Morgan Stanley Says No One Wants To Save Tesla
Don't count on a white knight coming to the rescue of embattled Tesla Inc. despite rumors to the contrary, contends U.S. multinational investment bank, Morgan Stanley.
It's highly unlikely that Apple Inc., Amazon.com or any other big tech firm will want to acquire Tesla, claims Morgan Stanley research analyst Adam Jonas, who has long held a reputation as a Tesla bull. But no longer.
"Tesla is not really seen as a growth story," said Jonas on an invitation-only call with institutional clients. "It seems like a distressed credit and restructuring story."
Jonas also suggested Tesla CEO Elon Musk use his stake in SpaceX to collateralize Tesla.
Tesla's stock has been down 15 percent since May 16 and fell 6 percent on Wednesday to under $193. It began tumbling last week after an e-mail surfaced in which Musk urged employees to cut spending and told them he will personally oversee expenses.
Morgan Stanley's tech researchers don't expect Apple to have a service or related hardware devoted entirely to transportation until the 2030s, according to Jonas. Self-driving cars won't save Tesla, either.
"Perhaps those big tech firms don't want to expose themselves to that up front," argues Jonas. "And moreover they realize the autonomous race is more of a marathon where over a 10- or 20-year period you collect real-world miles. There may be other ways to do that besides owning a full-stack, awesome, great auto company."
Jonas also poured scorn on Tesla's production plans. He said Wall Street in the near-term expects Tesla to deliver only 70,000 electric vehicles (EVs) in the second quarter of 2019. On the other hand, Morgan Stanley's estimate is more optimistic 82,000 vehicles. This total, however, still falls short of Tesla's guidance of 90,000 EVs.
"Although we are driving towards higher internal goals, we reaffirm our prior guidance of 360,000 to 400,000 vehicle deliveries in 2019, representing an increase of approximately 45% to 65% compared to 2018," said Jonas.
On Monday, Musk said Tesla will continue to cut everything that doesn't have a strong value justification so it doesn't run out of cash in 10 months. This draconian decision to scrimp on practically everything is part of what Musk calls "hardcore" cost-cutting efforts.
"This is a lot of money, but actually only gives us about 10 months at the Q1 burn rate to achieve breakeven!" Musk wrote to employees in an email last week. "This is hardcore, but it is the only way for Tesla to become financially sustainable and succeed in our goal of helping make the world environmentally sustainable."
The memo revealing Tesla's financial difficulties comes only a week after Tesla raised $2.7 billion it said it will use for general purposes after its cash position plummeted by over $1.5 billion dollars during the previous quarter.