Has Tesla (TSLA) Stock Driven Too Far?

Getty images

Getty images

Tesla (TSLA) shares are poised to reverse course, and investors should seek opportunities to take profits before the stock peaks, according Morgan Stanley analyst Adam Jonas.

While the California-based luxury electric car manufacturer has been a leader in the so-called “Auto 2.0” market, Jonas sees increasing competition from the likes of Amazon (AMZN) and Google (GOOG , GOOGL) as headwinds for Tesla’s near-monopoly of that market. Amazon’s interest in transport, trucking and logistics could make it a direct competitor to Tesla, Jonas said.

Meanwhile, Google’s autonomous vehicle Waymo, which is expected to have a full self-driving fleet deployed by the end of 2018, has logged more than 5 million test miles, and is projected to surpass Tesla in that all-important AV market. And Tesla’s inability to make good on Model 3 sedan production and delivery promises only adds to the risk, especially at a time when Detroit heavyweights General Motors (GM) and Ford (F) are growing their own capabilities.

“Where we have substantially higher conviction on the Tesla story is our longer-term thesis that the company will face greater levels of competition than the market anticipates in the domains of electric vehicles, autonomous vehicles and shared mobility,” Jonas said, while reiterating an Equal-Weight rating with a $379 price target. Tesla shares closed Friday at $327.17, down 0.59%. The stock has risen 5% year to date, while climbing 33% over the past year, besting the S&P 500 index in both spans.

As such, Jonas believes that investors should use any position Model 3 production/delivery milestone and any resulting share price appreciation as a result of those milestones as an opportunity to take profits in the stock. That is, before the company’s competitive challenges emerge. Tesla CEO Elon Musk, who had projected the company would produce some 5,000 Model 3s by the end of 2017, famously referred to the Model 3 project as “production hell.”

Musk was much more optimistic about the company’s production capabilities in during Tesla’s fourth quarter earnings conference call with analysts, saying, the company can soon "become the best manufacturer in the automotive industry.” In that vein, Jonas echoed Musk’s confidence, saying he expects Tesla to not only overcome production struggles this year, the company may also ramp its targets at some point this year.

Tesla shares have a consensus price target of $325, which is 1.5% below Friday’s close. It would seem the company still has a lot to prove. And Jonas noted that reaching production targets is the first step. That said, it's tough to bet against Musk and against Tesla stock. Assuming the company does reach is delivery target and ramp up Model 3 production this year, Tesla stock should regain its all-time high of around $390, posting some 20% returns.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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