In the midst of a fourth-quarter surge that launched Tesla's stock past CEO Elon Musk's $420 per share takeout value, Morgan Stanley reiterated its $250 price target on the company.
Tesla is currently trading at an outsized value for an autos manufacturer, Morgan Stanley analyst Adam Jonas said in a note published Monday. The analyst said that investors will eventually cease to view Tesla as a tech company and send the stock plummeting to levels comparable to others in the autos industry.
Morgan Stanley has an equal-weight rating on Tesla's stock. Jonas' $250 price target would slash Tesla's market cap from $75 billion as of Monday's market close to about $45 billion, marking a 40% cut.
"We are not bullish on Tesla longer term, especially as, over time, we believe Tesla could be perceived by the market more and more like a traditional auto OEM," Jonas wrote. "We are prepared for a potential surge in sentiment through 1H20 but question the sustainability."
Tesla last traded around the $250 mark in October this year, just before it reported better-than-expected Q3 earnings and a surprise profit, which sent shares up more than 20% after hours. The stock has since been on a tear that has boosted its value more than 60% in the fourth quarter.
Tesla's strong performance this quarter has been largely driven by its ahead-of-schedule progress on its Shanghai Gigafactory, the company's first production center outside the U.S. The factory is now slowly ramping up, but analysts don't expect to see mass production until next year. Musk has hailed the factory and the Chinese market as key to the future of the company, as demand for Tesla vehicles increases in China. It could also drastically reduce production costs for the Silicon Valley-based manufacturer.
In November, Musk also announced plans for the company's fourth Gigafactory in Berlin. Tesla sales have increased in European countries throughout the first three quarters of 2019, despite a slowdown in the overall market for new cars in the region. Bloomberg reported over the weekend that Tesla is one step closer to realizing the factory after the company agreed to the text of a land acquisition contract for the site.
Musk also told shareholders on the company's third-quarter earnings call that Tesla is ahead of schedule on its long-awaited Model Y crossover, which it now expects to launch by next summer. And the company has of course since debuted the love-it-or-hate-it Tesla Cybertruck.
Jonas said the stock will likely continue to rise as the company reaches landmark events on these projects, but that long term the stock will prove to be overvalued for a car manufacturer.
"We believe 2020 offers a strong event path for the stock; there are a number of catalysts over the next year, whether it be China milestones, Model Y, or new technology announcements that would allow Tesla to potentially test the upper bound of our admittedly wide bull-bear skew," Jonas said. "We still see Tesla as fundamentally overvalued, but strategically undervalued."
While Jonas' Tesla price target is $250 per share, earlier this month the analyst increased his "bull case" for the stock to $500 per share while leaving his "bear case" at $10.