Is It Best To Watch The Tesla Story Unfold From The Sidelines? Adam Jonas Weighs In

Analysts at Morgan Stanley aren't taking any chances in recommending investors buy or sell Tesla Inc TSLA after the company's worse than expected third-quarter loss. Adam Jonas maintains an Equal-weight rating on Tesla's stock with an unchanged $379 price target.

Tesla's third-quarter revenue fell short of what the analyst was modeling, while total US GAAP company gross profit came in 12 percent below expectations. Auto gross profit fell short by 8 percent and auto gross margin of 18.3 percent also missed by 50 basis points.

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Serious Concerns Remain

Despite multiple misses on various reported metrics, the longer-term case for owning Tesla's stock is unchanged, the analyst wrote. Specifically, the "working assumption" remains that the Model 3 sedan will become a "highly successful car" to the point where global demand will "significantly" exceed market expectations over the next two years.

But beyond the next two years there remains "serious concerns" surrounding Tesla's ability to hold on to its competitive moat as it is inevitable that both U.S.-based and international automakers will enter the space. The problem for Tesla is that its future competitors boast superior access to not only capital but human talent and a business model that can better withstand high levels of operating losses.

Near-Term Goals

Tesla' needs to deliver on two near-term goals: 1) produce and 5,000 Model 3 units per week by the end of the first quarter of 2018, and 2) achieve this target without an increase in cash consumption. If successful, Tesla's stock could move "materially higher."

Any near-term weakness represents a near-term buying opportunity but the longer-term risk to Tesla's stock remains in place. In the meantime, Jonas says, "we're watching from the sidelines."