Tesla will outperform legacy automakers and maintain its leading position in 2023 despite tighter sales terms, says Morgan Stanley. The manufacturer's shares rose 9.3% during the trading session on Thursday.

Morgan Stanley analyst Adam Jonas told clients in a note that Tesla is still committed to leading the electric vehicle industry in 2023. He cited valuation, cash flow, innovation, and cost leadership as the main reasons for maintaining a Buy-equivalent rating. Jonas noted that Tesla's sell-off in recent weeks is driven by shifting supply and demand dynamics, which has led to lower prices and increased pressure on business in key markets such as China. However, he believes that Tesla will succeed even under these conditions.

Jonas wrote that 2023 will be a reset year for the entire EV market, and those players that are self-funded and have demonstrated scale and cost leadership throughout the value chain, such as Tesla, could be relative winners. Under such conditions, Tesla may increase its lead next year, even before considering the benefits of the Inflation Reduction Act (IRA).

“We believe 2023 is shaping up to be a 'reset' year for the EV market where the last 2 years of demand exceeding supply will be substantially inverted to supply exceeding demand. Within this environment, we believe players that are self-funded with demonstrated scale and cost leadership throughout the value chain can be relative winners.

“We believe Tesla may be in position to extend its lead versus the EV competition in FY23 even before consideration of [IRA] benefits where Tesla also stands out as the biggest potential winner.”

He noted that the Buy-equivalent rating contrasts with a Hold-equivalent assigned to Fisker and Sell-equivalents for Lucid and QuantumScape. Jonas also expects Tesla to outperform not only competitors in the EV market, but also legacy automakers and maintain its leading position despite tighter sales terms.

© 2022, Eva Fox | Tesmanian. All rights reserved.

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