On the very same day Standard & Poor's rating services slapped Tesla's debt with a B- (or junk) rating, Morgan Stanley's Adam Jonas was singing the company's praises in a research report titled, "EVs are Dead, Long Live TSLA!"
In it, Jonas dismissed the whole electric cars phenomenon but said Tesla is different than other "EVs."
"Tesla's true success is making compelling performance vehicles that just happen to be EVs," wrote Jonas. "A true democratization of EVs? We don't even expect the Gigafactory to turn that optionality into a reality anytime soon. We'll never know… but we believe if the Model S had 2xthe battery range but was unexciting to drive, it would be far less successful than it is today. To be a winner, the Gen 3 must first and foremost be an absolute riot to drive. Electric range comes second."
Portfolio manager Chad Morganlander of Stifel's Washington Crossing Advisors agrees with Jonas' take on Tesla's product but is less enthusiastic about the stock.
"This is a great company, and it's going to be around for years to come," Morganlander said. "It's a pretty car and Elon Musk is the real-life version of comic book character Tony Stark. We all get that. But, let's go back to the valuation because this is about talking numbers."
That valuation is high relative to other car companies like General Motors. Tesla's valuation is $26 billion compared with General Motors' market cap of $55 billion. Investors buying Tesla's stock hoping its performance will match expectations have risks ahead, Morganlander warns.
"This is a car company so operating margins are not going to be 30 percent," Morganlander said. "This isn't a software company. So, I would be somewhat cautious at this point in investing in Tesla. I just think that perhaps you get better valuations out of General Motors."
Meanwhile, the technicals may be showing a limit to how high Tesla's price will go, according to the charts of Steven Pytlar, chief equity strategist at Prime Executions. He sees strong resistance area in the $220 to $230 per share range. The stock hasn't traded above those levels in two months, and it dropped down to $180 per share after releasing disappointing news. Tesla subsequently worked its way back up to its current level of around $209, but he doesn't believe it will go much further.
"The bounce has been showing very low volume compared to the volume that traded on the way lower," Pytlar said. "That's usually a signal that investors aren't really getting back into the stock with as much demand or urgency as they were selling it. That's usually a longer-term negative development."
Pytlar expects sellers to come into the market should the stock reach $220. "That's where they really came out and sold it pretty hard earlier in the year," Pytlar said. "We'd expect sellers to still be sitting there looking to monetize their gains if they have them in the stock any more around that area."
Pytlar would be surprised if the stock traded above the $220 to $230 range. "Momentum is also in a negative area right now – or, at best, neutral – which kind of points to a sideways phase for a while," Pytlar added. "If it gets towards $230, we would put new highs at a pretty low probability right now. We think a choppy sideways phase is much more likely. If it does get up there, we would be sellers."
To see the full discussion on Tesla, with Morganlander on the fundamentals and Pytlar on the technicals, watch the above video.