Institutional investors feel Tesla stock will underperform over 6 months

Morgan Stanley reiterated an Overweight rating on metatrader4 foreign exchange trading platform downloadTesla stock (NASDAQ:) with a price target of $345, but analysts admitted there is not much reason to be bullish on the electric vehicle (EV) giant right now.

Analysts shared takeaways from the Tesla ‘bull/bear’ lunch hosted in New York City on Wednesday, saying the investor sentiment toward the stock was significantly bearish.

“We expected bearishness from institutional investors given recent negative sentiment on the name. But there was barely any attempt to argue for a near-term bull case,” analysts said.

“From our read of the room, it seemed that everyone felt the stock would underperform over 6 months. Almost everyone felt the stock would underperform over 12 months,” they added.

Tesla CEO Elon Musk is perceived as diverting attention away from the AI theme for the automaker in 2024, redirecting investor focus towards the weakening demand for EVs, Morgan Stanley noted.

Meanwhile, improvements in the EV market narrative are deemed necessary before investors can confidently invest in AI-related stories.

Regarding Tesla versus the 'Magnificent 6,' the potential for TSLA to not only be overlooked in the AI investment wave but to also be positioned against the AI market trend is possibly underestimated by many focused on AI momentum plays, analysts commented.

Moreover, investors are also questioning if Tesla's volume growth could stagnate or even decline year-over-year from the fourth quarter's 2 million unit run rate. The shift in outlook from a company once aiming for a 50% annual growth rate has notably impacted investor sentiment, analysts wrote.

Despite the bearish sentiment, Morgan Stanley hasn’t lowered its rating or price target on TSLA.

“Our thesis on Tesla is that it is both an auto stock + an energy, AI/robotics company. In fact, our valuation of the core auto business ($75/share) represents just 22% of our $345 price target (revised down on January 22 from $380 previously),” analysts said.

Adverse developments in the global EV market are significant to Tesla and are expected to have a detrimental short-term impact on its stock price, analysts acknowledged.

“At the same time, however, we believe investors should not ignore the continued developments of Tesla’s other plays, many of which are auto-related and other areas that we do not include within our $345 target but that the market may include (i.e. Optimus) which we expect to learn much more about during the 2024 Tesla AI day.”

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