changes to his Tesla model right now. The analyst’s rating for the stock stays an Overweight (i.e., Buy) while the price target remains at $1,300. (To watch Jonas’ track record, click here)

What does the rest of the Street think? Looking at the consensus breakdown, opinions from other analysts are more spread out. 14 Buys, 10 Holds and 6 Sells add up to a Moderate Buy consensus. In addition, the $915.38 average price target indicates 28% upside potential. (See Tesla stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.


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