Tesla recovers as Morgan Stanley says sell-off went too far

(Bloomberg) — After losing nearly $300 billion in market value in two months, a growing chorus of Tesla Inc. analysts say. that the share price drop has gone far enough that the stock floated higher on Wednesday.

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Morgan Stanley analyst Adam Jonas previously said that Tesla is approaching its “bear case” price target of $150, offering investors a chance to buy at a bargain price. Citi analysts upgraded shares from selling to neutral, saying a slump of more than 50% this year has “balanced near-term risk/reward.”

Despite challenges including declining demand and price cuts in China, Tesla is the only electric vehicle maker backed by Morgan Stanley to make a profit on sales of its cars, Jonas wrote in a note. The analyst — who also highlighted Tesla’s potential to take advantage of US consumer tax credits — reiterated his $330 price target.

Shares closed 7.8% higher at $183.20 in New York. Stocks have fallen this year due to rising raw material costs, problems with production and sales in China and pressure on customer budgets. Lately, Chief Executive Officer Elon Musk’s focus on turning Twitter Inc. sentiment has also hit, with $300 billion wiped from Tesla’s market cap over the past two months, according to Bloomberg calculations.

According to Jonas, the distraction of Twitter must end to stop the price drop. “There needs to be some form of ‘circuit breaker’ sentiment around the Twitter situation to calm investor concerns around Tesla,” he wrote.

Despite all the challenges Tesla has faced this year, Wall Street has remained mostly optimistic. The majority of Tesla analysts tracked by Bloomberg rate the stock as buy or equivalent, while the stock would need to rise as much as 57% to meet analysts’ average target price. This year’s slump has left stock trading at 31 times expected earnings, down from the more than 200 times in early 2021.

Citi analyst Itay Michaeli, who upgraded the stock Wednesday, has one of the lowest price targets on the street, at $176. The analyst said he became more positive because Tesla’s slump means some of the overly optimistic expectations in the stock, also in terms of unit sales, are now priced out.

–With assistance from James Cone, Esha Dey and Boris Korby.

(Update stock movement in the fourth paragraph. An earlier version of this story corrected Citi’s assessment in the second paragraph.)

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