Morgan Stanley analyst Adam Jonas gave Tesla's Elon Musk high praise on Tuesday.
Jonas lauded Musk's push for innovation across his companies, saying that "on New Year's Eve I sent Elon a message" of encouragement.Tesla Inc CEO Elon Musk attends an opening ceremony for Tesla China-made Model Y program in Shanghai, China January 7, 2020.But Jonas still is sticking by his underperform rating and $360 price target – essentially expecting the stock will drop 60% in the next year. He broke down a bit of why he thinks Tesla is so overvalued as an automaker.
"The recommendation on the stock is a different thing. We think what's in the price right now is something approaching four million units of annual volume by the year 2030 at 15% EBITDA margin. So that'd be a margin roughly two times the auto industry average, at a level of volume of 40%, maybe approaching 50%, of Toyota," Jonas said.
Instead of valuing Tesla as an automaker, Jonas said the stock is becoming more commonly valued as a technology company. "What's happening now in the market is essentially, by doing a deal with China to bring in some capital and draw a line under the distress argument, Tesla's basically throwing a stick of dynamite at a fireworks store. And it's led to a chain reaction where auto analysts, both buy side and sell side, are passing the stock over to tech analysts. From a tech perspective, they aren't just thinking about number of units sold times price or margin.
"Our current bear case is $115, which, again, might be the new $10 – it's an extremely low, hard-to-fathom level. We had to throw that out there," Jonas said.
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