Morgan Stanley: 'Something Just Doesn't Add Up' With Tesla

Tesla Inc TSLA stock has taken a beating in the days since the company announced a price cut for the Model 3, said it was closing brick-and-mortar stores and said it would not be profitable in the first quarter.

Too many unanswered questions surround the electric carmaker at the moment, a Morgan Stanley analyst said Tuesday. 

Investor Inquiries

The following questions are the ones most commonly asked by Tesla investors, analyst Adam Jonas said in a note: 

Why hasn’t Tesla raised more capital? Jonas had expected Tesla to take advantage of a strong second half of 2018 and raise as much as $3 billion in the fourth quarter. The analyst said he now expects a $2.5-billion raise in the third quarter of 2019. 

Is Tesla’s balance sheet strong enough to handle first-quarter cash burn and a potential paydown of $566 million of November 2019 SolarCity converts? Tesla ended 2018 with $3.7 billion in cash, but it just paid $920 million out to meet debt obligations. Jonas said he anticipates $621 million in cash burn in the first quarter.

What is the risk associated with eliminating dealers? Closing store locations will help trim costs, but it could make servicing Tesla vehicles a problem, the analyst said. 

Does Tesla need lower prices to grow demand? The more Tesla shifts its sales mix to lower-priced models, the more of a hit its margins take, Jonas said. 

Is the early Model Y reveal a wise decision? Bulls say it gives investors a future catalyst, while bears say potential Model 3 buyers may now hold off for the Model Y.

What are the implications of Elon Musk’s latest run-in with the SEC? Jonas said a less contentious and more constructive relationship with regulators would benefit Tesla investors.

Will SpaceX ever play a direct role in Tesla’s business? Jonas said sentiment surrounding SpaceX is extremely high given positive the positive press for its historic achievement of launching a Dragon crew capsule and docking with the International Space Station. 

Tesla has been constantly under fire from critics, and its stock is down 21.7 percent in the past three months.

Waiting For Answers

For now, Tesla investors are left to wait and wonder about the answers to these questions, Jonas said.

While he personally does not have the answers, the analyst said “something just doesn’t add up” with Tesla at the moment.

“Taken within the context of recent key management departures and Elon Musk’s use of Twitter to criticize the SEC … investor feedback we are hearing is more firmly in the ‘something’s wrong’ camp rather than the ‘this is a great buying opportunity’ camp." 

Morgan Stanley has an Equal Weight rating and $283 price target for Tesla. The stock was down 2.17 percent at $279.16 at the time of publication Tuesday. 

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Photo courtesy of Tesla.