Tesla (TSLA) Stock Falls 9.1% on Analyst's Price Concerns

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Shares of Tesla Motors, Inc. TSLA declined 9.1% on Monday as a Morgan Stanley MS analyst raised concerns about the rapid rise in the stock's price. While the analyst believes that Tesla's shares are worth more than its current price in the long run, he is concerned that the reasons for the rapid rise in the share price may not be appropriate.

The analyst mentioned four factors related to Tesla that investors should mull over. The first factor is that electric cars in general have not been successful. Moreover, Tesla's sales growth in China depends on the development of sales and service infrastructure in the nation. Even if it becomes successful in China, the company might not be able to meet the demand for Model S and Model X cars from the nation for several quarters or even years.

Further, the analyst does not consider Tesla to be a mass manufacturer at present and believes that investors are overestimating the company's production capacity. Lastly, he believes that in 15 years, cars will be fully automated and “crowd sourced mobility and mega fleets” will be popular. People may even stop buying cars by then. It is difficult to predict Tesla's future market position in such a scenario.

However, despite these concerns, the analyst has conferred an overweight rating on Tesla and considers it to be “the world's most important car company”. However, he does not expect a consistent upward movement in the stock price going forward.

The analyst's concerns related to the rapid rise in Tesla's price mirror CEO Elon Musk's recent statement of the share price being too high. The stock was attaining new all-time highs frequently in the recent weeks, before the CEO's statement dragged the price.

Currently, Tesla sports a Zacks Rank #1 (Strong Buy). Other auto stocks worth considering in the same sector include O'Reilly Automotive Inc. ORLY and Fox Factory Holding Corp FOXF. Both of these have a Zacks Rank #2 (Buy).


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