Tesla Registrations Crash In California As Morgan Stanley Reiterates Underweight Over China Demand

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by Tyler Durden
Wednesday, Jun 17, 2020 - 01:45 PM

It was less than 24 hours ago that we were pondering why, exactly, Tesla would be slashing the price of its long range Model S by $5,000 heading into the end of the quarter. I mean, we knew the answer, but we had to ask anyway. 

Regardless, it now appears we have our answer. Tesla registrations have plunged in California, a key market for the EV maker, over the last two months, according to research firm Dominion Enterprises

Registrations were down 37%, combined, for April and May. California is Tesla's largest market and the state saw registrations fall 16% in April before plunging 70% in May. There were 6,260 vehicles and 1,447 vehicles registered in April and May, respectively. 

Across all of the states that Dominion tracks, including New York, Florida and Texas, registrations were down 33% to 14,151 vehicles.

The plunge paints a stark contrast to Tesla's Q1 report, which had many on Wall Street speculating that the company wasn't being dealt a meaningful blow from the coronavirus pandemic. 

To add insult to injury, Tesla was also reiterated at underweight by Morgan Stanley on Wednesday morning on continued worries about demand in China. Less than a week ago, we highlighted that both Morgan Stanley and Goldman had downgraded Tesla shares. 

Among concerns from MS analyst Adam Jonas at the time were capital needs and near-term demand - issues we feel like we have been hearing about for years, all the while Tesla stock has squeezed higher and higher.

"We're Underweight due to our concerns around China, competition, capital needs and near term demand. The RR skew for TSLA is consistent with an Underweight rating," the note read five days ago.

The company was separately downgraded to Neutral from Buy at Goldman Sachs after the stock shot past their price target.

Goldman said they remained positive on Tesla but that recent price cuts and production challenges with the Model Y could cloud the company's near term outlook, despite issuing the downgrade in a broader note about its auto industry sales forecast, which has improved.

Goldman also cited valuation for its reasons to downgrade Tesla: "While Tesla has long been an expensive stock, and we recognize that valuation has expanded for the entire market, we believe that there is a higher bar for Tesla’s fundamentals than other stocks that may have challenging near-term results given Tesla’s premium absolute multiple along with the historical volatility of Tesla shares."

Goldman was surprised by the company's price cuts at the time: "Tesla recently cut pricing on several models (which we hadn’t anticipated occurring outside of the China market and consider to be a modest negative)."

At the same time, Goldman upgraded GM, who it said was "well positioned" for the U.S. pickup truck market and China's recovering auto market.