Morgan Stanley: Pricing, China Are Key Tesla Concerns

Now that CEO Elon Musk’s proposal to take Tesla, Inc. TSLA private is off the table, investors are once again focusing on the company’s vehicle production, fundamental performance and stretched balance sheet. Tesla’s third quarter is critical, according to Morgan Stanley. 

The Analyst

Morgan Stanley analyst Adam Jonas reiterated an Equal-Weight rating on Tesla with a $291 price target.

The Thesis

Average transaction price will be extremely important when Tesla reports its third-quarter numbers, Jonas said in a Thursday note. (See the analyst's track record here.) 

The analyst expects an ATP of $56,000 for the quarter, but said ATP of $60,000 or above cound drive meaningful earnings upside.

At the same time, Tesla’s Q3 performance may not be indicative of its longer-term outlook, Jonas said. 

“We believe the challenge for investors is to differentiate between what is achievable and what is sustainable." 

China could become problematic for Tesla as the international trade war drags on, the analyst said. China announced last month that it plans to levy a 40-percent retaliatory tariff on vehicles imported from the U.S.

Roughly 15 percent of Tesla’s total volume in 2018 has come from China, and the new tariffs would likely make the cost of its vehicles prohibitively high in China, Jonas said. 

Unless Tesla can deliver some upside surprise in Q3, the analyst said Tesla will likely need to raise $2.5 billion in additional equity capital by the end of the year.

Tesla has repeatedly said it will not need additional capital in 2018. Morgan Stanley assisted Tesla in its go-private bid before the effort was dropped Friday. 

Price Action

Tesla was slipping 1.31 percent to $301 at the time of publication Thursday and is now down 14 percent in the past six months.

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Photo courtesy of Tesla.