Tesla troubles prompt one-time bull to keep waving caution flag

Open this photo in gallery:

The cloud over Tesla 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 carmaker’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 an equal-weight rating on the stock for almost a year. He cut his price target by nearly 23 percent to $291, below the average of $310. That’s a far cry from when Jonas’s share price projections 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,” which 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 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 a staggering 37 percent.

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 Tesla’s capital raising to $3 billion from previous $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 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.