The investment bank said it based its decision on valuation, unfavorable risk-reward, and risks to Tesla’s long-term Chinese business that may not be fully appreciated by the market.
Morgan Stanley wrote: “In our opinion, four factors have driven TSLA’s share price up more than 105% over the last four months versus more than 10% for S&P 500: (1) stronger than expected global demand for Tesla vehicles, which has created more optimism around the long-term margin profile of the business; (2) China announcements that show Tesla’s expansion into the world’s largest electric vehicle market is progressing well from a demand and margin perspective; (3) supportive incentive developments (i.e. the potential, however small, for extended subsidies in the US); and (4) positive sentiment around product expansion.”
The bank said that these factors “have triggered a significant reduction in the market’s implied risk premium for this asset. Near-term momentum and sentiment around the stock is admittedly very strong, but we ultimately question the sustainability of the momentum.”
Tesla’s stock recently traded down 3% to $502 a share in New York.
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