Tesla's China Concerns, SpaceX Synergies At Top Of Mind For Morgan Stanley

Tesla Inc TSLA is known for its sharp volatility, and one group of analysts warned it could head toward two possible extremes — a bearish $97 or bullish $441.

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 consider this fourth quarter a transition from ramping to raising and expect a peak in sentiment and share price.

They remain sidelined specifically given risk in foreign markets. Tariffs, data-privacy laws and sentiment around dual-purpose technology may bring trouble in China and Europe, and the analysts doubt Tesla can maintain long-term access to Chinese consumer data as automated, electric transport becomes a public good.

“Moreover, we are increasingly of the view that the confluence of economic, competitive, regulatory, political,and technological forces may potentially challenge Tesla’s status as a stand-alone entity,” Jonas and Sinkevicius wrote.

On a positive note, sentiment around a Tesla-SpaceX relationship has improved, and any advancement in their overlap could drive synergies. Additionally, the automaker could see a convergence of factors — flat quarter-over-quarter capex, a repeated $500 million in working capital, and GAAP operating margin between 6 and 7 percent — push free cash flow to $1.3 billion. That’s double Morgan Stanley’s current estimate.

“Extraordinary efforts to deliver Model 3s before the end of the year could drive 4Q cash flow substantially higher than 3Q levels, potentially 2x as high in more bullish scenarios,” the analysts wrote.

Despite Tesla’s resistance to a capital raise, they predict a $2.5 billion-plus raise in the fourth quarter — which could serve to mitigate investor concerns over financial pressure.

Price Action

Shares traded at $339.81, down 2.7 percent at time of publication Tuesday afternoon.

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