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Published on December 26th, 2014 | by James Ayre

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Morgan Stanley Analyst: Tesla Sales Forecast For 2020 Cut By 40%

December 26th, 2014 by  


A prominent automotive industry analyst for Morgan Stanley, by the name of Adam Jonas, has cut his target price for Tesla Motors’ stock by a significant margin on the back of his prediction that the company will be unable to meet its 2020 sales goals — potentially falling short by as much as 40%, according to recent reports.

A 40% drop would mean that instead of selling 500,000 vehicles by 2020 — as Tesla is currently predicting — the company would sell no more than 300,000 by that date. Jonas has a “pessimistic” take on this count because, as he puts it, he simply has the opinion that the goal is unrealistic and unachievable.

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While Jones certainly isn’t alone in thinking that Tesla’s stock has been a bit overvalued as of late (Musk himself has even said so on a couple of occasions), the idea that the company will miss its 2020 target by such a significant margin is a bit more contentious of an idea. The company may very well fail to sell 500,000 EVs by 2020 — it wouldn’t be that surprising, as it’s a very ambitious goal. But that doesn’t mean that the goal will be missed by a 40% margin.

Still, we’re still six years out from 2020, and the economic climate of the country (and other markets as well) is looking like it’s going to become (or stay) pretty volatile over the next few years (at least), so taking the comments of people like Jonas into consideration certainly isn’t a bad idea.

As of right now, I personally think it’s looking like a 50/50 bet whether Tesla will hit its 2020 goals or not — so much is riding on variables that are up in the air for now, like the timely completion of the Gigafactory, how much it will bring down battery costs, and whether or not Tesla will be on schedule with the release of the Model 3. It seems pretty likely (to me) that the company will see sales of over/around 400,000 units by the then. But I could be wrong. 🙂

As far as the stock goes, though, I largely agree with him.

GAS2 provides some more good commentary on that:

As a result, he has lowered his target price from $320 a share to $290 a share. So why is Tesla trading below $200 a share this week?

According to Seeking Alpha, the answer is simple. Tesla has been the beneficiary of good old fashioned “irrational exuberance,” as Alan Greenspan used to say, and its value is simply re-aligning with reality. It says Elon Musk has too much influence over the company for someone who is is dividing his time between Tesla and several other ventures. To support their claim, the authors point to this statement in Tesla’s most recent 10-Q filing with the Securities & Exchange Commission.

“We are highly dependent on the services of Elon Musk, our Chief Executive Officer, Product Architect, Chairman of our Board of Directors and largest stockholder. Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla. Mr. Musk also currently serves as Chief Executive Officer and Chief Technical Officer of Space Exploration Technologies, a developer and manufacturer of space launch vehicles, and Chairman of SolarCity, a solar equipment installation company (emphasis added).”

Seeking Alpha worries that the company has a history of not meeting its targets (the proposed Model X has been delayed by two years already) and has taken on too much debt. Those concerns are heightened by this statement from Tesla’s latest quarterly report, “We may still incur substantially more debt or take other actions, which would intensify the risks discussed above.” They point out that Tesla’s price to earnings ratio stands at 103.5 as compared to Ford’s, which is a more realistic 12.5.


 

That position is summed up pretty succinctly in this statement from Seeking Alpha: “Scaling up the Tesla model remains an expensive concern going forward. While I do like the company and I think it has tremendous potential, there are serious red flags investors should not overlook. Tesla’s stock is not worth buying until its price comes back down to earth.”

There’s truth to that of course, but what exactly “back down to earth” means is not entirely clear in practice. There’s opportunity there, but proceed at your own risk.

By the way, TSLA is now back up to $222 at the time of publishing this piece. If you want to play with a volatile stock, this is certainly one you can add to the list.

Image Credit: StockChart.com via Seeking Alpha

 
 
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About the Author

James Ayre's background is predominantly in geopolitics and history, but he has an obsessive interest in pretty much everything. After an early life spent in the Imperial Free City of Dortmund, James followed the river Ruhr to Cofbuokheim, where he attended the University of Astnide. And where he also briefly considered entering the coal mining business. He currently writes for a living, on a broad variety of subjects, ranging from science, to politics, to military history, to renewable energy.



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