Tesla is facing an 'air pocket' in demand earlier than expected, Morgan Stanley says
- Tesla shares slipped Tuesday after Morgan Stanley lowered its price target for the second time in as many months.
- The electric-car maker is facing a demand slowdown earlier than Morgan Stanley analysts had expected.
- The firm's report comes one day after CEO Elon Musk responded to the Securities and Exchange Commission's request he be held in contempt of court.
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A confluence of volatile issues at Tesla has led Morgan Stanley to slash its outlook for the second time in as many months.
Demand for Tesla's vehicles has hit an "air pocket" that's arrived earlier than Morgan Stanley analysts expected, coming as the electric-car maker moves to cut both costs and vehicle prices.
That fundamental challenge, along with the probability that Tesla may not be able to profitably execute its business in the all-important Chinese market, led the analysts to lower their price target from $283 to $260.
"At a high level, a number of recent events at the company are raising questions in the minds of investors… including statements by Elon Musk and changes in key senior management… now the decision to close stores and moves to continue to reduce headcount," a team of analysts led by Adam Jonas wrote in a note to investors out Tuesday.
They added: "We are not inclined to buy now as we don't believe we'd be compensated for the amount of risk we're taking."
The firm's new price target implies a drop of 11% from Monday's closing price. Back in early February, Morgan Stanley cut its price target from $291 to $283. Prior to February, the last time the firm lowered its target was in May.
Furthermore, the analysts expect Tesla's free cash flow to fall to -$935 million from a previously expected -$621 million in the first-quarter. For the full year, it sees free cash flow of -$1.1 billion.
Morgan Stanley's report comes one day after Tesla CEO Elon Musk responded to the Securities and Exchange Commission's request that he should be held in contempt of court over tweets the agency says violated the terms of their agreement.
Musk's lawyers argued one of his tweets over production numbers was "immaterial," and claimed the SEC was attempting to broaden the original terms of its settlement and violating their client's right to free speech.
As for deliveries - a key measure of the company's health - Morgan Stanley slashed its first-quarter vehicle deliveries forecast by 23%, to 48,000 units. In late February, Musk said Tesla likely wouldn't turn a profit in Q1, a reversal from his prior forecast that the electric-car maker would be profitable for "all quarters going forward."
"The potential longer-term 'resolution' of the Tesla story as we approach 9 years after its IPO may require a few more chapters to play out," the analysts wrote.
Tesla shares have fallen 6% this year.
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