Morgan Stanley analyst Adam Jonas thinks Tesla’s recent rally disproportionately reflects AI excitement around the stock. The longtime Tesla bull downgraded shares of the electric vehicle maker to equal weight from overweight on Thursday. He did raise his price target to $250 per share, but that implies downside of 3.6% from Wednesday’s close. The stock has rallied more than 32% over the past month alone and nearly 111% from the start of the year. “I have to be up-front with you all. While the team has defended the Tesla OW rating all year, I did not see this 111% YTD rally coming (the S & P 500 is up 14% YTD, for context),” Jonas said. “We’re not trying to call ‘the end’ to the Tesla rally and from our discussions continue to find a significant degree of investor skepticism/lack of exposure around the name.” TSLA YTD mountain Tesla stock has climbed nearly 111% since the start of 2023. Jonas said the current stock price reflects “a more balanced risk reward” skew, while Tesla has simultaneously benefited from the explosion of AI stocks which has pushed the electric vehicle maker’s valuation higher. And while Jonas thinks Tesla is both an AI and car company, its upside from the artificial intelligence boom may have run out of steam. “While the market may want to dream on the AI theme, we’d prepare to wake up to the sound of a blaring car horn,” Jonas said. He added that Morgan Stanley still expects “material negative revisions” for the company’s earnings forecasts despite the recent rally, and cited a lack of guidance as to whether Tesla has concluded its price cutting campaign on key vehicles. This marks the second downgrade for Tesla in as many days from a major Wall Street bank. On Wednesday, Barclays lowered its rating on the stock to equal weight from overweight noting that, “while aren’t surprised that the stock has participated in the rally, we believe it is prudent to move to the sidelines.” — CNBC’s Michael Bloom contributed to this report.
