Tesla Motors Inc (NASDAQ:TSLA) shares are on the rise today as several reports mixed together apparently added up to a positive. The stock climbed by as much as 2.62% to $196.21 per share in heavy trading following reports that CEO Elon Musk has upped his stake in the automaker. Another media outlet is reporting that Tesla might be finally franchising out sales of its EV, and meanwhile, Morgan Stanley analyst Adam Jonas—who might be the automaker’s biggest bull—has slashed his price target by more than $100 due to several varied concerns like oil prices and production ramps for the Model X and Model 3.
Jonas said in his Feb. 1 report that he’s slashed his price target for Tesla from $450 to $333 per share but continues to rate the EV manufacturer a “core Overweight.” One of the concerns he raised was pertaining to the Model X, as engineering and manufacturing problems have pushed back the SUV’s launch by a year or more. Further, he thinks the vehicle added “hundreds of millions of dollars” to the company’s costs and that the delay might have cost it some customers. As a result, he expects production to ramp more slowly than expected and places a net impact on Tesla’s valuation of -$2 per share.
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He also expects the automaker to see problems with the yet-to-be unveiled Model 3 and has lowered his expectations for the mass market vehicle. He noted that Tesla has probably diverted some of its “technical resources” from its other projects over to the Model X, so he thinks this will push back the Model 3 launch by at least a year.
He also sees problems in demand for the Model 3 due to tumbling oil prices, which have reached $30 a barrel. As a result, he has lowered his volume assumption for the vehicle, and his new unit number for 2020 is less than half of the 500,000 vehicles Tesla management is targeting. He expects the Model 3 “to be a really nice car, just a bit rarer than many expect.” All the problems with the Model 3 have caused a $25 decline in his price target.
The biggest causes of his Tesla price target cut
Jonas slashed another $29 off his price target due to his lower valuation of Tesla Energy as he thinks the “true” ownership cost of an energy storage unit seems to be higher than he thought previously. As a result, the economics might not provide justification for the company to divert much of its gigafactory’s output to production of the energy storage systems. Also the low energy prices will likely take a bite out of the sustainable energy storage market.
And finally, the analyst slashed $61 off his price target due to increasing competition in shared mobility, which is one area his bull thesis has been banking on for a long time, despite the lack of any official announcements in this area. He said he’s been surprised at the number and pace of announcements about entrants in this area.
With so many warnings from an analyst who is arguably Tesla’s biggest bull, why are investors sending the automaker’s shares higher today? One reason could be the report from The Detroit News about the automaker applying for a dealership license in Michigan, which has blocked direct sales of cars to consumers. Apparently the company submitted applications to the state’s Secretary of State Office in November for a Class A dealership license for new and used cars. But while Michigan Information & Research Service originally reported that Tesla can contract with anyone to sell its cars except for itself, suggesting that the automaker make finally be giving into pressure to franchise sales of its cars, a spokesperson told The Detroit News a different story.
“Submission of the application is intended to seek the Secretary of State’s confirmation of this prohibition,” the spokesperson said. “Once confirmed, Tesla will review any options available to overturn this anti-consumer law.”
And then there’s the news that Tesla CEO Elon Musk exercised his stock options on the automaker to reinvest over $100 million into it, basically meaning that he’s again putting his money where his mouth is. He has a habit of investing heavily into the companies he’s involved in, which also include SolarCity as well. He now holds a 22% stake in Tesla worth about $5.6 billion, reports Fortune.