The bears are targeting Tesla (NASDAQ:TSLA) with sharpened claws at the moment. With that in mind, maybe it wasn’t the best idea for Morgan Stanley’s Adam Jonas to meet with investors over lunch. The analyst must have braced himself for a skeptical audience, given the prevailing negative sentiment. However, what unfolded during the meeting was more daunting than he had anticipated.
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“We expected bearishness from institutional investors given recent negative sentiment on the name,” says the analyst. “But there was barely any attempt to argue for a near-term bull case. From our read of the room, it seemed that everyone felt the stock would underperform over 6 months. Almost everyone felt the stock would underperform over 12 months.”
Some investors wondered whether any actual sales growth will take place this year. Tesla exited Q4 at a run-rate approaching 2 million units, but the specter of declining sales was also raised. “For a name where its management team was recently targeting 50% top line CAGR, the change in sentiment on growth was not lost on the group,” Jonas noted.
Furthermore, 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. Meanwhile, there’s also a belief that a positive narrative regarding EVs is necessary to “underwrite the AI story.”
Jonas reiterated to the group that his forecast for FY24 is for adj. EPS of $2.04, which is actually below consensus at over $3 per share. Although there wasn’t much disagreement with his forecast, which he believes aligns with institutional expectations, the group still anticipated that the stock could respond badly to the possibility of “negative consensus earnings revisions.”
Jonas, however, has been an unwavering TSLA bull, but has the encounter deflated him in some way? Not in the slightest. “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 said, before getting his bull hat back on. “At the same time, however, we believe investors should not ignore the continued developments of Tesla’s other plays, many of which are auto-related (i.e. the recurring revenue opportunity from the Tesla fleet – embedded in our Tesla Network Services valuation) and other areas that we do not include within our $345 target but that the market may include (i.e. Optimus) which we expect to learn much more about during the 2024 Tesla AI day (date TBD).”
That $345 price target remains the Street’s highest and is set to deliver big returns of 72% over the coming months. It hardly needs mentioning, but Jonas’ rating stays an Overweight (i.e., Buy). (To watch Jonas’ track record, click here)
Amongst Jonas’ colleagues, 17 remain on the sidelines, 11 join him in the bull camp, and 5 say Sell, all coalescing to a Hold consensus rating. Most, however, see some upside here; the $220.26 average target represents one-year gains of ~10%. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.