Analysts at Morgan Stanley are sticking with their $450 price target on Tesla Motors Inc (TSLA) stock despite the firm’s understanding that TSLA could face turmoil before investors realize the “bigger mission” that will ultimately take Tesla stock much higher.
At $450, Tesla would have a market capitalization near $60 billion, exceeding that of much larger competitors General Motors (GM) and Ford (F). So, is this outlook a little too ambitious?
What Morgan Stanley Thinks
While Morgan Stanley may have maintained its $450 price target on Tesla stock, the firm won’t be shocked if TSLA underperforms fourth quarter and FY2016 delivery guidance. The big reasons include delays in manufacturing, China, and a higher-than-expected average price point of $60,000 versus the $35,000 for its Model 3.
Collectively, Morgan Stanley thinks these things will lead to lower than expected deliveries and continued cash burn of $1 billion over the next 12 months.
To counter these apparent negatives, the firm thinks TSLA could launch a mobility service and mobile app that will better reflect its long-term strategy, and serve as a catalyst.
With Tesla stock now 23% off its 52-week high, investors seem to have moved past the point of pure speculation and are seeking real results. That’s what makes a $450 price target — more than double from here — very hard to fathom.
The Next $200 Will Be Tough for TSLA Stock
From 2013 until 2015, Tesla stock traded higher by nearly $200 per share — some 600% to 700% higher — but not much was fundamentally induced. Instead, TSLA stock soared on the premise of real demand for its vehicles, and speculation for what it could ultimately become.
However, adding that next $200 per share — again, a relatively small doubling vs its previous climb — is not going to be easy. This year, TSLA stock has struggled, trading flat, with many of the company’s biggest questions taking center stage.
Nevertheless, Tesla’s CEO Elon Musk is a charismatic individual who loves to dream big. Recently, at Baron Funds’ Annual Investment Conference, Musk talked electric cars with a 500-mile range and the potential for Tesla to sell “millions” of cars at some point in the future.
If and when that day comes, Tesla stock may be worth $450 per share, but we’re talking about a long, long time away.
TSLA Not Going to $450
With that said, Morgan Stanley is obviously one of Tesla and Elon Musk’s biggest supporters, believing that mobile apps and a “miles over cars” business model could overshadow disappointing shipments and continued cash flow losses. While Tesla’s support among retail investors and research firms make this very possible, there is still one huge issue the company must address next year, and that is Consumer Reports’ recent review on its best-selling Model S.
Millions of people read Consumer Reports, and it remains one of the most influential sources of reviews for new car buyers. After winning best overall vehicle from Consumer Reports for two years in a row, the Model S was given a “worse than average” rating in CR’s latest report due to various issues reported from existing owners of the Model S.
This news caused a 10% decline in Tesla stock price back in October, and could have lingering effects on shipments moving forward. This is a company that’s expecting to deliver just 50,000 to 52,000 units this year, and is already having trouble meeting delivery expectations, something that even the most bullish of firms acknowledge (i.e., Morgan Stanley). Therefore, if Tesla is having trouble delivering 52,000 vehicles, how long is it going to take to reach 500,000 shipments?
That slowed growth is sure to have an impact on Tesla stock.
As a result, given all the concerns surrounding TSLA, including the Consumer Reports review, China, manufacturing woes, margins, etc., investors should not expect Tesla stock to ever reach $450. It’s just not realistic.
As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.
