The Strategist

Morgan Stanley expects sharp drop in Tesla shares

05/22/2019 - 10:00

Since the beginning of the year, Tesla Motors shares have already lost about 40% of their value, but Morgan Stanley believes that the worst may be ahead. According to a revised assessment, the automaker's papers could fall in price to $ 10 apiece within unfavorable scenarios. Previously, bank analysts thought it was possible for them to drop to $ 97.

Morgan Stanley reduced the outlook for Tesla shares from $ 97 to only $ 10, citing concerns about increased debt burden on the company, as well as geopolitical problems. In particular, analysts at Morgan Stanley said that reduction in this forecast was driven by fears of demand for Tesla cars in China.

"The sharp slowdown in demand this year resulted in a significant reduction in the company's ability to provide self-financing by generating free cash flow, which could potentially affect the company's access to capital," says Morgan Stanley.

Analysts recognize that "the recent attraction of $ 2.7 billion through the placement of shares and convertible debt can provide a level of liquidity that will be enough for a business of this size and to last another year with such a need for cash."

Experts warn that the company "may be hostage to a cycle in which declining stocks may in itself have a negative impact on the mood of employees, lead to an increase in counterparty risk for both consumers and business partners... and potentially affect fundamental factors."

Morgan Stanley expects the company to sell an average of 165 thousand vehicles in China between 2020 and 2024, indicating revenue of $ 9 billion a year with an average cost of Model 3 $ 55 thousand. Morgan Stanley nevertheless expects that in the event of an unfavorable scenario, Tesla will be losing profits every year, which will result in a drop in the value of a company of $ 16.4 billion.