Morgan Stanley Sounds Alarm Bells for Tesla’s 2024 Outlook

The road ahead for Tesla seems to be getting bumpy, according to Morgan Stanley analyst Adam Jonas, who predicts a challenging year for the electric car giant. Despite a successful 2023, Tesla’s CEO Elon Musk may be facing numerous hurdles in the coming months as the global electric vehicle (EV) market shows signs of slowing down.

Caution in the Air

As Tesla gears up to report its fourth-quarter and year-end earnings, Jonas anticipates a more conservative outlook from Musk. The EV market is experiencing a slowdown in growth and a decline in optimism, setting the stage for a potentially challenging year for Tesla.

Seven Reasons Tesla Might Hit a Speed Bump

  1. Price Cuts and Shrinking Margins: Tesla’s strategy of slashing EV prices, a key factor in its 2023 success, might lose steam in 2024. Jonas points to recent German price cuts as a red flag, especially after Tesla announced production cuts in Berlin.
  2. Dwindling EV Incentives: Tesla is running out of government incentives, particularly in the US. With fewer vehicles eligible for tax credits, Jonas expects similar pullbacks in other countries as governments reassess budgets in 2024.
  3. Uncertain EV Residual Values: The mix of discounts and incentives that boosted Tesla’s market share may have long-term consequences on the brand’s pricing. Residual value volatility could harm the value proposition and create uncertainty for leasing partners.
  4. Fleet Buyers Shifting Away from EVs: Tesla faces challenges as fleet buyers, like Hertz, move away from EV commitments. Hertz’s decision to sell off a third of its EV fleet in favor of gas-powered cars could impact Tesla’s volumes.
  5. Political Risks in the 2024 Presidential Election: The upcoming presidential election poses a potential threat to EVs, with concerns about a rollback of incentives if there is a change in administration. Investors worry about the future of government support for clean energy initiatives.
  6. Production Capacity Woes in China: China, a crucial market for electric vehicles, may experience a supply and demand imbalance. Jonas notes that the expiration of local stimulus measures and a rush to finish production in 2023 could lead to challenges in 2024.
  7. Slowing EV Exports from China: China’s decision to rein in EV exports and address “blind” production poses additional hurdles. Anecdotal evidence suggests a shift in customer interest back towards gas-powered cars, potentially impacting Tesla’s market share.

In the face of these challenges, Tesla’s outlook for 2024 might not be as rosy as its previous year, and investors will be closely watching the company’s response to these concerns.