Morgan Stanley Slices Tesla Price Target, Increases Capital Raise Estimate

Amid top-level reorganization, cash consumption and manufacturing delays, Tesla Inc TSLA’s getting stuck in neutral, according to Street analysts.

The Rating

Morgan Stanley analysts Adam Jonas and Armintas Sinkevicius maintained an Equal-Weight rating on the stock, but cut their price target from $376 to $291.

The Thesis

The 23-percent slash aligns with lower-than-expected auto margins.

Morgan Stanley decreased long-term auto margin forecasts from 34 percent to 27 percent reflective of rising raw material prices, FX headwinds and enduring manufacturing issues at Model 3 facilities. Management has conceded it over-automated the vehicle production process and is making costly adjustments.

“It is our view that the challenges in ramping up Model 3 production reflect fundamental issues of vehicle design, manufacturing process, and automation levels that can weigh against the profitability of the vehicle,” Jonas and Sinkevicius wrote in a note.

They consider the Model 3’s suboptimal margins a structural headwind.

The analysts also delayed their forecasted launch date for Tesla Mobility by about one year and increased estimates for an expected third-quarter capital raise from $2.5 billion to $3 billion.

Price Action

At time of publication, Tesla was set to open down 2 percent at $285.87.

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