One of Tesla’s biggest and most well-known supporters on Wall Street suggested Monday that the electric vehicle maker risks hitting a wall this year as other tech companies enter the renewable energy market.
Morgan Stanley’s Adam Jonas cut his rating on Tesla to break even from a buy rating on the stock, a move that could indicate a wholesale change in how Wall Street views the electric automaker. He cited major tech companies’ involvement in the industry as one of the reasons to be skeptical of Tesla’s future.
“The bull case on Tesla is that it can become the next Amazon or Apple. We see such firms as competitors ultimately. We question whether the risks of going head-to-head vs. the tech giants is sufficiently discounted in the price,” Jonas wrote in a note to clients Monday.
He added that Morgan Stanley expects other highly capitalized tech companies will subvert the industry that Tesla has dominated.
“We expect much larger and more well capitalized competitors to unveil strategies that directly address sustainable transport and mobility,” Jonas noted. He has spent the last couple of years talking up Tesla CEO Elon Musk and the products the tech entrepreneur has created.
Jonas is known for his bullish position on Tesla. He moved closer to the company late last year, raising his target price for the company in January to $305 from $242.
The Morgan Stanley analyst cited raised the Musk entity to a buy rating, in part, because of an expectation that the company would successfully launch in 2017 its $35,000 Model 3. Jonas also said the disappearance of high-tech competitors with plans to build actual cars into his valuation.
Things have changed since January – namely, Volkswagen has promised to use its superior economies of scale and ability to mass produce electric cars to pummel Tesla.
VW head Herbert Diess said earlier this month that the German automaker would target one million electric car sales by 2025.
“[Tesla] is a competitor we take seriously. Tesla comes from a high-priced segment; however, they are moving down,” Diess said Sunday at a press conference, referring to the $35,000 Model 3, which enters production this summer.
VW will have “leapfrogging cost advantages,” he added, thanks to a rollout of its “MQB” platform, which helps the 12 VW brands share parts, technology and assembly sequences.
Jonas also noted on Monday that a possible rebound in oil prices could potentially erase much of the market for electric vehicles.
“Volatility in commodity prices such as oil materially changes the economic benefits of electric vehicles,” he told clients, referring to reports suggest that oil markets might be on the rebound after several months of poor performance.
Goldman Sachs analyst David Tamberrino reiterated his sell rating in a separate report Monday. He placed a $190 price target for Tesla due to “potential Model S cannibalization” from the company’s upcoming Model 3 car.
Tamberrino turned bearish on the company in February, telling clients Silicon Valley-based automaker has done good work on producing electric vehicles, but noted concerns the Model 3 launch is likely to stumble out the gate, and that its unproven solar business could hurt Tesla’s fortunes.
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