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Morgan Stanley reiterated an Overweight rating and $220.00 price target on Tesla, Inc. (NASDAQ:TSLA) as recent price cuts fail to trigger the strong demand response expected by the industry.
Morgan Stanley’s China team believes that Tesla’s price cuts started a broader round of industry price reductions across EVs and now ICE/traditional nameplates. Unlike earlier cuts that triggered a strong demand response, this round has not seen follow-through as consumers wait for further cuts.
The China team also believes that investors are beginning to appreciate the pricing war and stagnant demand and that it will take a more meaningful sales/price uptick into 2Q to restore investors’ confidence. However, according to the team, the situation has potential to get worse as they expect to see a few more traditional OEMs likely reactively slashing prices in the next few weeks.
MS analysts wrote in a note, “We gauge a full-blown price war would urge consumers to stay sidelined and await more promotions/discounts to come. Vehicles price elasticity of demand is decaying as consumer’s pricing expectation has also been falling YTD. This might pinch the sales resurgence and order-intake that should supposedly pick up in March.”
Shares of TSLA are down 2.23% in pre-market trading on Monday.
