Have a peek at Tesla's prospectus for its latest share offering and you'll find the underwriters include Morgan Stanley, Goldman, Sachs & Co., BofA Merrill Lynch, J.P. Morgan, Wells Fargo Securities and Deutsche Bank.
Morgan Stanley, interestingly enough, holds more than four million shares of Tesla and J.P. Morgan another 2.7 million. Deutsche Bank and Goldman, Sachs each hold more than a million shares. BofA and Wells Fargo together hold about 500,000 shares. This is not unusual; underwriters often hold significant stakes in the companies with which they work.
What is interesting is that arguably the loudest Tesla cheerleaders on Wall Street, or anywhere else for that matter, work at the investment bank with the greatest stake in Tesla among the six underwriters. The leader of that team is the very well known analyst Adam Jonas.
Just days after Tesla announced it was going to the market in search of new capital to underwrite its continuing and growing losses, Jonas and his team at Morgan Stanley announced a massive 66 per cent hike to their price target for the Palo Alto, Calif.-based battery car company - to $465 a share from an already wildly optimistic $280 (all figures in U.S. dollars).
No doubt the timing was purely coincidental. Surely the share offering in which Tesla shareholder Morgan Stanley is profiting and the Morgan Stanley price target boost from Morgan Stanley's analysts are unrelated. Yes, what the Morgan Stanley analysts have to say could have an effect on Tesla's share price – and Morgan Stanley's profits – but we've never had any reason to doubt the propriety of big investment banks before. Well, not since 2008, 2009, 2010…
Morgan Stanley's analyst team is particularly pumped about Tesla's potential as a world leader in autonomous vehicles, though other profitable auto makers also have plenty of expertise in this area. Two years ago I was driven by an autonomous Nissan Leaf and quite a number of models on the market today are already partially autonomous, from the Mercedes-Benz S-Class to the Infiniti Q50. Nissan is the world leader in sales of battery cars, not Tesla.
Despite the crowded field in the emerging world of autonomous driving, despite the fact many other, larger, more established car companies are racing to take the lead here, Morgan Stanley says Tesla's electric, connected cars are ideal to champion a revolution in personal transportation. Future car companies, argues Morgan Stanley, will see "nearly 100 per cent of their revenues shift from the sale of human-driven/individually-owned cars to robot-driven/shared cars."
Tesla, add the analysts at the firm helping to underwrite Tesla's latest offering, "may be best positioned to advance the state of the art in shared autonomy." Or it may not. We can't know at this point.
Jonas agrees, saying it's "early days" in this race to driverless cars. The biggest barriers to adoption are not technology-driven, but regulatory- and consumer-related. Governments have yet to tackle the legal framework for autonomous cars and consumers have yet to prove they are willing to hand over the driving to a robotic system so they can text, sleep, chat on the phone, put on makeup, eat or write e-mails.
Meanwhile, Tesla remains massively unprofitable and unless a miracle happens, will not meet its own sales targets for this year. If you're a Tesla fan, investor or car buyer, they're worth a look.
Tesla's most recent quarterly loss from operations widened to $170.19 million from $28.75 million last year. As for deliveries, Tesla originally said it would deliver 55,000 vehicles this year, but has since pared back its guidance to 50,000-55,000.
Tesla delivered 11,507 Model S sedans in the second quarter and 10,030 in the first. So in the second half of 2015, Tesla must deliver more than 30,000 vehicles to meet guidance. In other words, second-half deliveries need to jump about 50 per cent over the first half. Perhaps the long-promised and oft-delayed Model X all-wheel drive crossover will arrive in time to save the day.
The facts suggest Tesla is a massive investment gamble, despite the stunning optimism at Morgan Stanley. For me, the larger question is, what does it take to damage Tesla's credibility, as well as anyone associated with Tesla? Believe and invest at your peril.
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