For years, Tesla has been doing the impossible in the car manufacturing business and disrupting the industry by offering eco-friendly solutions that aren’t only economical but also innovative.
But Tesla’s biggest achievement, by far, is its mere existence in a ruthless industry dominated by auto giants that were established well before the industrialization era.
In such a competitive environment, how many other new auto companies do we know of that are selling 250,000 cars per year? None. But in just over a decade, Tesla hasn’t just put itself as a frontrunner in the industry but also managed to gain a monopoly in the luxury electric vehicle market.
But the carmaker’s winning streak could soon come to an end as its stock price take a steep plunge. According to Morgan Stanley, Tesla’s stock could take a nose dive if the company continues to accrue more debt and expose itself geopolitically.
The bank shocked everyone with a worst-case forecast of $10 per share, after previously predicting $97 per share.
Tension with China
Analysts from the bank credited the devaluation to concerns over increased Chinese demand for the company’s products.
In a statement released by the Morgan Stanley analysts regarding the forecast, they said that they accounted for the volatile situation between the United States and China, especially where technology was involved.
According to them, the company could be at an extremely high risk of getting entangled in the current geopolitical turmoil, therefore being subjected to stringent regulatory measures.
Still, the analysts expect Tesla to export roughly 165,000 cars to China annually, between next year and 2024. Taking each product to be worth an average of $55,000, this will result in an annual $9 billion sales exposure.
However, the Morgan Stanley bear forecast believes that the company will lose revenue in the future, incurring up to $16.4 billion in losses. Taking this loss into account, the share value could decrease by $87, hence the striking difference between this year and last year’s forecasts.
However, Adam Jonas, one of the analysts involved in the bear case, still has $230 as his target for Tesla’s stock, and has even said that a bull case could even propel it to $391.
Back to the analysts’ statement, they collectively believe that as Tesla’s shares drop, the company will undoubtedly seek alternatives from its partners (be they financial, industrial, or strategic partners).
Despite the decline in share price, technology firms and suppliers would still have faith in the company’s competence, and would still value its software and hardware supremacy.
Tesla Shares Drop
Last week, Tesla’s shares dropped to $200, in what was predominantly a result of the company CEO’s actions. Elon Musk has been promoting projects regarded by many as sci-fi antics, if not distractions, from the company’s current position in the market.
His promises and unrealistic ambitions have prompted Wedbush to cut the company’s share price target down to $230 (from $275), prompting the drop last Monday.
The shares closed at $205.36, a 2.7% decline. The stock also dropped below the $200 mark for the first time in years, during the day’s intraday trading. In Tuesday’s premarket trading, it was at 2.6% down.
Similar to Morgan Stanley’s prediction, Baird has also slashed estimates from its previous $400 to $340, while one of the company’s biggest investors sold off approximately 81% of Tesla shares.
According to Baird, the CEO’s email to his staff on cost-cutting efforts raises serious concerns to investors on the profitability of the company. The firm also identified the company’s communication channels as one of the reasons for a possible decline in share prices.
Just last month, Tesla suffered a quarterly loss, one of the worst in the company’s history. The company’s revenue registered a 37% decline, and vehicle deliveries showed a 31% drop from the previous quarter.
