January 31, 2023

Tesla stock is top pick at Morgan Stanley ahead of earnings

Tesla Inc. stock is a top pick at Morgan Stanley, which predicted a “shake out” for the electric-vehicle market as companies jockey for a piece of the pie and run the risk of oversupplying the market.

Tesla
TSLA,
-0.52%

is scheduled to report fourth-quarter earnings after the bell Wednesday. The company cut prices between 6% and 20% on its EVs in Europe and in the U.S. earlier this month, a move that has divided Wall Street.

See also: ‘Poker move’ or wake-up call? Wall Street weighs in on Tesla’s price cuts.

“As the leader in global EVs, Tesla’s more aggressive posture on price applies significant fundamental pressure on its peers,” Morgan Stanley analyst Adam Jonas said in his note.

“We’d prepare for lower margins and share gain in the near-term. We question whether competitors can keep up in this EV race.”

Jonas had a separate note Wednesday, saying he expects Tesla executives to “extol the positive reaction to its recent price cuts,” and reiterate something along the lines of its long-term goal of 50% annual growth.

Don’t miss: Tesla earnings preview: Price cuts in focus

Tesla is also likely to deploy “cautionary language” on the economy and the risk of a recession, but ultimately “express a view that demand is not a problem.”

“In our view, the price cuts are indeed in response to slowing incremental demand relative to incremental supply,” Jonas said.

Jonas cut his price target on Tesla to $220, from $250, implying an upside of 56% over Wednesday prices. He kept the equivalent of a buy rating on the shares.

Tesla stock rallied on Monday but gave back some of that advance on Tuesday and Wednesday. At last check, the stock was down more than 2%.

Tesla earnings comes as Chief Executive Elon Musk finished his testimony in a federal trial around his going-private tweets, saying he thought he had funding to move forward, and that he was considering the deal.

The EV maker late Tuesday announced a $3.6 billion expansion of its factory outside of Reno, Nev., to include two new factories, one for battery cells and one to mass produce its Semi electric truck.

Jonas also cut his price target on Rivian Automotive Inc.
RIVN,
-0.78%

to $28, from $55, keeping the equivalent of a buy rating on the stock. The EV startup’s risk-reward “still lags Tesla in our view making it our lowest-ranking OW-rated name,” the analyst said.

The analyst cut his price target on EV startup Lucid Group Inc.
LCID,
+0.70%

to $5, from $10, and reiterated the equivalent of a sell rating on the stock. Lucid’s cars are “really nice,” and the company has “continued cash needs.”

Fisker Inc.
FSR,
-5.82%

got a price-target cut to $4, from $8, and a rating downgrade to the equivalent of sell. Fisker’s need for capital, among other reasons, led to the downgrade, Jonas said.

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