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Morgan Stanley reiterates Overweight on Tesla (TSLA) as EV market faces pressure

December 2, 2022 8:02 AM EST
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Shares of Tesla (NASDAQ: TSLA) are up 0.36% in pre-market trading on Friday after Morgan Stanley reiterated an Overweight rating and $330.00 price target for the company. Analyst, Adam Jonas believes that the electric vehicle company, along with all EV makers, may face downward pressure as demand for electric vehicles slows.

However, a report from Morgan Stanley’s s commodities strategists and a cross-sector team of equity analysts found that, as EV demand slows, current spot LCE (Lithium Carbonate Equivalent) prices of $71k/t will face significant downward pressure throughout FY23. Despite the risk of slowing demand, there has been substantial growth in battery inventories in China above and beyond normal gaps between supply and demand. The growth could potentially aggravate a correction in LCE prices.

Jonas wrote in a note, “Either EV demand needs to be revised down (at least in the near term) due to inflation and demand destruction, or key input prices such as Lithium/LCE need to fall to facilitate further and long overdue price cuts in EVs. We see EV price cuts as absolutely necessary to make good on investors’ long-term EV penetration forecasts in an increasingly saturated Chinese EV market, a structurally challenged European market, and a decelerating US economic environment.”

From a Tesla perspective, Jonas believes the automaker’s cost leadership and vertical integration may pad their relative advantage to peers in a deflationary environment. Tesla has been pushing to vertically integrate into the lithium value chain. The company filed for a tax abatement in Texas for a battery-grade lithium hydroxide refining facility, potentially to circumvent the battery manufacturing bottlenecks they've been facing this year.

During the company’s 3Q conference call, when asked if the company would consider vertically integrating into mining, CEO Elon Musk replied, “"We'll do whatever we have to. Whatever limiting factor is, we’ll do.”

By Michael Elkins | [email protected]



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Morgan Stanley, Tesla, Michael Elkins