Tesla shares fall after Morgan Stanley recommends dumping the stock. Here are the details

Published Thu, Jan 16 20206:51 AM ESTUpdated Thu, Jan 16 20209:58 AM EST

Morgan Stanley lowered its rating on Tesla on Thursday and said it thinks investors will be presented with a better chance to buy the stock in the future at a lower price. The firm downgraded the stock to underweight (equivalent of sell) from equal weight. At the same time, it raised its price target to $360 from $250 to account for the rally in the stock. The shares have doubled in the last six months and closed Wednesday at $518.50. The shares fell nearly 3.67% in early trading Thursday following the Morgan Stanley call, the third downgrade since the start of the year, according to Tipranks . There were three main reasons for Morgan Stanley's downgrade from respected analyst Adam Jonas: Valuation: Jonas points out the stock is trading at 31 times his 2023 earnings estimate. Risk-reward: Even after increasing the price target because of a bullish China scenario, the stock has 30% downside to that Morgan Stanley forecast. China risks: Investors may be too optimistic about Tesla being able to be a "long-term" winner in the country. "For example, we value Ford China at zero," the note states. And Morgan Stanley says while the company may be on the right track, now is not the right time to buy. "We are encouraged by Tesla's execution and think it deserves to be among the world's most valuable auto companies, and is perhaps the most important auto company in the world given its EV leadership," Jonas said. "However, we think investors will be presented with more attractive opportunities to own the stock in the future." The analyst attributed the stock's run-up to global demand for the company's vehicles and China expansion among other things. "We believe these factors, combined with other market/technical forces have triggered a significant reduction in the market's implied risk premium for this asset," he said. But the firm still questioned how long the stock's recent run can last. "Near-term momentum and sentiment around the stock is admittedly very strong, but we ultimately question the sustainability of the momentum." The company expects to report its fiscal fourth quarter earnings report later this month.

SpaceX founder Elon Musk looks on at a post-launch news conference after the SpaceX Falcon 9 rocket, carrying the Crew Dragon spacecraft, lifted off on an uncrewed test flight to the International Space Station from the Kennedy Space Center in Cape Canaveral, Florida, March 2, 2019.

Mike Blake | Reuters

Morgan Stanley lowered its rating on Tesla on Thursday and said it thinks investors will be presented with a better chance to buy the stock in the future at a lower price.

The firm downgraded the stock to underweight (equivalent of sell) from equal weight. At the same time, it raised its price target to $360 from $250 to account for the rally in the stock. The shares have doubled in the last six months and closed Wednesday at $518.50.

The shares fell nearly 3.67% in early trading Thursday following the Morgan Stanley call, the third downgrade since the start of the year, according to Tipranks.

There were three main reasons for Morgan Stanley's downgrade from respected analyst Adam Jonas: