Morgan Stanley is pumping the brakes on Tesla; shares fall 7.6%
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SAN FRANCISCO (MarketWatch) - Shares of Tesla Motors Inc. fell 7.6% on Monday after Morgan Stanley agreed with an assessment by Tesla's CEO Elon Musk that the company's shares appear to be overvalued.
Monday's slide is so far the worst one-day percentage decline for Tesla since an 11% drop in May.
Monday's reversal follows a string of records for the Palo Alto, Calif., electric auto maker earlier this month, culminating with intraday and closing records on Sept. 4 of $291.42 and $286.04, respectively. Tesla's planned rate of production and the sense that the company has gained serious traction in major markets outside of the U.S., like China, have helped push the stock higher.
But 10 days ago CEO Elon Musk put a stop to the stock's upward climb by voicing concerns that Tesla's shares are overpriced.
On Monday, Morgan Stanley analysts, led by Adam Jonas-who had been one of Tesla's biggest bulls-sounded their own alarm in a note to clients: 'We believe the shares are worth $320,' which is Morgan Stanley's price target, 'but perhaps not so quickly and not for some of the reasons we believe are driving the market.'
The average price target on the stock is $261.71, according to FactSet.
Shares of Tesla have gained 73% so far this year, compared with 7.2% for the S&P 500 index.
Morgan Stanley has called Tesla 'the world's most important car company,' and said Monday it stands by that assessment. However, it does not expect shares to 'appreciate so consistently and one-directionally from here.'
Here's Morgan Stanley's reasoning:
On the whole, electric cars are failing: 'Tesla aside, nearly the rest of the auto industry's efforts to successfully commercialize pure electric propulsion have fallen well short of the mark,' Morgan Stanley says.
Don't count on China: Demand for Tesla's cars in China may be limited by the car maker's ability to develop a supporting sales and service infrastructure.
Great expectations: Tesla's 'gigafactory' will help the company roll out more of the Model 3, its mass-market, $35,000 car projected to hit roads during the next two to three years. But Tesla is a niche player, not yet a mass manufacturer.
What about driverless cars? Tesla broke new ground by making an electric car look appealing, but who will be the next big innovator in the automotive space? Morgan Stanley believes there's still room for competitors to out-innovate Tesla as we move toward the era of the self-driving car, and incumbent car makers 'are not falling asleep at the (disappearing) steering wheel,' Morgan Stanley said.
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