A Tesla Motor Inc. logo is displayed on the wheel of a Model 3 vehicle outside the company’s Gigafactory in Sparks, Nevada. (Photographer: Troy Harvey/Bloomberg)

Tesla Woes Prompt One-Time Bull to Keep Waving Caution Flag

(Bloomberg) -- The cloud over Tesla Inc. continues to darken.

Morgan Stanley analyst Adam Jonas, a one-time ardent bull, continues to wave the caution flag, slashing his price target due to troubles in the electric-car maker’s production process for the Model 3 sedan.

“The challenges in ramping up Model 3 production reflect fundamental issues of vehicle design, manufacturing process and automation levels that can weigh against the profitability of the vehicle,” Jonas wrote in a note to clients. While Tesla management believes the Model 3’s margin falling below the company’s 25 percent target will prove to be temporary, Jonas said the headwinds are more structural.

Once a very bullish voice for Tesla, Jonas has now had the equivalent of a hold rating on the stock for almost a year. He cut his price target Tuesday by 23 percent to $291, below the average of $310. That’s a far cry from when Jonas’s share price projection used to be far above the Tesla’s trading levels. In August 2015, when Tesla shares were around $260, Morgan Stanley had a $465 price target, with Jonas predicting that the company would introduce “Tesla Mobility, an app-based, on-demand mobility service,” that he said could be worth as much as $244 a share.

While Musk himself has hinted at the possibility at such a service, nothing has been formally announced by the company, and Jonas now expects it to launch in the middle of 2019, nearly four years after initially modeling for it in his estimated price target. Tesla’s valuation has received a modest 8 percent bump since then, and Jonas’s target has come down 37 percent.

Tesla Woes Prompt One-Time Bull to Keep Waving Caution Flag

Tuesday’s action also represents the first time that Jonas has held a price target below $300 since January 2017. He now expects the company’s long-term auto gross margin to hover around 27 percent, down from an earlier estimate of 34 percent.

And despite the company’s claims that it would not need to raise money, Jonas raised his estimate for a Tesla capital raising to $3 billion, from $2.5 billion, which he continues to expect in the third quarter of this year.

After a rough start to the week -- Tesla shares closed down 3 percent on Monday after Chief Executive Officer Elon Musk announced a “thorough reorganization” -- Jonas’ latest call is further weighing on the stock today, with shares down as much as 3.9 percent in morning trading.

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