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Morgan Stanley Downgrades Tesla Motors to ‘Equal Weight’

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Tesla Motors’ price movement

Tesla Motors (TSLA) has a market cap of $29.0 billion. Its stock fell by 0.13% to close at $196.40 per share on June 23, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -9.9%, -9.9%, and -18.2%, respectively, on the same day. TSLA is trading 10.8% below its 20-day moving average, 13.3% below its 50-day moving average, and 10.9% below its 200-day moving average.

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Related ETF and peers

The Schwab US Broad Market ETF (SCHB) invests 0.08% of its holdings in Tesla Motors. The ETF tracks a market cap–weighted index that measures the largest 2,500 US stocks. The YTD price movement of SCHB was 2.5% on June 23.

The market caps of Tesla Motors’ competitors are as follows:

  • Ford Motor Company (F): $52.7 billion
  • Honda Motor Company (HMC): $48.1 billion
  • General Motors (GM): $45.6 billion

Tesla Motors’ acquisition of SolarCity

Tesla Motors has proposed the acquisition of SolarCity, which can increase the valuation of the company to $1 trillion. It offered to buy SolarCity in a stock deal of $2.8 billion. The acquisition of SolarCity’s solar panels, combined with Tesla’s electric vehicle and stationary storage batteries, will provide a solution to that contributes to sustainable energy.

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Tesla Motors’ rating

Morgan Stanley has downgraded Tesla Motors’ rating to “equal weight” from “overweight.” It also lowered the stock’s target price to $245 from $333 per share.

On June 22, 2016, Oppenheimer downgraded Tesla Motors’ rating to “perform” from “outperform.”

Tesla Motors’ performance in fiscal 1Q16

Tesla Motors reported total fiscal 1Q16 revenues of $1.2 billion, a rise of 22.0% compared to total revenues of $939.9 million in fiscal 1Q15. The company’s cost of revenues as a percentage of total revenues rose 8.3% in fiscal 1Q16 compared to fiscal 1Q15.

Its net income and EPS (earnings per share) fell to -$282.3 million and -$2.13, respectively, in fiscal 1Q16, from -$154.2 million and -$1.22, respectively, in fiscal 1Q15. In fiscal 1Q16, the company reported non-GAAP (generally accepted accounting principles) EPS of -$0.57 compared to -$0.36 in fiscal 1Q15.

Tesla Motors’ cash and cash equivalents and inventory rose 20.5% and 1.9%, respectively, in fiscal 1Q16 compared to fiscal 4Q15. Its debt-to-equity ratio rose to 8.4x in fiscal 1Q16 compared to 6.4x in fiscal 4Q15.

Projections

Tesla Motors has made the following projections:

  • In fiscal 2Q16, the company expects to produce and deliver about 20,000 vehicles.
  • It expects to deliver ~17,000 vehicles in 2Q16 due to a large number of vehicles in transit for its customers in Europe and Asia at the end of fiscal 1Q16.
  • It’s planning to exit 2Q16 at a steady production rate of 2,000 vehicles per week.
  • The company is confident that it will deliver 80,000–90,000 new Model S and Model X vehicles in 2016.
  • It expects its Model S non-GAAP gross margin to reach 30% and its Model X non-GAAP gross margin to be ~25% by the end of 2016.

In the next part of this series, we’ll take a look at Fiat Chrysler Automobiles.

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