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Tesla (TSLA) Set to Disappoint Investors Tomorrow, Morgan Stanley Says; Get Ready to Buy the Dip

July 30, 2014 3:37 PM EDT
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Price: $173.80 --0%

Rating Summary:
    24 Buy, 26 Hold, 13 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 9 | Down: 9 | New: 42
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Tesla Motors (NASDAQ: TSLA) is modestly higher Wednesday, as investors brace for earnings after the close of trading Thursday. Today, Morgan Stanley analyst Adam Jonas warned investors that the EV maker's near-term results could disappoint and weigh on the shares. Amid any weakness, however, the analyst is telling investors to prepare to 'buy the dip.'

Specifically, Jonas said they are prepared for a weakish 3Q volume guide. "Extensive retooling/reconfiguration of the Fremont plant in preparation of higher volume and Model X could create short-term supply constraints that Tesla may want to telegraph into the 3Q volume outlook," Jonas warned. "While still possible to reiterate its FY14 outlook of 35k units, we believe this will be heavily dependent on a 4Q catch-up. We're at 9,350 Model S in 3Q (vs. 7,725 in 2Q) but are prepared for a number well below 9k."

Jonas also noted N. American Model S volume should continue to be down significantly YoY. "After falling 47% YoY in 1Q, we expect Tesla's NA revenues to be down around 20% YoY in 2Q (on NA shipments down nearly 30% YoY)," the analyst said. He added, "While the company has highlighted supply prioritization for the international roll-out, this won't stop some investors from wondering if markets like California are approaching saturation. We expect a vastly superior Model X (on the road by middle of next year) to put an end to these concerns."

While China should see very strong order backlog and forward demand commentary, they expect limited ability to distribute and service the volume. "As the world's largest car market (by far) and largest market for premium vehicles (from this year), China will likely have its fair share of Teslas on the road," the analyst notes. "We estimate China will account for 22% of Tesla volume by 2020 and 31% by 2028. However, we expect the journey to be very bumpy, filled with road blocks along fiscal, regulatory and technological lines of scrimmage. Tesla wants to offer its unique vehicles for Chinese consumers to enjoy, but we believe on terms that protect the long-term sustainability of the franchise and its intellectual property. The new 'Tesla rules' in China may require investor expectations of systematic, uninterrupted growth to be dialed back to allow a slower ramp."

In addition, the analyst warns that not much detail on the gigafactory could leave more questions than answers. "We expect management to express confidence in the progress of its industrial effort to mass produce energy storage systems," Jonas said. "Nikkei's report of a Yen 20 to 30bn initial investment from Panasonic may give Tesla more room to discuss the evolving situation. But without a firm confirmation from Panasonic, we believe incremental details on timing, partners and investment needs could be scarce, potentially leaving investors contemplating pushing Model III commercialization into 2018 from 2017."

Still the analyst is positive on the stock and reiterated an Overweight rating and $320 price target. "Despite nearly a simultaneous drop in broader industry momentum on EVs, we see significant opportunities at Tesla that will become evident to shareholders over time. In our view, Tesla's unique position in performance vehicle engineering, autonomous vehicles and energy storage is not fully appreciated by a market focused on short term news flow and momentum."

For an analyst ratings summary and ratings history on Tesla Motors click here. For more ratings news on Tesla Motors click here.

Shares of Tesla Motors closed at $225.01 yesterday.



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