Tesla Shares May Be at ‘Emerging Peak,’ Morgan Stanley Says

(Bloomberg) -- Tesla Inc.’s extraordinary efforts to deliver Model 3s before the end of the year could drive a substantially higher cash flow in the fourth quarter, Morgan Stanley analyst Adam Jonas said.

Under the most bullish scenario, cash flow in the final quarter could be as high as double that of third-quarter levels, Jonas wrote in a note. But that’s not his base case. The analyst currently expects adjusted free cash flow of $648 million for the fourth quarter, compared to $738 million in the prior.

Tesla shares have fallen for three straight sessions after touching a high of $377.44 on December 13. The stock, which has been on a rollercoaster ride this year, has mostly recovered from the impact of Elon Musk’s Twitter-storm in early August, and has gained almost 20 percent since the company posted strong margins and cash flow for the third quarter on Oct. 24.

According to Jonas, the share price, as well as the sentiment around Tesla could be at an “emerging peak.” Jonas reiterated his equal-weight rating and $291 price target on the electric-car company earlier on Tuesday.

“While we acknowledge the significance of Tesla’s very strong 3Q result, we do not believe investors will assume the company is fully self-sufficient without a more sustained period of execution,” Jonas wrote in a note to clients. “We continue to harbor concerns over whether Tesla will be able to achieve sustainable access to foreign markets, particularly in China but also in the EU.”

Capital Raise

The question of an impending capital raise has been hanging over Tesla for a while, even though Musk has maintained that the company would not need to raise cash.

Jonas said he expected a capital raise of at least $2.5 billion in the fourth quarter, saying it “could reduce many investors’ concerns about financial pressure during a critical time of market expansion and strategic partnership.” In a television interview with Bloomberg Tuesday, the analyst said that depending on Tesla’s spending rate, such a raise could provide the company a year to eighteen months of “extra oxygen in the tank,” adding that he wouldn’t rule out an even larger raise.

Goldman Sachs’David Tamberrino also sounded a cautious tone on Tesla Tuesday, saying the company may see a lull in demand in the first quarter due to the gradual phase-out of a federal tax incentive for electric carts, and the shortfall may not be fully made up by initial deliveries across Europe.

“Further, as we believe the bulk of sustainable demand for the Model 3 likely resides at the lower end of the price curve, we believe program margins will likely mix-down as time progresses,” Tamberrino wrote. The analyst reiterated his sell rating and $225 price target.

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