Morgan Stanley piles pressure on Tesla with $10 worst case call

Morgan Stanley Slashes Worst Case Price for Tesla to $10More

Morgan Stanley Slashes Worst Case Price for Tesla to $10More

Shares of Tesla edged down, heading for their fifth straight session of losses, and bonds weakened, after Morgan Stanley analyst Adam Jonas outlined his worst case scenario.

"Tesla has grown too big relative to near-term demand, putting great strain on the fundamentals", wrote Jonas, rated a five-star analyst by Refinitiv for the accuracy of his forecasting on the company.

The shares have dropped in nine of the last 10 trading days, a stretch that started the day Tesla closed offerings of new stock and convertible bonds to shore up its balance sheet. Monday's collapse came after Wedbush Securities cut its price target on Tesla stock from $275 to $230 per share, with its analyst citing "major concerns" about the company's future.

In January, the automaker cut its prices by $2,000 per vehicle, acknowledging that the pending expiration of a $7,500 federal tax credit for its electric cars will hurt sales. Tesla is the second-most shorted US stock, trailing only Apple.

"The departure of key executives, price discounting, and extraordinary cost-cutting efforts add to the narrative of a company facing real potential stress", Morgan Stanley's Jonas said.

While cutting their price target, Baird analysts reiterated their outperform rating, saying Tesla was "positioned to outperform over the long run, as it increases profitability, generates free cash flow and ramps up production of innovating products".

The market action follows hot on the heels of a $2.7 billion (£2.1 billion) fundraising round by the company two weeks ago that was oversubscribed, but has done little to settle the nerves of holders of Tesla's existing debt.

Although this is a description of Morgan Stanley's absolute worst case scenario for Tesla and the firm's best case target still remains at $230 per share, it is indicative of the stock markets further lack of confidence in Elon Musk's electric auto manufacturer.

The spread of its yield over Treasury securities, a gauge of the added compensation demanded by investors for holding Tesla rather than safer government debt, widened to almost 693 basis points.

Tesla CEO Elon Musk has been praising the company's autopilot system for some time, claiming that the company will have 1 million automated robotaxis on the road by next year.

It was also among Wall Street's more heavily shorted stocks, with about a fifth of its float on the line.

Tesla's recent effort to raise $2 billion in fresh capital-including CEO Elon Musk buying $10 million worth of Tesla stock himself-was seen as bad news on Wall Street. The median price target is $250.19, a fifth above the current market.

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