Morgan Stanley piles pressure on Tesla with $10 worst case call

Daniel Fowler
May 24, 2019

"Demand is at the heart of the problem", analysts led by Adam Jonas said in a note. In our opinion, Tesla has grown too big relative to near-term demand, putting great strain on the fundamentals.

The note continued to state: "Our revised bear case assumes Tesla misses our current Chinese volume forecast by roughly half to account for the highly volatile trade situation in the region, particularly around areas of technology, which we believe run a high and increasing risk of government/regulatory attention". The share price has recovered somewhat this week, to be trading about $US205 on Tuesday.

It also recently restructured its hard-pressed Autopilot team, responsible for Teslas' autonomous auto capabilities, reportedly after firing several staff. Musk now claims Tesla will have full Level 5 autonomous driving capability by 2020. Tesla handed over just 63,000 cars in the first quarter, yet expects to deliver as many as 100,000 cars in the second and four times that for the year. On Sunday, Wedbush Securities analyst Dan Ives said hitting the full-year target is going to be a "Herculean task".

China open to US trade talks on one condition
Energy stocks led the way lower after the price of benchmark USA oil sank more than 5% to drop below $59 per barrel. That includes semiconductors and other critical inputs needed by fledgling Chinese tech industries.

We have long held that Tesla's share price performance is driven by: demand for its products, ability to generate cash flow, and access to capital markets. Trade tensions between the US and China and new competitors put this strategy at risk, he added.

On April 22, Musk told investors that driverless Tesla "robotaxis" would be available in some US markets next year, a claim met by skepticism by some self-driving experts. "We strongly suspect a host of national champions to emerge" in the country. In the last 10 days, it has gained only once, when the company boosted prices of its Model 3 sedan last week.

Just this month Tesla was able to raise $2.4 billion by selling shares and convertible debt, but it wasn't enough to reassure investors, especially after CEO Elon Musk said the carmaker would burn through the money in about 10 months. The remaining $US36 billion market capitalisation is 7 per cent of what Musk is telling the world Tesla will be worth. In that span, Tesla has plunged more than 20 per cent and fallen back behind Ford Motor market capitalization. The bonds have trailed the broader Bloomberg Barclays Single B U.S. High Yield Index this year by around 500 basis points, according to Bloomberg Intelligence analyst Joel Levington.

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