Morgan Stanley bullish on Tesla heading in to 'disappointing year for EVs'

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By Michael Elkins

Shares of electric vehicle maker, Tesla (NASDAQ:TSLA) are up 0.28% in pre-market trading Thursday after Morgan Stanley reiterated an Outperform rating and $330.00 price target. Analysts believe that 2023 is “shaping up to be a disappointing year for EVs.”

They wrote in a note, “2023 is setting up to be a narrative changing year as EV sales growth decelerates significantly from 68% YTD to as little as 15 to 20% growth next year. At the same time, EV battery supply should continue to grow at a far faster pace.” According to China battery analysts, global battery capacity may end FY22 at more than ~1.2TWh, which is closer to 2x prior year levels.

According to recent reports, Volkswagen AG (ETR:VOWG) is said to be pushing back its next generation EV platform “Trinity” from 2026 to the end of the decade because the software isn’t ready yet. Morgan Stanley expects to see other OEMs push back EV plans for a variety of reasons.

The MS analysts believe the winners among the legacy auto names pursuing EVs will be the ones that spend more frugally and efficiently on specific products. As the global economy changes, they think “legacy automakers like GM and Ford have an opportunity to reconsider the quantum and timing of their EV investment plans last established during a very different economic and interest rate environment of 2020/2021.”

They are hopeful that a decidedly more challenging economic environment in 2023 may stimulate Board reconsideration of the magnitude and direction of OEM long-term spending plans while creating a more flexible posture to a range of potential strategic actions to improve returns.

The analysts wrote, “Once again, while we see high growth opportunities within the EV market, we think there is room for investor expectations to be managed (downward) when considering capital efficiency and profitability as we head into a period of rising capital costs and potentially prolonged economic downturn.”