Morgan Stanley Lowers Tesla Bear-Case Scenario Price Target To $10, Highlights Slowing Demand

Tesla Inc TSLA shares dropped back below $200 on Tuesday after a high-profile Wall Street analyst cut his bear-case price target for Tesla by nearly 90 percent.

The Analyst

Morgan Stanley analyst Adam Jonas reiterated his Equal-Weight rating and $230 price target for Tesla, but cut his bear-case price target from $97 to just $10.

Jonas' commentary comes just a day after Wedbush lowered its price target for Tesla from 275 to $230.

The Thesis

Jonas said his bear-case scenario involves Tesla failing to drum up demand in China.

“Our revised bear case assumes Tesla misses our current Chinese volume forecast by roughly half to account for the highly volatile trade situation in the region,particularly around areas of technology, which we believe run a high and increasing risk of government/regulatory attention,” Jonas wrote in a note.

Morgan Stanley is currently forecasting average annual China demand of 165,000 vehicles from 2020 through 2024.

Jonas said Tesla’s recent $2.7 billion capital raise has eliminated near-term liquidity issues for at least another year, but slowing demand growth has hindered the company’s ability to self-fund via cash flow.

With Tesla stock essentially flat over the past five years compared to a more than 50 percent gain for the S&P 500, Jonas said the company may be approaching a point where the low stock price in itself is having a negative impact on company morale and investor sentiment.

Jonas said one of the primary concerns for Tesla investors is that the company may have saturated the U.S. electric vehicle market, limiting its potential opportunities for growth. He said Tesla may have simply outgrown the market for EVs at this point, limiting the business’ ability to expand.

Jonas said Tesla may need to pursue the Chinese domestic market, the lower-priced SUV niche and/or logistics/mobility fleets to drive near-term demand.

Price Action

Tesla traded lower by 3 percent on Tuesday to $199.50 per share and is now down 42 percent in the past six months.

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Wedbush Lowers Tesla Price Target, Shares Fall Below $200