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Morgan Stanley Sees Tesla Stock Price At Just $10 In ‘Bear Case’

After Tesla’s stock slumped to its lowest level since December 2016 on the back of bearish analyst coverage on Monday, Morgan Stanley chimed in on Tuesday, slashing its ‘worst-case’ Tesla share price target to just US$10 from US$97 in case the U.S.-China trade war hits the EV maker and dampens significantly demand for its cars on the Chinese market.

According to Morgan Stanley analyst Adam Jonas, the key drivers for the ‘bear case’ downgrade are a worst-case outcome of the trade war and rising debts at Tesla.

According to Jonas, Tesla’s sales in China could generate as much as US$9 billion between 2020 and 2024, but if China were to hit Tesla with tariffs and restrictions amid an all-out trade war with the U.S., Tesla’s potential Chinese sales could fall to half that figure, which could erase US$16.4 billion of Tesla’ market capitalization.

“Our revised case assumes Tesla misses our current Chinese volume forecast by roughly half, to account for the highly volatile trade situation in the region, particularly around areas of technology, which we believe run a high and increasing risk of government/regulatory attention,” Jonas said in a note, as carried by The Street.

After disappointing deliveries and a big loss in the first quarter of this year, Elon Musk suggested that “There is some merit to raising capital.”

A week later, Tesla raised more than US$2.3 billion through offering common stock and convertible bonds in a move that analysts described as “net positive” and probably long overdue.

Yet, some analysts continue to believe that Tesla needs more capital injections on top of the funds it raised earlier this month in order to stay afloat.

Related: Why China Hasn’t Slapped Tariffs On U.S. Oil Imports

According to Morgan Stanley’s note, as carried by Reuters:

“We believe as Tesla’s share price declines, the likelihood of the company potentially seeking alternatives from strategic/industrial/financial partners rises.”

While Morgan Stanley’s Jonas slashed the ‘bear-case’ price target for Tesla, he left unchanged the base-case target on Tesla’s stock at US$230, while the bull-case price target is US$391.

Tesla’s (NASDAQ: TSLA) shares were down more than 2 percent in pre-market trade on Tuesday, after they hit on Monday the lowest since December 2016 at US$205, after Wedbush Securities cut their share price target to US$230 from US$275.  

By Tsvetana Paraskova for Oilprice.com

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