Long considered one of the most bullish analysts on Tesla, Morgan Stanley's Adam Jonas said Monday he sees signs that the automaker will face tougher growth prospects in coming years.
In a note to investors, Jonas cut his price target on Tesla shares to $333 from $450, citing lower sales estimates, greater competition and low energy prices.
Still, he maintained an "overweight" rating on the stock, and remains far more optimistic about Tesla than most other analysts. In fact, his price target of $333 is still $49 higher than the Wall Street average, according to Thomson First Call.
As such, the automaker's shares were trading more than 2 percent higher, at $196, despite the cut.
"We are lowering our price target by 26 percent to reflect our lowered volume expectations for Model X and Model 3, a lower valuation for Tesla Energy, and accelerating competition in the mobility business," Jonas said.
Below are more details on why Jonas has turned more cautious on Tesla.
1) Lower sales estimates for Model X/Model 3
Jonas cut his annual sales estimates by 15 percent for Tesla's electric SUV, the Model X. He said the Model X falcon wing doors pose the biggest manufacturing and engineering challenge as the company ramps up production.
Jonas also said it's increasingly likely Tesla will delay deliveries of the Model 3 electric car until 2018. The automaker has targeted a launch of the Model 3 for late 2017. As a result of the new expectation, the analyst cut his Model 3 2018 sales estimates from 30,000 to 5,000 vehicles.
Overall, Jonas now targets Tesla annual sales by 2020 approaching 246,000 vehicles, well below Tesla's own guidance of selling a half million models that year.
2) Greater competition in shared mobility
With a number of automakers, technology companies and other firms increasing their investments for electric, shared and autonomous-drive vehicles, Tesla is seeing more competition.
Jonas said he thinks that competition will weigh on Tesla's mobility plans and lead to higher research and development costs, thereby lowering the long-term operating profit margin for that part of the business.
3) Re-evaluating Tesla Energy
Tesla's energy storage business, which includes production of the Powerwall home battery storage units, should have a lower valuation, Jonas said. For starters, he said the true cost of owning a Tesla energy storage unit appears to be 40 percent higher than Morgan Stanley previously expected. Also, lower energy prices due to the drop in oil prices could weigh on demand for energy storage, he said.
Tesla is scheduled to report fourth-quarter and full-year 2015 earnings on Feb. 10. When that happens, Wall Street and investors will be watching to see if CEO Elon Musk cuts Tesla's earnings or sales guidance.
Many have speculated that if gas prices remain low, it could force Tesla to lower expectations for the Model 3, the electric car that is expected to have a starting price of approximately $35,000. The theory is cheap gas will mean lower demand for a mass market electric car.
Last week in Hong Kong, Musk said he's confident Tesla's models will be able to stand out from the growing number of electric vehicles being sold. That differentiation will be crucial as cheap gas dampens demand for electric vehicles.
"I think in terms of the broader market for the adoption of electric vehicles the low oil prices will definitely have some negative effect because they change the economics of ownership," he said.
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