Shares of Tesla Inc. dropped more than 3% in morning trading Jan. 16 after Morgan Stanley downgraded the electric car company.
Tesla shares dipped 3.1% to $502.31 during morning trading, recovering slightly from a more than 4% drop before U.S. markets opened.
Morgan Stanley downgraded Tesla to underweight from equal-weight based on its valuation, unfavorable risk-reward and risks to Tesla's long-term business in China, analyst Adam Jonas wrote in a Jan. 16 research note.
The automaker hit and surpassed $500 per share on Jan. 13 and had been steadily rising. Jonas said that while near-term momentum and sentiment around the stock was very strong, he questions "the sustainability of the momentum."
The analyst said Tesla deserves to be one of the most valuable auto companies but that investors will probably see better opportunities to buy the stock in the future. Morgan Stanley also raised its Tesla price target to $360 from $250 after increasing expectations for Tesla's core auto business but decreasing expectations for the mobility business.
Tesla's faster-than-expected ramp-up in China was a testament to the company's desire to tap into the market there, Jonas said, but he is concerned about automakers in general in the Chinese market.
"However, we continue to harbor concerns whether an auto business commercializing advanced, dual-purpose technology in economically sensitive industries could be a long-term winner in the Chinese market," Jonas said. "We do not apply this concern to TSLA alone, but to all [original equipment manufacturers] under our coverage."
Tesla did not respond to a request for comment by S&P Global Market Intelligence.