On a day when the broad market is down amid anxiety about the coronavirus outbreak, Tesla's stock at last check was off 9.2% to $707.40.
Tesla's share of the electric-car market is so large as to leave it nowhere to go but down, wrote Morgan Stanley analyst Adam Jonas. Elon Musk's now massive electric-vehicle operation is vulnerable to rising competition in a still maturing market from traditional automakers like General Motors (GM) - Get Report, he said.
Morgan Stanley rates the stock underweight. It has a $500 price target on Tesla, more than a third below the stock's closing price Wednesday.
"Taking nothing away from Tesla's accomplishments and lead in many important areas," the Morgan Stanley analyst wrote, "we feel it may be too early to declare a 'winner' in what we expect to be one of the most competitive technological journeys since the development of the electric light bulb and the electric grid of the late 19th century."
Morgan Stanley's Jonas sees potential trouble for Tesla in the growing interest by tech giants like Alphabet (GOOGL) - Get Report and Apple (APPL) in the car industry, with partnerships already developing with the traditional automakers like GM.
The Morgan Stanley analyst sees the potential for partnerships with Google and Apple that move into the budding electric-car segment, with the tech companies handling the operating systems and battery management.
In addition, the battery market is still maturing, with a major expansion in capacity and production needed in the next few decades to keep pace with electric-vehicle demand, Jonas wrote.