Goldman Sachs cut Tesla to a Hold-equivalent rating while Morgan Stanley went to a Sell-equivalent with stock near $1,000
Shares of Tesla (TSLA) dropped on Friday morning after shares were downgraded to Underweight at Morgan Stanley, citing several factors including China risks and near-term demand pressure. Shares were also downgraded at Goldman Sachs to Neutral just days after Tesla hit $1,000 per share, a new high.
DOWNGRADED ON CHINA RISKS: On Friday, Morgan Stanley analyst Adam Jonas downgraded Tesla to Underweight, a Sell-equivalent rating, from Equal Weight. The analyst, who cut his price target on the stock to $650, down from $680, believes Tesla "deserves most of its market cap" as the world leader in electric vehicles, but also feels the recent run-up in the share price to over $1,000 may not reflect a number of important emerging risks that have the potential to impact both growth and profitability in a materially negative way.
In the nearer-term, Jones said he worries about risks to demand and pricing. Over the longer-term, Jonas said that among the many risks facing Tesla, he would "rank risks related to U.S.-China relations at the very top." Any potential deterioration of relations with China "could disproportionately impact Tesla" compared to other stocks he covers, he added. His view is that Tesla shipments in China peak at just under 500,000 units by 2027 and decline from there, the analyst contended, stating that he doesn't view China risks as being "in the price" of the stock at current levels.
Meanwhile, Jonas' peer at Goldman Sachs, Mark Delaney, downgraded Tesla to Neutral from Buy on Thursday with a higher price target of $950, up from $925. Delaney said Tesla is now trading above his price target and its recent data points have been mixed. The Goldman analyst added that the recent outperformance in the stock is due to Tesla's strong Q1 margins and increased investor awareness of the favorable long-term outlook for EVs, and while the valuation has expanded for the entire market, the bar for Tesla's fundamentals is higher than for other stocks given its "premium absolute multiple along with its historically high volatility."
TESLA HITS $1,000 A SHARE: On Wednesday, Tesla's stock price reached a high of over $1,000 a share, becoming the world's most valuable automaker. On the same day, Tesla CEO Elon Musk said it is time to bring the company's Semi truck to volume production, Reuters' Yilei Sun and Brenda Goh reported on Wednesday, citing an email seen by the publication. "Production of the battery and powertrain will take place at Giga Nevada," Musk said in the memo, adding that most of the other work will probably take place in other states, but without stating where.
At the time, the stock was also boosted by Wedbush analyst Daniel Ives, who raised the firm's price target on Tesla to $1,000 from $800 while keeping a Neutral rating on the shares. The analyst believes that with demand for Model 3's ramping stronger than expectations in China heading into summer timeframe, the lockdown easing in the U.S./Europe, and some potentially "game changing" battery developments on the horizon, Tesla's stock likely has room to run further. While the stock has been "roaring higher," Ives thinks the main fundamental catalyst continues to be the "massive" China market which is showing clear signs of a spike in demand heading into the rest of this year.
WHAT'S NOTABLE: Nikola Motors (NKLA) is also working on producing electric and hydrogen fuel cell powered trucks. On Monday, founder and executive chairman Trevor Milton announced via tweet that reservations for the company's Badger truck will open on Monday, June 29, the same day as "Nikola World 2020." In a tweet, Milton said that, "Breaking: Nikola World 2020 (Badger World) to be announced Monday, June 29th. Badger reservations open same day. Deposit holders will have dibs on tickets for #nikolaworld2020 Phoenix, AZ. The Badger will dominate ICE trucks live. Be there to see it."
PRICE ACTION: In morning trading, shares of Tesla fell 2.7% to $946.88.
Keywords: EV, electric vehicles, analyst, commentary, downgrade