It’s practically a given that EV adoption is expected to increase over the coming years. What has changed over the past 12 months, however, are the expectations around margins and economic returns.
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In fact, over the last year, Morgan Stanley analyst Adam Jonas notes that his FY23 forecasts for Tesla (NASDAQ:TSLA), Rivian (NASDAQ:RIVN), Lucid (NASDASQ:LCID) and Fisker (NYSE:FSR) have all been subject to “negative revisions” in OP (operating profits). Additionally, Jonas’ FY23 OP margins have also been revised downwards (for all apart from Rivian).
This situation contrasts sharply with the period between 2019 until early 2022, when money was “abundant and supply was scarce.” At the time, more EV businesses were riding a wave of optimism and there was a far more “bullish outlook for margins and capital costs.”
However, in these changing times, Jonas believes the next chapter could witness a consolidation. According to the analyst, “Survival and success may not merely be dictated by who is the biggest or the richest company, but who is most able to adapt to the changing environment, including the willingness to wait it out and to operate within the limits of a company’s abilities.”
And here, Tesla stands out as the most likely to thrive. While the company’s margin profile has been taking a hit, it can afford to do so. And with CEO Elon Musk having prioritized volume and a bigger fleet whilst expecting profit improvements to come later from autonomy, don’t expect the company to change tack any time soon.
“We see Tesla’s pricing posture both as a part of Elon’s ‘master plan’ and a reflecting of the big changes in supply/demand in the global EV market,” Jonas noted. In fact, Jonas thinks that Tesla will be able to sell virtually every vehicle it can produce. And with capacity seeing continued expansion in Berlin and Austin, more downward moves in pricing should be expected.
So, what does this all mean for investors? Jonas reiterated an Overweight (i.e., Buy) rating on TSLA shares, backed by a $200 price target. There’s potential upside of 21% from current levels. (To watch Jonas’s track record, click here)
Elsewhere on Wall Street, the stock garners an additional 14 Buys, 11 Holds and 4 Sells, for a Moderate Buy consensus rating. Going by the $202.84 average target, a year from now, investors will be pocketing returns of 21%. (See Tesla stock forecast)
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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.
