A Morgan Stanley analyst has downgraded Tesla’s stock due to concerns that it is overpriced, despite the company’s strong performance in the electric vehicle sector.
Morgan Stanley Cuts Tesla
The analyst, Andrew Percoco, has revised his recommendation for Tesla from “overweight” to “equal-weight” and raised the price target to $425 from $410 per share. This move comes as a surprise, given Tesla’s impressive global strength in electric vehicles, manufacturing, real-world AI, and clean energy.
Reasoning Behind the Downgrade
Percoco argues that the stock remains overpriced, predicting a “choppy trading environment” for Tesla shares over the next year. His report acknowledges Tesla’s diverse business but suggests that the valuation metrics no longer justify a buy rating. Percoco foresees a challenging period for Tesla’s shares until 2026, particularly in the electric vehicle sales sector.
Full Self-Driving Product Launch
Despite the downgrade, Percoco remains optimistic about Tesla’s Full Self-Driving product launch, which he believes will give the company a significant competitive advantage over its rivals.
Growing Skepticism Around Tesla’s Value
This downgrade comes amid a series of warnings about Tesla’s valuation. Recently, Michael Burry, the investor behind The Big Short, criticized Tesla’s market capitalization as “ridiculously overvalued.” Additionally, Aswath Damodaran, a finance professor at NYU Stern, expressed skepticism about the valuations of top tech giants, including Tesla.
Mixed Results and Future Outlook
Tesla’s latest quarter delivered mixed results, with revenue beating forecasts but margins and earnings still under strain. However, some firms, such as Wedbush, see a potential profitability surge in 2025 if Full Self-Driving adoption ramps up. Wedbush has raised its price target to $600 on expectations for robotaxi and Dojo-driven growth.
Stock Performance and Rankings
Tesla’s stock has had a strong price trend over the short, medium, and long term. According to Benzinga Edge Stock Rankings, TSLA had a momentum ranking at the 84th percentile, whereas its value ranking was poor at the 3.67th percentile.
Current Price and Price Target
On a year-to-date basis, Tesla stock climbed 19.96%. The current price target for Tesla is $455, with some analysts predicting a potential surge in the future.
Conclusion
In conclusion, the downgrade of Tesla’s stock by Morgan Stanley’s analyst serves as a warning that the company’s stock may be overpriced. While Tesla has shown impressive strength in the electric vehicle sector, its valuation metrics may not justify a buy rating. As the company moves forward with its Full Self-Driving product launch and navigates the challenges of the electric vehicle sales sector, investors should exercise caution and carefully consider the potential risks and rewards.