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Morgan Stanley Warning Hits Tesla

Published 05/16/2017, 11:08 AM
Updated 03/09/2019, 08:30 AM
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Longtime bull Morgan Stanley (NYSE:MS) has recently downgraded its rating on the American automobile maker Tesla (NASDAQ:TSLA) after its analysts projected that the company’s currently high levels of cash spending will continue to rise as more rival automobile companies try to compete with the company’s electric vehicle business.

One of Morgan Stanley’s top auto analysts Adam Jonas who have been known for being one of Tesla’s stock biggest advocates is currently seeing Tesla’s operating losses to push through until next year which will consume all of its $3.1 billion cash reserves this year higher than what analysts originally expected at around $2.3 billion.

In a note written by Jonas to the clients, the analyst expected a much larger and more well capitalized competitors to reveal strategies that will address sustainable transport and mobility directly.

Examples of competitors trying to level out with Tesla’s currently leverage recently announced self-driving Chrysler Pacifica by Alphabet (NASDAQ:GOOGL)'s (NASDAQ:GOOG) Waymo and Apple's (NASDAQ:AAPL) recent attempts and plans to test autonomous cars in California.

Although General Motors (NYSE:GM) and Ford (NYSE:F) remains to be Tesla’s two top competitors, more and more tech companies such as Google and Apple have made their intentions to test and build autonomous or sustainable cars that will be a competitive product in the market given the standing of the companies who plans to build them.

For the first quarter of the month, Tesla have reportedly spent $622.4 million in cash which was raised through equity and debt offerings in March. Tesla released a spending guidance recently which showed that the company expects its capital expenditures to rise three times more this quarter. It will also boost its spending during the first half of the quarter by $2 billion in preparation for the production of the much affordable Model 3 sedan.

Other analysts have repeatedly noted of the company’s need to cut back some spending and raise more capital to be able to succeed with the launch of its Model 3 and to keep its recent acquisitions and investments running which would significantly affect the company’s stock if Tesla’s cash spending is to be exhausted further without additional capital raising.

Tesla’s shares sank by about 2.75% on Monday but have declined by as much as 3.8% during the day. Although its shares sank, Tesla’s stock remains above $300 at $314.

Tesla is expected to produce around 5,000 Model 3 vehicles before the year ends with a target of 10,000 cars by 2018 at an unclear rate. The unit which is much cheaper than their previous luxury releases has received around 400,000 in pre-orders earlier this year.

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