One of Tesla’s longtime fans on Wall Street slashed his worst-case scenario for the stock price to a mere $10, in the latest sign that analysts have begun to lose faith in Elon Musk’s electric-car maker.
Morgan Stanley analyst Adam Jonas said on Tuesday that his new “bear case” for the shares, down from a previous estimate of $97, could materialise if Tesla were to miss by about half his forecast for sales in China. Mr Jonas also raised concerns about a “highly volatile trade situation in the region” and Tesla’s mounting debt load.
“This year’s sharp deceleration in demand has led to a substantial curtailment of the company’s ability to self-fund through free cash flow generation, at the margin potentially impacting the firm’s access to capital,” Mr Jonas wrote in a note to clients.
He added: “We believe as Tesla’s share price declines, the likelihood of the company potentially seeking alternatives from strategic/industrial/financial partners rises.”
Shares in Tesla have dropped almost 40 per cent so far this year. The stock slipped as low as $196.04 in morning trading on Tuesday, down 4.7 per cent on the day, before rebounding.
The cautious view from Morgan Stanley — one of the underwriters of Tesla’s initial public offering in 2010 — comes amid growing scepticism on Wall Street that Tesla can increase profits and meet ambitious sales targets while fighting back competition from traditional automakers.
Wedbush’s Daniel Ives, another former bull on Tesla, warned this week that the company faced a “Kilimanjaro-like uphill climb” to rein in spending, describing the current situation as a “code red”. Mr Ives, who lowered his price target to $230 from $275, knocked Tesla for pursuing “sci-fi projects” such as robotaxis, rather than focusing on shoring up demand for the key product, the Model 3.
Baird’s Ben Kallo said he continued to believe Tesla was positioned to outperform over the long haul. But he too lowered his price target on Tuesday, to $340 from $400, citing “constant noise” around the stock and “a lack of meaningful data points”.
The shift in sentiment has made Tesla the worst-rated stock among the Nasdaq 100, according to Bloomberg data. Analysts have an average rating of 2.75 on a scale of 1 to 5, with 1 being a strong sell. Nearly 42 per cent of the analysts tracked by Bloomberg have a sell rating, compared with less than one-third a year ago. Wall Street’s average price target is $290.94, down from about $320.
Mr Jonas maintained his price target for Tesla shares at $230, with a “bull case” of $391, and an equal-weight recommendation.
Tesla did not immediately respond to a request for comment.
The fall in Tesla’s shares has accelerated this month after the company announced it would raise about $2.3bn by selling common stock and convertible debt. The cash infusion came after sales in the first quarter fell 31 per cent compared with the previous three months, coinciding with moves to lower prices on some models.
The California-based company has also come under renewed scrutiny over Autopilot, its driver-assist software. A US transportation regulator found last week that Autopilot was engaged at the time of a fatal crash in Florida.