Big Tesla investors are bearish on the stock over the next 6-12 months, Morgan Stanley's Jonas says

An informal poll of Tesla (TSLA) institutional investors done by Morgan Stanley found many are bearish and expect the stock to underperform over the next six months.

“Just back from easily the most bearish of our Tesla bull/bear lunches … but for admittedly understandable reasons,” Morgan Stanley analyst Adam Jonas wrote in a note on Wednesday. “Some doubted if sales grow at all this year. Most see consensus falling and AI ‘off-the-table’ for now."

Jonas said his “read of the room” from the lunch, a semi-regular gathering Morgan Stanley holds for its institutional clients, revealed that “everyone felt the stock would underperform over 6 months” and almost everyone felt the stock would underperform over the next year. Tesla stock is down a whopping 25% year to date.

Jonas cited several reasons for the overall bearishness among clients, one of the biggest being AI and Tesla's exclusion from tech’s AI-related run-up.

“[Tesla CEO] Elon Musk is seen as ‘sidelining’ Tesla from the AI theme for 2024, allowing investors to focus on the deteriorating EV demand narrative,” Jonas wrote.

This is likely fallout from a string of tweets from Elon Musk in mid-January in which he wrote that he would be “uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control.” Many saw this as Musk threatening to siphon off AI efforts into separate companies, thus depriving Tesla of gains made in its AI efforts, and also Musk demanding more compensation in the form of stock grants from the Tesla board.

Jonas has written glowingly in the past about Tesla’s AI and supercomputing prowess and has modeled Tesla’s long-term growth using these factors. Jonas noted Morgan Stanley’s valuation of Tesla’s core auto business represents just 22% of the firm’s $345 price target, with Tesla’s other plays like AI, fleet network services and cloud, robotics, software (full self-driving), and supercomputing making up the rest.

Nevertheless, despite the automaker’s efforts in the space (such as using AI to train its full self-driving software), Jonas thinks AI sentiment is so bad at the company that Tesla is “not just ‘excluded’ from the AI trade … but actually on the other side of the AI trade.” The recent performance of the “Magnificent Six” stocks proves that out.

Another big concern from investors was the possibility of little to no revenue growth — something that seemed unheard of given Tesla’s performance over the years.

“Investors questioned whether there was a possibility that Tesla may not grow volume vs the Q4 run-rate of 2 [million] units," Jonas wrote. “For a name where its management team was recently targeting 50% top line CAGR (compound annual growth rate) [in annual deliveries], the change in sentiment on growth was not lost on the group.”

Indeed, while Tesla did report 484,507 deliveries in Q4, representing an all-time record quarter for Tesla, management did warn that the "vehicle volume growth rate may be notably lower than the growth rate achieved in 2023." Tesla reported 2023 vehicle deliveries grew 38% to 1.81 million, while production grew 35% to 1.85 million.

Despite the overall tone at the lunch, Jonas reiterated Morgan Stanley’s Overweight rating and $345 price target on the stock, representing an 80% upside for shares from current levels. In order to deliver that kind of upside, however, Tesla will have to overcome issues not just facing EV makers but the larger auto sector too, such as higher interest rates, higher costs, and supply gluts.

“We acknowledge FY24 will be a challenging year for the global auto industry, which is reflected in our estimates," he said.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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