Morgan Stanley analyst Adam Jonas on Tuesday noted both product and market issues as he slashed target price and FY24 earnings estimates for EV giant Tesla Inc (NASDAQ:TSLA).
Analyst Rating: The analyst cut the target price from $345 to $320 while maintaining an ‘overweight’ rating.
Tesla Thesis: In a note, the analyst noted the several downsides plaguing Tesla at the minute including dwindling EV demand, older product line-up as compared to other automakers, heavy competition and price war in China, and not the least, the increasing popularity of hybrids over battery electric vehicles in the company’s primary market of U.S..
“If there was ever a time for Tesla to potentially post a GAAP EBIT loss in the auto business, it may be this year,” Jonas wrote.
The analyst said that he expects the EV giant’s first-half results for the year will fail to meet expectations with GAAP operating margins in the 2-3% range. After taking a severe hit on profitability, Jonas expects Tesla to pull back on the price cuts it has been employing to increase sales and instead shift focus to defending margins and cash flow.
The analyst also altered his estimates for FY24.
Change In Estimates: Jonas decreased his unit volume estimate for FY24 to under 2 million units, implying just over 10% growth YoY. The analyst now forecasts an auto gross margin of 11.4% for the year, down from his previous estimate of 13.2%.
But despite this, the analyst remains overweight on Tesla as he continues to deem it an AI company. However, for the EV giant to get credit as an AI company, it must first stabilize its earnings in the auto business, he said.
“We do not believe Tesla will get credit as an Al company as long as core auto earnings are being revised down. This process may take a few more quarters to see through, over which time our $100 bear case may be ‘in play,” he wrote.