Morgan Stanley Tesla bull Adam Jonas issued an investor note late Tuesday in which he cut his Tesla 2024 earnings projections by 25%, saying that the EV giant could "potentially" lose money this year. Meanwhile, Cathie Wood and her Ark Invest funds decided to buy more than 140,000 TSLA shares as the stock trades around 2024 lows.
The Morgan Stanley analyst cut his Tesla price target to 320, down from 345, Tuesday but maintained an overweight rating on the shares. Jonas also whittled down his Tesla 2024 EPS projections to $1.51, his previous view was $2.04 per share, with auto gross profit margins, excluding regulatory credits, sinking to 11.4% as the analyst foresees continued demand issues for EVs.
"EV demand continues to decelerate despite continued price cuts. Fleets are dumping EVs and strong hybrid momentum is competing for the marginal EV buyer," Jonas wrote Tuesday. "If there was ever a time for Tesla to potentially post a GAAP EBIT loss in the auto business, it may be this year."
The bulk of Jonas' 320 valuation of Tesla stock includes $68 per share for the core auto business, $61 per share for Tesla mobility, $39 per share for Tesla as a third party supplier and $38 per share for Tesla's energy business. Jonas values Tesla's "network services," which include full self driving and charging infrastructure, at $108 per share.
"We believe Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first," Jonas wrote Tuesday.
"We do not believe Tesla will get credit as an AI company as long as core auto earnings are being revised down," he added.
An 'Investment Year' For Tesla
Wall Street expects Tesla earnings per share of just $3.06 a share in 2024, according to FactSet. That would be a little less than a 2% decline vs. last year's $3.12.
Gary Black, managing partner of the Future Fund, posted on X early Wednesday that Jonas' projections are "consistent" with what he heard during a meeting Tuesday with Tesla.
Black said Tesla management "refused to agree that auto gross margins had bottomed at 3Q of 16.3% and their verbal cues reinforced Jonas' view that auto GM could fall further in 2024."
To maintain sales momentum in 2023, Tesla aggressively cut vehicle prices and offered discounts throughout the year. This strategy has continued in 2024. As a result, auto gross margins, which peaked at 30% in Q4 2021 amid industry chip shortages, have plunged well below 20%.
Black added that Tesla sees 2024 as an "investment year."
Chief Executive Elon Musk hinted at as much during the fourth-quarter earnings call. Musk is focused on ensuring the next-generation vehicle, energy storage, full self driving and "other projects" are "executed as well as possible" in 2o24.
Tesla Stock Performance
TSLA shares dipped more than 2% Thursday during premarket action. On Wednesday, Tesla stock fell 2.3% to 176.54, breaking below February lows hitting 173.70 intraday. On Tuesday, Tesla stock dropped 3.9% to 180.74. TSLA is down 12.5% on the week amid several negative headlines.
However, Cathie Wood and her Ark Invest funds loaded up on Tesla stock Tuesday and Wednesday, purchasing 143,311 shares, according to the company's daily trade disclosure.
Wood's Tesla trades were done through the ARK Innovation ETF, ARK Next Generation Internet and ARK Autonomous Tech.
So far in 2024, Tesla stock has retreated around 30%, falling below key levels of support.
Tesla stock ranks eighth in the 35-member IBD Auto Manufacturers industry group. The stock has a 37 Composite Rating out of a best-possible 99. Tesla stock also has a 13 Relative Strength Rating and a 67 EPS Rating.
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