Morgan Stanley Remains Optimistic on Tesla (TSLA), Expects Demand to Pick Up in March

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Morgan Stanley remains optimistic about TSLA. Although not many automakers entered into a price war, they were under a lot of pressure. The firm expects higher demand for Tesla vehicles in March.

Morgan Stanley reaffirmed an Overweight rating and $220 price target on Tesla. The firm remains bullish but is in no rush to raise its price target as the recent price decline has not triggered the strong demand response expected by the industry. Not many manufacturers have lowered the prices of their cars, although some are gradually moving towards more competitive prices.

Morgan Stanley's Chinese team believes Tesla's price cuts have started a wider range of price cuts in the industry. They see that this has affected both the segment of electric vehicles and the segment of cars with internal combustion engines. Unlike previous price cuts that triggered a strong demand response, this round has not seen a follow-up as consumers wait for further cuts, the firm said.

Morgan Stanley's China team also believes that investors are beginning to appreciate the price war, stagnant demand, and that more significant sales/price growth will be needed in the second quarter to restore investor confidence in Tesla. However, according to the team, the situation could worsen. They suggest that a few more traditional OEMs are likely to retaliate by cutting prices in the next few weeks.

Analysts at the firm wrote in a note: “We gauge a full-blown price war would urge consumers to stay sidelined and await more promotions/discounts to come. Vehicles price elasticity of demand is decaying as consumer's pricing expectation has also been falling YTD. This might pinch the sales resurgence and order intake that should supposedly pick up in March.”

© 2023, Eva Fox | Tesmanian. All rights reserved.

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