Tesla (TSLA) Lower as Morgan Stanley Cuts Estimates, PT

(Updated - February 1, 2016 10:02 AM EST)

Tesla (NASDAQ: TSLA) is lower Morgan Stanley analyst, Adam Jonas, cut estimates and his price target noting delays in the Model X and Model 3, among other things.

Jonas first noted Model X delays and cost overrun. "Manufacturing and engineering challenges have delayed the launch by at least 1 year and may have added hundreds of millions of dollars to costs while potentially losing some customers," he said. "We anticipate a slower ramp to ensure top quality of the early vehicles. We note that our previous forecast already baked in Model X volumes well below Street expectations on significant manufacturing issues we highlighted around 18 months ago. Higher volumes in Model S serve as a partial offset." The firm sees a negative $2 per share impact as a result.

The analyst next discussed slower (and lower) expectations of ramp in Model 3 volume. "It is reasonable to assume that Tesla's technical resources have been diverted from other projects to ensure proper execution on X," he notes. "This, added with the need to ensure the highest quality and most efficient manufacturing design on its lowest priced car, leads us to reiterate our expectation of a Model 3 launch in late 2018 (unchanged), at least 1 year later than the company is targeting. Low demand for electric vehicles categorically and globally in a $30 oil environment leads us to reduce volume assumptions for the Model 3, which we anticipate will achieve an ATP of $60k or more. Our revised 2020 forecast for complete vehicle deliveries is less than half of Tesla's 500k unit target. We expect the Model 3 to be a really nice car, just a bit rarer than many expect." The net impact on Tesla valuation is a negative $25/share.

Jonas also noted a reduced valuation of Tesla Energy. "The true cost of owning an energy storage unit appears even higher than we previously thought based on 'all-in' price quotes from SolarCity," he said. "This further suggests that the economics may not justify much of the gigafactory output being diverted to the power sector any time soon. Additionally, while only an indirect factor, we would be remiss not to factor in some greater degree of risk from low energy prices into our valuation of Tesla Energy." The net impact is a negative $29/share.

Lastly, the analyst noted a markedly greater levels of interest in the shared mobility arena by a wide range of competing participants. "We have been surprised by the pace and breadth of announcements and capital commitments by a variety of auto and non-auto players focused on electric, shared, and autonomous vehicles over the past 4 or 5 months – all disciplines we have attributed significant value to for Tesla, in the form of its core vehicle business and in our vision of a shared mobility model," Jonas said. "We expect the competing efforts from the likes of Ford, VW, LG Corp, Alphabet, (and many others) are genuine and will see further significant follow-through with investment and collection of human capital. We feel it is prudent to allow for a higher level of competitive pressure in our economic model for Tesla Mobility in the form of a greater pace of deflation of the top line ($/mile) and higher R&D expenses that are not passed on to consumers of the utility, resulting in a reduction of our long-term OP margin of Tesla Mobility to 7.5% from 9.3% previously. In addition, we now use a discount rate of 13% vs. 11% previously. All other aspects of our Mobility model have been left unchanged (#s of cars, ramp)." The analyst said the net impact is a negative $61/share.

The firm cut its price target to $333 from $450 but maintained an Overweight rating. The firm also reduced their bull case to $413 and bear case to $50 from $100 previously.

The firm cut FY 2016 EPS from $1.28 to $0.43 and FY 2017 EPS from $1.76 to $1.06.

Shares of Tesla last traded at $184.60, down 3.5%.

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