3 Reasons Why the Latest Tesla Stock Downgrade Is Ridiculous (TSLA)

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On Wednesday, a Morgan Stanley analyst downgraded shares of Tesla Motors Inc (TSLA) and … well, he got this read on Tesla stock wrong.

tesla earnings tsla stockAnalyst Adam Jonas, who has been a long-time bull on Tesla stock, trimmed his price target from $320 per share to $290. The main driver for the lower price target is the analyst’s belief that Tesla will not sell as many Model 3s — Tesla’s newest vehicle, which is scheduled to launch in 2017 — as originally estimated.

The three reasons Morgan Stanley gives for the changes to its TSLA estimates are all valid, but impossible to predict:

  • Tesla is working toward reducing the cost of the battery system, which will help sales by lowering the overall cost of the vehicle. Furthermore, if history is an indication, in a few years the battery will be cheaper than it is today anyway, so that is a positive … but we’re still guessing that will happen.
  • As for the changes to the internal combustion technology, it is similar to the changing battery technology in the fact that we have no idea of when or if technological breakthroughs will take place; another unpredictable liability for Tesla.
  • The third point is to me the most comical. Fuel prices! Over the past five months, fuel prices have tanked and no one predicted this crash even a month before it happened. Many believe that TSLA is a play on high oil prices — or at least that the new Model 3 will be since the starting price will be around the $35,000 range. The thought is that when it comes to low-priced electric cars, high oil prices equals more cars sold, and low oil prices equals fewer cars sold. While there is an argument to be made for that point, predicting sales figures five years down the road based on oil prices is downright irresponsible. Just a few months ago when oil was high, Morgan Stanley was predicting high sales figures; now oil is down, so the sales figures fall. Oil could be at $200 a barrel in five years or it could be at $40, we have no idea where oil will be and therefore it’s close to impossible to predict what demand will be for electric cars in the future.

Key Takeaway

This rating change on Tesla stock is based on a guess about production levels five years away (2020) and 14 years away (2028). Seriously?

Most analysts, and even the companies themselves, would tell you it’s hard enough to figure out production levels for a year away, but five and 14 are like throwing darts in the dark.

Whether you own Tesla stock or are thinking about buying it, you should ignore these sorts of rating changes. We have absolutely no clue where technology, oil or even TSLA as a company will be in five years.

Predicting production levels and sales figures that far out — and basing an investment decision on said numbers — is laughable at best.

As of this writing, Matt Thalman was long TSLA.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/another-ridiculous-downgrade-tesla-stock/.

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