Morgan Stanley’s Adam Jonas believes Tesla’s disappointing Q3 results and cautious outlook should prompt a broader rethinking of EV demand and profitability across the auto industry, Adam Jonas cutting Tesla Price Target to $380 from $400. He argues Tesla’s warning signals headwinds for other automakers’ aggressive electrification pushes.
Demand is Slowing
With its dominant market share, Tesla’s demand warning is especially impactful. As the EV leader commanding nearly 20% of the global market in 2023, Tesla’s guidance casts doubt on more optimistic forecasts. Slower demand at the EV front-runner does not bode well for overall segment growth.
Jonas points out Tesla boasts unrivaled scale and efficiency advantages currently. If even Tesla is citing slowing demand, other automakers may need to recalibrate sales projections for their upcoming EV launches.
EV Penetration Forecasts Have Downside Risks
Morgan Stanley’s relatively conservative EV penetration estimates – 17% globally and 9% in U.S. by 2025 – now appear prudent given Tesla’s outlook. More bullish projections for Europe and China above 50% by 2030 seem unrealistic if demand is in fact cooling.
Tesla’s dominant market share and production capacity provides unique visibility into true EV demand signals. Their caution highlights potential downside risks to mainstream penetration forecasts.
Sympathy for Detroit
The Detroit automakers are embroiled in UAW negotiations while undertaking major EV investments. Tesla’s warning may influence domestic OEMs to prioritize profitability of existing ICE models over overly ambitious electrification targets.
With Tesla struggling to match ICE margins even with segment-leading scale, U.S. firms will likely exercise greater caution in EV capital allocation. The timelines and volumes behind recent EV commitments now appear up for reassessment.
Jonas expects Detroit automakers to emphasize the earnings power and cash flow generation of their traditional ICE vehicle business lines. EV budget allocation going forward may face more scrutiny in light of Tesla’s concerns over consumer demand and profit ramp.
Pushed Out EV Capacity Expansion
Citing economic uncertainty, Tesla is delaying the Mexico factory intended to build cheaper sub-$25k EVs. The postponement of a facility focused on mass-market EV output further signals challenges converting lower-income demographics to electric.
Right Strategy for Long Term
While Tesla’s reset lowers near-term expectations, Jonas believes exercising caution better positions Tesla financially over the long run. Tempering volume forecasts and capital spending demonstrates prudent stewardship amid unstable conditions.
Ultimately, Tesla’s Q3 signals to the auto industry that rampant EV euphoria now warrants caution. Detroit, European, Japanese, and Chinese automakers would be prudent to re-evaluate aggressive electrification plans as demand risks emerge. Tesla’s warning of slowing growth provides a sobering reality check on easing the world into an electric future.