What This Tesla Analyst Makes Out Of Elon Musk's Warning Of A 'Tough Quarter'

Tesla Inc. TSLA chief executive officer Elon Musk warned of a 'tough quarter' in a recent internal communication to employees and solicited their support to achieve goals.

The Tesla Analyst: Morgan Stanley analyst Adam Jonas has an Overweight rating and $1,300 price target for Tesla shares.

The Tesla Thesis: Given the high dependence of Tesla on China for production and profitability, the impact of COVID-19 lockdowns in Shanghai is real, analyst Jonas said in a note. Tesla has demonstrated that it can make up substantial lost ground by accelerating deliveries into the close of the quarter. Disproportionate amounts of a full quarter's production can occur in the final week or two, he explained.

Moreover, lost production/deliveries in the second quarter could provide "pent-up sequential tailwinds" for the third quarter results, Jonas added.

Related Link: Elon Musk Says He Respects Tesla Employees 'Indefinitely More' Than Richest Person On Wall Street

Any lingering impact of the Shanghai lockdown on Tesla production will resolve itself before the year-end, Jonas said. The current consensus expectation calls for less than $18 billion revenue in the second quarter, reflecting a sequential decline in volume to below 300,000 units.

Jonas expects a 50-basis point shave off from his second-quarter auto gross-margin estimate of 25.8%, if deliveries for the quarter fall to 25,000 units. The analyst also sees near-term margin pressure as Tesla's Gigafactories in Berlin and Austin fully ramp up. Another additional source is the pass through of higher material prices by Tesla's battery suppliers, he added.

Tesla Price Action: Tesla shares were seen trading up 1.57% at $673.07 at the time of publication.