Behind the Wheel with Phil Lebeau

Tesla Shares Thrown Into Reverse

Tesla Model S
Source: Tesla Motors

Nothing goes up forever, certainly not in the stock market.

But among the auto stocks, Tesla shareshave been among the few that have motored higher as the sector has stalled this year. Just for comparison, year-to-date TSLA shares are up 14.5% while the S&P auto manufacturers index is down 35.3%.

So why are Tesla shares getting whacked a week into December?

The latest catalyst behind the sell-off is Morgan Stanley cutting the stock two notches from overweight to underweight. It was a clear signal to investors that perhaps it's time to ease the enthusiasm for a stock that steadily moved higher over the last three months. Adam Jonas, the analyst at Morgan Stanley who downgraded Tesla is still bullish on the electric car company long-term. In cutting the TSLA price target from $77 to $44, Jonas wrote, "The reduction in our price target to $44 from $77 is entirely due to lowered forecasts for long-term global EV penetration for the industry, while implying Tesla’s EV market share rises slightly vs. our prior forecast.."

In other words, Jonas thinks the growth in electric car sales through 2025 will be at much slower rate than previously anticipated. He forecasts electric cars making up 4.5% of total vehicle sales by 2025, instead of previously forecast 8.6%.

For Tesla and its supporters, the concern is not what happens in 2025, but what happens in 2012. Next year is a huge one for the electric car maker with the launch of its Model S sedan. It's still on target for release mid-year and Jonas believes the car will be successful. So he's not tempering his optimism about Tesla.

Still, this downgrade along with the headlines about the Chevy Voltinvestigation will make investors have second thoughts about the electric car market.


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