Why did Morgan Stanley cut Tesla's target price?

Morgan Stanley cut $Tesla Motors(TSLA)$’s price target to $320. Here are the reasons.

Tesla’s product is relatively aged.
EV demand is decelerating in key markets.
China EV market is over-supplied, seeing a barrage of price cuts.
Hybrids renaissance – emerging as a real competitor to EVs.

Morgan Stanley expects Tesla’s 1H24 results to come in below expectations on profitability, with GAAP OP margins in the 2-3% range, implying underlying EV manufacturing margins (ex downstream retail and ZEV credits) to be potentially in the red.

Cut the unit volumes to under 2mm units, implying just over 10% YoY growth.
Reduced Auto gross margin to 11.4% vs. 13.2% (ex ZEV) previously with a 2Q trough of 9.9%.
Reduced GAAP OP margin to 3.7% (troughing at 2.2% in 1Q) .

Morgan Stanley believe Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first.

The analysts do not believe Tesla will get credit as an AI company as long as core auto earnings are being revised down.

This process may take a few more quarters to see through, over which time our $100 bear case may be ‘in play.’

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Here are the reasons.</p><ul><li><p>Tesla’s product is relatively aged.</p></li><li><p>EV demand is decelerating in key markets.</p></li><li><p>China EV market is over-supplied, seeing a barrage of price cuts.</p></li><li><p>Hybrids renaissance – emerging as a real competitor to EVs.</p></li></ul><p>Morgan Stanley expects <strong>Tesla’s 1H24 results to come in below expectations on profitability,</strong> with GAAP OP margins in the 2-3% range, implying underlying EV manufacturing margins (ex downstream retail and ZEV credits) to be potentially in the red.</p><ul><li><p>Cut the unit volumes to under 2mm units, implying just over 10% YoY growth.</p></li><li><p>Reduced Auto gross margin to 11.4% vs. 13.2% (ex ZEV) previously with a 2Q trough of 9.9%.</p></li><li><p>Reduced GAAP OP margin to 3.7% (troughing at 2.2% in 1Q) .</p></li></ul><p>Morgan Stanley believe Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first. </p><p>The analysts do not believe Tesla will get credit as an AI company as long as core auto earnings are being revised down. </p><p>This process may take a few more quarters to see through, over which time our $100 bear case may be ‘in play.’</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/bde6a1047ca13ce81021d6fc02d8b2a8\" tg-width=\"1008\" tg-height=\"1316\"></p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/66f1585eb49e908a6ebec340da56aeb5\" tg-width=\"618\" tg-height=\"1214\"></p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/07563ca12910d3a0201b6545efce847a\" tg-width=\"950\" tg-height=\"1118\"></p><p></p></body></html>","htmlText":"<html><head></head><body><p><strong>Morgan Stanley cut </strong> <a data-mention-id=\"TSLA\" class=\"teditor-mention\" data-mention-name=\"Tesla Motors\" href=\"https://ttm.financial/S/TSLA\">$Tesla Motors(TSLA)$</a>’s <strong>price target to $320</strong>. Here are the reasons.</p><ul><li><p>Tesla’s product is relatively aged.</p></li><li><p>EV demand is decelerating in key markets.</p></li><li><p>China EV market is over-supplied, seeing a barrage of price cuts.</p></li><li><p>Hybrids renaissance – emerging as a real competitor to EVs.</p></li></ul><p>Morgan Stanley expects <strong>Tesla’s 1H24 results to come in below expectations on profitability,</strong> with GAAP OP margins in the 2-3% range, implying underlying EV manufacturing margins (ex downstream retail and ZEV credits) to be potentially in the red.</p><ul><li><p>Cut the unit volumes to under 2mm units, implying just over 10% YoY growth.</p></li><li><p>Reduced Auto gross margin to 11.4% vs. 13.2% (ex ZEV) previously with a 2Q trough of 9.9%.</p></li><li><p>Reduced GAAP OP margin to 3.7% (troughing at 2.2% in 1Q) .</p></li></ul><p>Morgan Stanley believe Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first. </p><p>The analysts do not believe Tesla will get credit as an AI company as long as core auto earnings are being revised down. </p><p>This process may take a few more quarters to see through, over which time our $100 bear case may be ‘in play.’</p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/bde6a1047ca13ce81021d6fc02d8b2a8\" tg-width=\"1008\" tg-height=\"1316\"></p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/66f1585eb49e908a6ebec340da56aeb5\" tg-width=\"618\" tg-height=\"1214\"></p><p></p><p class=\"t-img-caption\"><img src=\"https://community-static.tradeup.com/news/07563ca12910d3a0201b6545efce847a\" tg-width=\"950\" tg-height=\"1118\"></p><p></p></body></html>","text":"Morgan Stanley cut $Tesla Motors(TSLA)$’s price target to $320. 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The analysts do not believe Tesla will get credit as an AI company as long as core auto earnings are being revised down. This process may take a few more quarters to see through, over which time our $100 bear case may be ‘in play.’","highlighted":1,"essential":2,"paper":2,"likeSize":84,"commentSize":0,"repostSize":3,"favoriteSize":0,"link":"https://ttm.financial/post/281670446211184","repostId":0,"isVote":1,"tweetType":1,"viewCount":3113,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":["TSLA"],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":990,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/281670446211184"}