Tesla Bull Cuts Price Target On EV Maker: Here's Why

Tesla, Inc. TSLA CEO Elon Musk sounded out a tough June quarter and this does not come as a surprise, given the economic uncertainty and the COVID lockdowns in China.

An analyst at Morgan Stanley tempered his expectation for the electric vehicle maker's stock.

The Tesla Analyst: Adam Jonas maintained an "overweight" rating on Tesla shares, but lowered the price target from $1,300 to $1,200.

The Tesla Thesis: Morgan Stanley marked to market its second-quarter forecast for Tesla, modeling a lower volume, Jonas said in a note. The analyst cut his second-quarter volume estimate from 316,000 units to 270,000 units. The full-year estimate was cut from 1.425 million to 1.390 million, he added.

Jonas, however, increased the revenue estimate for the year by nearly 1% due to higher prices. This would make up for the volume shortfall that is mostly concentrated in the second quarter, he said.

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

The analyst also lowered his second-quarter auto gross margin estimate, excluding zero-emission vehicle credit, from 25.8% to 24.6%. The cash flow, the analyst said, is almost unchanged at $9.3 billion.

Most of the volume shortfall will be made up for by the second-half volume and higher pricing, Jonas said.

The downward price target adjustment, the analyst said, is based on an increase in the weighted average cost of capital from 8.5% to 9%.

"We'd buy weakness on a potentially weak 2Q print," Morgan Stanley said.

Tesla Price Action: Tesla closed Wednesday's session down 0.40% at $708.26, according to Benzinga Pro data.