Morgan Stanley Slices Tesla Price Target, Increases Capital Raise Estimate

Amid top-level reorganization, cash consumption and manufacturing delays, Tesla Inc (NASDAQ: TSLA)’s getting stuck in neutral, according to Street analysts.

The Rating

Morgan Stanley analysts Adam Jonas and Armintas Sinkevicius maintained an Equal-Weight rating on the stock, but cut their price target from $376 to $291.

The Thesis

The 23-percent slash aligns with lower-than-expected auto margins.

Morgan Stanley decreased long-term auto margin forecasts from 34 percent to 27 percent reflective of rising raw material prices, FX headwinds and enduring manufacturing issues at Model 3 facilities. Management has conceded it over-automated the vehicle production process and is making costly adjustments.

“It is our view that the challenges in ramping up Model 3 production reflect fundamental issues of vehicle design, manufacturing process, and automation levels that can weigh against the profitability of the vehicle,” Jonas and Sinkevicius wrote in a note.

They consider the Model 3’s suboptimal margins a structural headwind.

The analysts also delayed their forecasted launch date for Tesla Mobility by about one year and increased estimates for an expected third-quarter capital raise from $2.5 billion to $3 billion.

Price Action

At time of publication, Tesla was set to open down 2 percent at $285.87.

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