Wall Street is predicting the ongoing plunge in Tesla's stock price, which lost 38% of its value year-to-date, will get worse before it gets better even as news of an impending acquisition by Apple Inc. makes headlines once again.
Tesla is in big financial trouble. Its stock took another beating Tuesday after Morgan Stanley slashed its bear case scenario on concerns about the company's huge debt and exposure to China, which is beset by tariff war and slowing demand for motor vehicles. Morgan Stanley sees the outlook for Tesla as so grim it slashed its worst-case forecast on Tesla's stock to just $10 from $97.
"Our revised bear case assumes Tesla misses our current Chinese volume forecast by roughly half to account for the highly volatile trade situation in the region, particularly around areas of technology, which we believe run a high and increasing risk of government/regulatory attention," said Morgan Stanley in a note to investors.
Morgan Stanley now estimates Tesla might sell an average 165,000 electric vehicles (EVs) in China annually from 2020 and 2024. This might earn Tesla at least $9 billion in sales every year based on a $55,000 price for each Tesla EV.
It's bear scenario assumes Tesla losing revenue with a plunge in margins over the next few years, resulting in losses of $16.4 billion.
Things could get worse for Tesla before it gets better, believes Ari Wald, head of technical analysis at investment bank Oppenheimer & Co. Inc.
"The losses really did start to accelerate lower when the floor was broken at $250," noted Wald.
"That was the breakdown point. Oftentimes, prior support becomes resistance on the way back up so that's what I'd be looking at as a ceiling. And now with this drop, it places the stock back in the range that it had been in for much of that 2014 to 2016 period. The bottom of that range is $180 that would be the big support level on the downside."
A $180 target represents a 10 percent downside from current levels. It would also represent a 54 percent decline from Tesla's 52-week high set in August 2018 before Elon Musk's infamous run-in with the U.S. Securities and Exchange Commission (SEC) over a non-existent buy-in by Saudi Arabian investors.
Tesla shares closed lower by 2.7% Monday. It ended trading at $205.36 and is down 38 percent year-to-date. The stock fell below $200 for the first time since December 2016 during intraday trading Monday.
It was down 2.6% in premarket trading Tuesday morning but recovered to end down 0.14% at $205.08. It opened trading Tuesday at $197.76.
News that Apple is once again evincing an interest in acquiring Tesla to jump-start its moribund self-driving car project is again making the rounds. Apple tried to make a bid for Tesla in 2013, which failed after CEO Elon Musk refused to step down as part of the deal.
Rumors of a renewed interest by Apple resurfaced last January fueled by Tesla's declining stock price.