Morgan Stanley Trims Tesla Target To $260, Says Shares Will Remain 'Volatile'

Tesla Inc TSLA stock has struggled since the company announced a Model 3 price cut and the closure of its brick-and-mortar stores last month. The company reversed course over the weekend, telling investors it would raise prices by 3 percent to pay for a portion of stores to remain open. One Wall Street analyst said Tuesday that Tesla’s biggest problem is demand.

The Analyst

Morgan Stanley analyst Adam Jonas reiterated an Equal-Weight rating on Tesla and cut the price target from $283 to $260.

The Thesis

Tesla’s price- and cost-cutting, along with other moves intended to stimulate near-term demand, are all indications that the company could be experiencing a demand “air pocket,” Jonas said in a note. 

“We cut first-quarter deliveries by 23 percent to 48,000 units, which we believe may be modestly below consensus to allow for sluggish U.S. sales and potential impediments to international deliveries." 

In addition to the delivery cut and target price reduction, the analyst lowered his Model 3 average transaction price estimate by more than $1,000, targeting an overall ATP of just $53,000 for Tesla by the fourth quarter. Jonas also lowered his first-quarter auto gross margin estimate by 1.7 percent to 22.3 percent and his full-year margin estimate by 1.5 percent to 22.6 percent.

Jonas increased his first-quarter net loss estimate by nearly tenfold from negative $32 million to negative $311 million. That net loss estimate includes $935 million in negative free cash flow. For the full year, Jonas is calling for $1.1 billion in cash burn.

For investors, Jonas said to expect more of the same.

“We expect the share price to remain in a volatile range with modest downside to our assessment of fair value." 

Price Action

Tesla stock was down 2.78 percent at the time of publication Tuesday and is down about 22 percent in the past three months.

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Photo courtesy of Tesla.