Tesla could lose money in the coming quarters as price cuts fail to boost demand for its electric vehicles in the face of strong competition from hybrid cars, according to Morgan Stanley. Analyst Adam Jonas trimmed the investment bank’s stock price target for Tesla by 7% to $320 from $345 while maintaining an overweight rating. The new target still implies 77% upside from Tuesday’s close of $180.74. Tesla’s stock has plunged about 27% this year as the Elon Musk-led company struggles to navigate headwinds in the electric vehicle market. Jonas told clients in a research note Tuesday that Tesla could post a loss in its auto business this year before factoring in taxes and interest as the company has one of the oldest product lineups in the industry. Demand is also slowing in key U.S. markets such as California, which means Tesla needs to attract buyers in other parts of the country, such as Dallas or the Cleveland suburbs, where consumers are less enthusiastic about electric vehicles and the infrastructures is less favorable, according to Jonas. This is a problem because hybrid vehicles are enjoying a renaissance in the U.S. and emerging as a real competitor to electric vehicles, Jonas wrote. Hybrid sales increased five times faster than electric vehicles last month, according to the analyst. Meanwhile, the Chinese market is oversupplied, which is forcing “a barrage of price cuts” among electric vehicle makers in the world’s second largest economy. Jonas remains bullish on Tesla long-term because the company is the most technically advanced car company in the world. Tesla is not simply an automaker but also a player in energy, artificial intelligence and robotics, according to the analyst. Morgan Stanley’s valuation of Tesla’s auto business, at $68 per share, represents just 21% of the investment bank’s overall price target of $320. “We believe Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first,” Jonas wrote. “We do not believe Tesla will get credit as an AI company as long as core auto earnings are being revised down.” TSLA YTD mountain Tesla shares in 2024.
