Tesla Downgraded By Former Bull Worried By Apple, Alphabet Competition
The shares of Tesla (TSLA) are falling after Morgan Stanley analyst Adam Jonas downgraded the stock to Equal Weight, citing signs that the company will face stiffer competition from tech heavyweights Apple (AAPL) and Alphabet (GOOG, GOOGL). Additionally, Wall Street appears to be overestimating the number of Model 3 vehicles that the company can sell in the near to medium term, Jonas warned.
COMPETITION: There are indications that "large tech firms" are preparing to compete in the electric vehicle market, said Jonas, who noted that Alphabet is looking to increase the size of its autonomous vehicle fleet by 600%, while Apple recently obtained an autonomous driving permit from California. Ultimately, "much larger and more well capitalized competitors" will become involved in Telsa's core market, Jonas believes.
MODEL 3 OVEREXUBERANCE: In the last four months, the market's expectations for sales of Tesla's upcoming Model 3 vehicle have increased significantly, Jonas stated. The analyst thinks that the market expects Model 3 deliveries to far exceed his estimates of 2,000 and 90,0000 in 2017 and 2018, respectively.
OTHER FACTORS: China will probably not be a large market for Tesla, since Beijing may limit the number of foreign made, high-tech electric vehicles that can be sold in the country, Jonas wrote. Meanwhile, Tesla's newer businesses - solar, electric storage and electric trucks - probably won't be worth more than a cumulative 15% of its current market cap, Jonas believes.
PRICE TARGET: Jonas kept a $305 price target on Tesla shares.
PRICE ACTION: In morning trading, Tesla fell 2.4% to $317 per share. Over the last three months, the stock has advanced about 13.5%.
Disclosure: None.