Daily Management Review

Tesla’s Worst Case Share Price Is $10, Says Morgan Stanley


Concerns over the saturation of the electric car market prompted analysts at Morgan Stanley to peg the share price of United States electric car maker Tesla at just $10 in a worst case scenario. This was another blow to the electric car maker in recent times which has been plagued by a string of controversies which included a tiff between the company CEO and founder Elon Musk and the US Securities and Exchange Commission (SEC). 
“Demand is at the heart of the problem,” analysts led by Adam Jonas said in a note. “Tesla has grown too big relative to near-term demand, putting great strain on the fundamentals.”
Compared to an earlier estimate of $97, the “bear case” for Tesla shares was lower to $10 by Jonas. This forecast assumes that Tesla would be missing its current sales forecast in China by about half and upholding a price target of $230. Tesla shares dropped by 2.6 per cent at $200 in pre-market trading.
Failure to make promised deliveries on time has been one of the criticisms of Tesla.  In the first quarter of the current year, the company managed to deliver just 63,000 cars and despite this performance, the company still expects to be able to deliver as many as 100,000 cars during the second quarter of the year. The company further targets to deliver four times that number of cars for the entire of 2019. Wedbush Securities analyst Dan Ives said on Sunday that Tesla being able to meet the full-year target that it had set for itself would be a “Herculean task.”
According to Morgan Stanley’s Jonas, Tesla would have to supply mobility fleets, offer lower-priced sport utility vehicles and aggressively expand into China in order for it to increase demand for its electric vehicles. He added that the company faced increased risks of a failure because of new competitors and the ongoing trade tensions between the US and China.
“We give Tesla credit for tapping into the world’s largest EV market for a number of years” in China, Jonas said. “We strongly suspect a host of national champions to emerge.”
So far this year, Tesla shares have dropped by 38 per cent. The stocks breached the $200 a share level on Monday before closing 2.7 per cent lower at $205.36. A call for a “hardcore” review of all the company’s expenses was given by Musk last week even as there are rising concerns about a severe fall out of the fatal crash involving the Autopilot driver assistance system.
Concern about the cash burn that Tesla is making was also pointed at by Musk. He pointed out that the company was losing $700 million in the first quarter. And even though the company had managed to raise about $2.4 billion in capital recently, that money would not last long, Musk said.