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Tesla Bull Analyst Flipping to Bear

Concerns over fighting with tech companies causes rating change.

by on May.16, 2017

Morgan Stanley Analyst Adam Jonas switched from bull to bear when it comes to Tesla over concerns about potential battle with tech companies.

One of the Wall Street analysts that has been optimistic about the outlook for Tesla Motors’ stock has reversed course.

Adam Jonas, Morgan Stanley’s lead automotive analyst, has downgraded Tesla from Overweight to Equalweight with a price target of $305, suggesting a 6% downside on the company’s stock price from current levels.

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The downgrade hurts Tesla because the electric-car company depends on the stock’s impressive valuation to help attract new investors.

Jonas, in a note to investors, said while the bull case argues that Tesla can become the next Amazon or Apple, they see such firms as competitors ultimately. He questions whether the risks of battling head-to-head with the tech giants is sufficiently discounted in Tesla’s current price.

(Tesla ripe for takeover by Apple, analysts claim, but Musk denies. For the story, Click Here.)

The analyst also now expects Tesla to remain loss-making on a U.S. GAAP basis until late 2019. The firm’s estimate of cash burn for 2017 widens to $3.1 billion from $2.3 billion previously, taking its forecast of gross cash to under $1 billion by the end of 2018.

The numbers come from Tesla’s first-quarter financial report. Company founder Elon Musk defended the figures by saying the EV maker was moving ahead with a plan for growth that will lead to the production of 100,000 vehicles from its Fremont, California, production base in 2017 and up to 500,000 units as soon as 2018.

(Click Here to see what was behind Tesla’s bigger-than-expected Q1 losses.)

However, after the Tesla stock passed the $305 per share target and reached $325, Jonas lightened the financial load. He also warned that the deliveries of Model 3 could be lower than the lowest amounts this year and the next.

Commenting on what has changed since their January upgrade to justify rating change, Jonas said, “while Model 3 expectations appear to have recovered substantially over the last four months, “We expect much larger and more well capitalized competitors to unveil strategies that directly address sustainable transport and mobility.

(Musk predicts Tesla will build 100K vehicles in 2017. Click Here for the story.)

“We do not feel China is going to be a significant long term market available to Tesla. Our scenarios of adjacent businesses like solar, storage and trucks are not enough to significantly move the needle on Tesla valuation.”

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