Morgan Stanley says Tesla 20% auto gross margin may prove difficult beyond Q1

Morgan Stanley’s China battery team notes that domestic EV battery inventory continued to rise to 152GWh at end of February. While Chinese light vehicles are not on sale in the U.S. market, the firm believes excesses throughout the battery supply chain could find a way to ex-China markets over time, driving competitive actions, and is "prepared for more EV price cuts" in EU and U.S. While Morgan Stanley thinks Tesla should be able to achieve its goal of a minimum 20% auto gross margin in Q1 2023, this may prove difficult to defend in subsequent quarters in the event of continued downward price competition and slowing economic growth following recent events in the global banking sector and knock-on impacts on the consumer. The firm has an Overweight rating on Tesla with a price target of $220 on the shares.