Morgan Stanley Predicts Tesla Will Behave Like a Chinese Tech Stock for a Decade

Morgan Stanley, a global financial services leader, predicted that Tesla would act like a technology stock listed on Hong Kong's Hang Seng or the Shanghai Composite index until at least 2030. Apparently, this is because the company relies on sales in China.

China Contributes 50% of Tesla's Revenue

Given that up to half of the company's income originates in China, analysts for the electric automaker warned in a report published on Monday, Oct. 24, that its stock price would be very sensitive to the performance of China's technology shares.

"We estimate Tesla generates as much as one-half of its profitability from the Chinese market, arguably making the stock a derivative of a Chinese tech stock," according to the group led by equities expert Adam Jonas, reported by Business Insider.

China's Economy Is Currently Weak

This year, the Chinese economy has been weighed down by Beijing's zero-COVID policy of lockdowns and a crisis in the country's real estate market. With the growth in the gross domestic product (GDP) for the third quarter coming in at 3.9% annually as of this week, the economy is on course to expand by less than the 5.5% goal set by the Communist Party for the year.

As Chinese firms worry about the effects of a future economic slowdown, Tesla cut the prices of its Model 3 and Model Y electric cars by 9% on Monday.

Considering that the shares of the electric vehicle manufacturer rose 2.7% to $216.95 just after the opening bell on Tuesday, this news might be a further drag on the stock price. As a result of minor revisions to Morgan Stanley's earnings-based model, Jonas reduced Tesla's price estimate from $350 to $330 per share.

Morgan Stanley predicts that Tesla China's price cutbacks may damage already dismal market sentiment.

The KraneShares CSI China Internet ETF, which tracks the technology sector in China, is down 48% this year due to investor concerns over the country's deteriorating economy.

When discussing the company's profits, Tesla CEO Elon Musk mentioned China's slowing economy. He remarked that the Chinese economy is kind of in a recession.

Morgan Stanley warned that if tensions between Beijing and Washington increased, Tesla's sales in China would suffer.

The Deteriorating US-China Ties

This year, vulnerable assets have been hit hard by the deterioration in US-Chinese ties. At the beginning of October, Chinese semiconductor stockpiles dropped significantly when the Biden administration instituted export limits. These regulations restrict the export of US-made semiconductors to only those companies that have been granted an official export license.

Meanwhile, Chinese government officials have complimented Musk for proposing that Taiwan, a source of conflict between China and the US, be granted special administrative status like Hong Kong.

Morgan Stanley said that until at least 2030, Tesla would have to rely heavily on sales in China. That leaves it susceptible if tensions between the two regions continue to rise.

Tesla's share price volatility would be sustained by the larger arc of Sino-US economic ties and the emerging geopolitical scenario, according to the bank. By 2030, its projections will rely less on China, but this process will take a while.

This article is owned by Tech Times

Written by Trisha Kae Andrada