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Morgan Stanley Perfectly Sums Up the Dilemma For Tesla Stock Investors

James Brumley

Kudos to Morgan Stanley analyst Adam Jonas for finding the accurate but elegant way of describing the headache investors suffer in trying to figure out what to do with Tesla (NASDAQ:TSLA). He explains of handicapping TSLA stock, “We continue to believe Tesla is fundamentally overvalued, but potentially strategically undervalued.”

Morgan Stanley Perfectly Sums Up the Dilemma For Tesla Stock Investors

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What that means (to Jonas) for the shares — and, consequently, the shareholders — from here isn’t a whole lot. That is to say, whatever blend of fundamentals and strategic value Morgan Stanley is using has prompted the firm to set its target price at $230, or or about $10 above the current price. The target is also un-bravely in the middle of a rather well-established trading range.

Nevertheless, the assessment perfectly pegs the sum total of several contradictions that have been vexing Tesla stock investors for years now.

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Short-Sighted Self-Driving Thinking

Jonas, for the record, thinks it’s Tesla’s self-driving arm that’s largely underappreciated by Wall Street, and Main Street … a premise that Ark Invest analyst Tasha Keeney agrees with. She explained in a CNBC interview on Wednesday: “We think the autonomous driving market is going to be a huge opportunity. We think this should be valued at $2 trillion today in the equity markets, and it’s virtually unaccounted for. We think Tesla has a great lead there, and that’s because of the data advantage that they have.”

Keeney specifically named Alphabet (NASDAQ:GOOGL) and General Motors (NYSE:GM) as names Tesla was besting on the autonomous driving front.

The analysts’ arguments hold some water. But, neither addressed a more philosophical aspect of the matter: What’s Tesla doing with the tech?

The answer is, of course, making its in-house self-driving platform better, but to what end? If consumers don’t want (or can’t afford) a Tesla, a superior self-driving platform is irrelevant. Tesla isn’t doing anything else with the know-how. Alphabet’s Waymo and GM’s Cruise are also at least the basis of a robo-taxi service that doesn’t require consumer sales of vehicles to monetize. Ditto for Ford Motor (NYSE:F).

Thus far, Tesla has shown no interest in selling or leasing its self-driving technologies to third parties, while former partner Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC) subsidiary are providing off-the-shelf solutions to carmakers tiptoeing into the arena.

In other words, how is Tesla going to claim its piece of the $2 trillion market Keeney sees on the horizon? If the company intends to continue doing everything by itself and only for itself, the scope of the autonomous driving opportunity means little.

Other Contradictions Cloud Investment Case

It’s not just a glaring lack of clarity on the self-driving front that keeps current and would-be TSLA stock buyers on edge. Analysts can’t agree on plausible future demand either.

Case in point: Goldman Sachs just cut its price target on TSLA to $158 from $200, explaining, “we see a lower probability of the company achieving our upside volume scenarios; we believe a downward path for shares will resume as it becomes more clear that sustainable demand for the company’s current products are below expectations.”


That’s in direct conflict, however, with an assessment that Piper Jaffray posted earlier this month, noting, “We understand why some investors consider the stock un-investable, but of all the reasons to doubt our overweight thesis, we think weak demand is among the least convincing.” Goldman Sachs specifically cited lower tax subsidies as a reason demand was facing a headwind.

Indeed, even with the modest tax credit of $3,750 available until the end of this month, Tesla’s Model 3 has widened its U.S. sales lead on other EVs despite net cost for these Model 3’s being greater than net sticker prices for alternatives.

Consumers want Teslas, even if they have to pay a little more to get one.

Even analysts themselves are conflicted, not as to how ownership-worthy TSLA stock may be, but whether or not it’s ownership-worthy at all.

As of the most recent look, the lowest analyst price target sits at $140, while the highest lies at $585. And, of the 31 analysts following the company, 12 are rating it at a “sell” or worse, while another dozen are calling it a “buy” or better.

Looking Ahead for TSLA Stock

This is a key part of the reason TSLA shares have been so incredibly volatile. More often than not they’re precariously balanced on the fence, and even the slightest of nudges can knock them off. Sometimes they land on the bearish side of the fence, and sometimes the bullish.

Regardless, Tesla stock’s usually quite quick to climb back on the fence of uncertainty, with the horde on ‘the other side’ screaming their case a little louder when they start to lose ground.

The good news is, the never-ending conundrum has proven helpful to traders even if it’s been agonizing to traders. That is, several trading ranges have taken shape over the years, and now is no exception. While last month’s reversal was seemingly prodded by headlines, a longer-term look at the chart reveals that bottom lines up with a floor around $179 that’s been in seen several times since 2014. If the bulls continue to get traction, the ultimate ceiling is right around $390.

Not surprisingly, the consensus target of around $280 is squarely in the middle of the trading range. The analyst community has collectively hedged its bet on TSLA, underscoring the idea that nobody really knows what to make of this name.

As of this writing, James Brumley held no position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.

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