Tesla bounce as Morgan Stanley says the sale went too far

(Bloomberg) — After losing nearly $300 billion in market value in two months, growing Tesla analysts said the share price drop has gone far enough, pushing the stock higher on Wednesday.

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Adam Jonas, an analyst at Morgan Stanley, said earlier that Tesla is approaching its “bear condition” price target of $150, providing an opportunity for investors to buy in at a bargain price. Citi analysts upgraded the stock to neutral from a sell, saying a decline of more than 50% this year has “near-term risk/reward offset”.

Despite challenges including slowing demand and price cuts in China, Tesla is the only electric car maker covered by Morgan Stanley that makes a profit from the sale of its cars, Jonas wrote in a note. The analyst — who also highlighted Tesla’s potential to tap consumer tax credits in the US — reiterated its $330 price target.

Shares closed up 7.8% at $183.20 in New York. Inventory has fallen this year amid rising raw material costs, production and sales problems in China and straining customer budgets. Recently, CEO Elon Musk’s focus on changing Twitter Inc. Also on sentiment, $300 billion in Tesla’s market capitalization has been wiped out in the past two months, according to Bloomberg calculations.

According to Jonas, the distraction caused by Twitter must end to stop the stock slide. “There should be some form of ‘circuit breaker’ of sentiment around the Twitter situation to assuage investor concerns about Tesla,” he wrote.

Despite all the challenges Tesla has faced this year, Wall Street has remained fundamentally optimistic. The majority of Tesla analysts tracked by Bloomberg rated the stock Buy or equivalent, while the stock would need a whopping 57% rally to hit the analyst’s average price target. This year’s recession has left the stock trading at 31 times forward earnings, down more than 200 times in early 2021.

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City analyst Itai Michaeli, who upgraded the stock on Wednesday, has one of the lowest price targets on the Street, at $176. The analyst said he’s becoming more positive because Tesla’s recession means some excessively bullish expectations for the stock, including unit sales, have now been priced in.

— With assistance from James Coon, Isha Day, and Boris Corby.

(Quoted arrow updates in the fourth paragraph. An earlier version of this story corrected Citi’s rating in the second paragraph.)

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