Morgan Stanley thinks Tesla will ramp Model 3 production much slower than expected

Tesla CEO Elon Musk has set the ambitious target of delivering 500,000 vehicles annually by 2018. In 2016, the company delivered less than 80,000.

The Model 3, a $35,000 mass-market car, could change all that when it arrives in late 2017. Musk thinks that Tesla could ramp up production rapidly and meet that 500,000-per-year objective.

Morgan Stanley's lead auto analyst, Adam Jonas, disagrees. Jonas published a research note on Wednesday in which he reiterated his "overweight" (or "buy") rating and a $305-per-share price target for Tesla (the stock was trading at $249 on Wednesday).

But he also wrote that Morgan Stanley continues "to believe Model 3 volume in 2017 will be no more than 2,000 units for a 'soft launch'," adding that "[w]e do not expect the company to achieve 500k units of annual Model 3 volume before 2024, more than 5 years after the company's target."

Jonas does expect total Tesla vehicle production - Model S, Model X, and Model 3 - to add up to nearly 400,000 units by 2020. But that's well short of what Musk and his team have projected.

Interestingly, Jonas isn't despairing, nor is he retreating from his relatively bullish Tesla position. He puts the value of Tesla car business at $233 per share, its new solar business (post-Solar City acquisition) and Tesla Energy at $0, and declares that road to $305 is paved by the yet-to-launch Tesla Network (also referred to as "Tesla Mobility), the company's play for a car-sharing service, with autonomous driving as the secret sauce.

"We continue to believe over 100% of the upside from the current price to our $305 target can be accounted for by the value of Tesla Mobility, an on-demand and highly automated transportation service we anticipate to be launched at low volume in 2018," he wrote.

Jonas thinks Tesla, as the company has said, will spend down much of its cash on hand to launch the Model 3. As to the issue of a capital raise in 2017 or 2018, something that a lot of investors and analysts now see as a certainty, Jonas raises an intriguing alternative.

"Tesla has historically brought in strategic partners at important points in its history (e.g., Daimler, Panasonic, Toyota) to participate in its capital formation," he wrote.

"We wonder if Tesla may now see another opportunity to explore bringing new or existing partners into greater alignment with both the business and the long-term appreciation potential of the equity."

For the record, as Tesla's value escalated after its IPO in 2010, equity investors such as Daimler were able to reap great returns. So even though Tesla isn't as much of a massive-growth prospect now, buying a chunk of the company might be a good move.