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Investing.com – In a note released last week, analysts at the bank Morgan Stanley (NYSE:) looked at the outlook for the electric vehicle market for the year 2023, anticipating a tough year but believing that several stocks will manage to outperform despite a challenging environment.
The bank’s analysts have indeed noted that “two years of price increases are bringing car affordability to breaking point, especially for EVs where supply (up) is expected to greatly exceed demand (down). “.
Morgan Stanley becomes more cautious on EV market outlook
MS has indeed stated that “the average monthly payment for a new car in the United States has never been higher (up 24% from Q3 20, approaching $700/month) and represents a percentage unprecedented monthly income.
This has consequently greatly reduced the demand. Highlighting how quickly things have evolved since the beginning of 2022, when “you had to wait more than 6 months to take possession of your Tesla”, Morgan Stanley analysts noted that now, “Tesla is reducing its prices in China and the price of used Teslas are down”, “Lucid sees a drop in reservations and cancellations” and that “Rivian has completely stopped communicating on reservations”.
In this context, the bank’s analysts warned that “the shift in the balance between EV supply and demand has the potential to take investors by surprise”. They also lowered their forecast for the penetration rate of electric vehicles on the US market to 11% against 13% previously by 2025, and to 26% against 32% previously by 2030.
However, these less optimistic hopes do not mean that the bank thinks it should turn away from the electric vehicle sector, advising instead to be more selective.
Ferrari, Rivian and Tesla among Morgan Stanley’s favorite EV stocks for 2023
Among the manufacturers, MS notably cited Ferrari S.A. (NYSE:), which it considers to be “the most regression-resistant company in our coverage.” Analysts judge that “Ferrari’s advantage, based on rarity, desirability and the brand’s values around performance and luxury, are stronger than ever” and underline that “as long as Ferrari presents the relevance of its brand, we are optimistic that its transition to electric vehicles will be successful.”
MS analysts have thus set a 12-month price target of $280, representing an upside potential of 30.8% compared to the closing price on Wednesday evening.
Rivian Automotive Inc (NASDAQ:) is also among the EV builders advised by MS. The bank pointed out that the company “has carved out a unique space in the EV industry with a range of manufactured products.” The analysts also wrote that the “strong strategic partner, Amazon (NASDAQ:), and exposure to a growing last-mile low-carbon vehicle delivery business afforded Rivian successful product diversification,” concluding: “ we still see RIVN as the ‘chosen one’ who can challenge Tesla”.
The bank is therefore targeting a rise in Rivian’s share price to $55 in the next 12 months, which represents an upside potential of +162% compared to the last closing price.
Elon Musk’s company is also part of the EV stocks recommended by MS for 2023, justifying that “Tesla Inc (NASDAQ:) is currently the only company capable of selling EVs at margins similar to those of gasoline engines. internal combustion”. The bank also believes that “Tesla’s unique battery capabilities position it favorably against the IRA, both for vehicle tax credits and battery manufacturing.” MS analysts also pointed to the “strong potential for recurring revenue from connected car software.”
In this context, Morgan Stanley analysts deserved that Tesla shares will almost triple in value over the next 12 months to reach $330, representing an upside potential of more than 140% compared to yesterday’s close.
Finally, note that we find Lucid Group Inc (NASDAQ:) in the Morgan Stanley list of electric vehicle stocks to avoid. The bank clarified that the company will face in its niche “intense competition in the space from well-capitalized players”. It does, however, show a 12-month target for Lucid at $10, which is 40% higher than yesterday’s closing price.