Bloomberg News

Tesla Plunges After Morgan Stanley Reduces Price Target 37%

December 09, 2011

(Updates with analyst’s comment in sixth paragraph.)

Dec. 8 (Bloomberg) -- Tesla Motors Inc. plunged as much as 13 percent after a Morgan Stanley analyst downgraded the stock and cut his price target by 37 percent, saying electric vehicles are “not ready for prime time.”

Tesla fell 9.4 percent to $30.98 at 12:27 p.m. New York time after touching $29.61. The Palo Alto, California-based company’s shares gained 28 percent this year through yesterday’s close.

Electric vehicles may make up just 4.5 percent of the global car market in 2025, Adam Jonas, a New York-based analyst for Morgan Stanley, wrote today in a research note. His previous estimate for electric-vehicle share was 8.6 percent. Jonas cut Tesla’s rating to “underweight” from “overweight” and reduced his price target for the shares to $44 from $70.

The change in his estimate “is entirely due to lowered forecasts for long-term global EV penetration for the industry, while implying Tesla’s EV market share rises slightly versus our prior forecast,” Jonas wrote.

Elon Musk, Tesla’s chief executive officer, told Bloomberg Television on Oct. 28 that the company is on target to begin delivering Model S sedans next year and should earn a profit in 2013. The premium-electric Model S sedan eventually will retail for as little as $50,000, about half the price of Tesla’s current Roadster sports car.

“Tesla has orchestrated a near-flawless execution through the Model S pre-production phase,” Jonas said. “We expect the Model S to launch on time in July, but to ramp up slower than consensus expectations as the company prioritizes delivery quality over quantity.”

Loss Widens

Tesla’s third-quarter net loss widened to $65.1 million from $34.9 million a year ago, according to a Nov. 2 statement on its website. The company has lost $172.9 million through Sept. 30 this year.

Tesla surged 17 percent on March 31, when Jonas assigned his previous “overweight” rating.

Morgan Stanley’s valuation of Tesla is “highly sensitive” to changes in global electric-vehicle market share, Jonas wrote.

LMC Automotive forecasts that automakers will sell 96,000 battery-electric vehicles in 2016, grabbing 0.6 percent share of the U.S. market, Michael Omotoso, LMC’s forecaster of hybrid and electric powertrains, wrote in an e-mail last month.

Obama’s Goal

Combined deliveries of plug-in hybrid and battery-electric vehicles may total 750,000 through 2015 from 2008, short of President Barack Obama’s goal of putting 1 million electric vehicles on U.S. roads, said Omotoso, who is based in Troy, Michigan.

U.S. deliveries of Nissan Motor Co.’s battery-powered Leaf have declined three months in a row as the pace of U.S. industrywide auto sales has accelerated. General Motors Co. said Dec. 1 that its plug-in hybrid Chevrolet Volt will miss its 2011 target for 10,000 deliveries.

“While we’re still in the very early innings of vehicle electrification, the commercial progress of EVs in the marketplace has been mixed at best, and largely been unimpressive to date,” Jonas wrote.

High fuel prices and “unwavering government support” will be needed for widespread consumer adoption of electric vehicles, he said.

“The critical nature of the sovereign credit problems plaguing Europe poses a material threat to the necessary government support for EVs which we had previously taken for granted,” Jonas wrote.

--With assistance from Alan Ohnsman in Los Angeles. Editors: Bill Koenig, John Lear

To contact the reporter on this story: Craig Trudell in Southfield, Michigan, at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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