Morgan Stanley sees Tesla falling 35% from current levels, says rally to $1,000 ignores a host of risks

• Tesla at more than $1,000 per share is plausible but ignores a host of market and execution risks, Adam Jonas of Morgan Stanley wrote in a Monday note.
• Shares of Tesla have been trading around the key level since closing at an all-time high of $1,025 per share on June 10. On Tuesday, Tesla again closed above the level, at $1,001 per share.
• Morgan Stanley's price target of $650 implies a 35% drop from that level.
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Tesla might be overvalued at $1,000 per share, according to Morgan Stanley.

"We understand the attraction of the Tesla story," Adam Jonas of Morgan Stanley wrote in a Monday note, adding "we think investors may have a chance to revisit the stock at a more attractive price."

He continued: "We believe $1,000/share discounts outcomes that, while plausible, may ignore a host of execution/ market risks."

Shares of Tesla have been trading around the key $1,000 level since June 10, when the stock closed at an all-time high of $1,025. On Tuesday, Tesla closed at $1,001 per share, beating the level again before paring some gains Wednesday.

There could be further pain ahead for Tesla stock, according to Morgan Stanley. The firm reiterated its $650 price target, which implies the stock could fall 35% from the key $1,000 level. Morgan Stanley also has the equivalent of a "sell" rating on Tesla.

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Tesla interest is coming from tech-oriented investors that see the Elon Musk-led company's valuation as "reasonable and in the framework of discussion amongst large/ tera-cap tech names" such as Amazon, Google, and Apple, said Jonas.

"However, one would have to consider (or ignore) significant inherent differences in Tesla's business model and capital intensity" compared to other tech names, according to Jonas.

In addition, "one must also take into account many of Tesla's business objectives face a degree of execution risk that may be significantly higher than many of the more proven/ mature companies in this analysis."

Morgan Stanley's Tesla target price is based on slightly more than 2 million units of annual deliveries by 2030 at a roughly 16.5% Ebitda margin, according to the note. At $1,000 per share and the same margin forecast, Tesla is discounting roughly 4 million units — double its estimate, said Morgan Stanley.

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