Morgan Stanley analyst Adam Jonas believes there’s an EV market “recession” coming but feels EV giant Tesla, Inc. TSLA will emerge stronger, thanks to its investments in the AI sector.
Analyst Recommendation: “The global EV slowdown has moved into the next phase of the Darwinian shakeout … We think Tesla won’t let a good ‘EV recession’ go to waste,” Jonas wrote.
The analyst reiterated his “overweight” rating on Tesla with a $310 price target.
“In fact, our valuation of the core auto business ($62/share) represents just 20% of our $310 price target,” he said.
Jonas argued that the ongoing EV slowdown has escalated into an EV recession, evidenced by layoffs, impairment charges, revised EV targets, increased collaboration among competitors, and even the exit of smaller players. According to Jonas, now de-listed EV company Fisker is only the first of many players to be pushed to the brink.
More Tesla Layoffs Coming? Tesla laid off over 10% of its global workforce on Monday. But it won’t be the company’s last, as per Jonas.
“We expect Tesla’s announced headcount cuts to potentially exceed the announced 10% as its delivery growth has fallen from 50% to negative,” Jonas said in his note.
More Legacy Troubles: The analyst suggested that legacy car companies‘ targets for EVs to constitute 50% or even 100% of their model lineups by 2030 or 2035 may be revised significantly downward, possibly by as much as 90% or more. “A large U.S.-exposed legacy car company may be satisfied with 5% or 10% of their mix being BEV by 2030,” he said.
“We expect legacy auto firms to work together in ‘Airbus’ style consortia,” Jonas added. “We look for OEMs … to collaborate with Chinese auto and battery partners as an ‘on-ramp’ to Western auto markets.”
Tesla’s AI Potential: Jonas said he remains “Overweight” on Tesla because it has significant attributes to be valued as an AI company owing to its initiatives in energy storage, autonomous driving technology, and humanoid robots, but must first stabilize earnings within its auto business.
This stabilization, he said, might take a few more quarters and will have a near-term negative impact on the stock price.
Tesla Deliveries: Tesla reported an 8.5% year-on-year decline in first-quarter deliveries with 386,810 vehicles, marking the first time the company has reported such a drop in about four years. These disappointing deliveries weigh heavily on first-quarter results expected to be announced on April 23.
Price Action: Tesla shares closed down nearly 1% at $155.45 on Wednesday and dropped nearly 0.5% after hours, according to data from Benzinga Pro.
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