Morgan Stanley Isn't Buying Tesla's Claims For Profitability, Positive Cash Flow, China Prospects

Tesla Inc TSLA’s investor day drove a $5-billion market cap pop, but the passionate promises of CEO Elon Musk did not alleviate all of the Street's skepticism. 

The Rating

Morgan Stanley analysts Adam Jonas and Armintas Sinkevicius maintained an Equal-weight rating on Tesla with a $291 price target.

The Thesis

The analysts anticipate volatility in Tesla as it trades above their calculated fair value.

“If Tesla were able to achieve 5,000 of weekly production of Model 3 and avoid a significantly dilutive or expensive capital raise, it could trigger a continued squeeze in the name,” Jonas and Sinkevicius said in a Thursday note. 

Morgan Stanley does not expect 5,000 Model 3s per week before the first half of 2019.

The analysts similarly reject guidance for third-quarter profitability and positive cash flow, as well as Tesla’s statement that it can close 2018 without a capital raise.

Positive free cash flow will come around 2021, the analysts said — long after the second half of 2018 posts a $1.4-billion adjusted free cash burn — and operating profitability won’t be seen until 2020. They anticipate a third-quarter GAAP loss of $554 million and a concurrent equity raise of $3 billion.

Finally, Jonas and Sinkevicius remain bearish on Tesla’s China prospects.

“While we are prepared for an announcement on Chinese capacity additions, our view is that Tesla's ability to access the Chinese shared autonomous transport market will be limited by data privacy and national security issues." 

Price Action

Tesla shares were trading up 1.46 percent at the time of publication Thursday. 

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Photo by Brett Hershman.