What’s Next for Tesla (TSLA)? Here Are 5 Key Stages for the Stock

Tesla (TSLA) shares went on a roller-coaster ride this week as investors digest the implications of news that the electric car giant received a “voluntary request for documents” from the Justice Department regarding CEO Elon Musk’s controversial tweet about how he was considering taking the company private.

“Valuing Tesla shares is a volatile, unpredictable dynamic… but we believe it is ultimately dictated by a few key vectors: demand, cash consumption, access to outside capital, management actions/governance, and strategic price discovery,” says Morgan Stanley analyst Adam Jonas.

In his recent research note, Jonas offered his baseline of how events could potentially unfold over the next 12 to 18 months that could drive the share price to experience close to the full range of our bull-bear spread of $441 to $97. The analyst sees a potential sequence of 5 key stages for the stock as follows:

  • Stage 1: The Ramp (3Q18/4Q18) – Model 3 production inflects sharply positive, driving strong free cash flow from negative working cap.
  • Stage 2: The Raise (4Q18/1Q19) – Bringing in outside capital from strategic sources – minimizing increase in tradable free float.
  • Step 3: The Payback (1Q19/2Q19) – The tide begins to go out on working capital as the rate of Model 3 production growth decelerates… deteriorating cash flow.
  • Step 4: The Landing (2Q19/3Q19) – Demand for Model 3 slows while S and X volume potentially decline.
  • Step 5: A Potential Resolution (3Q19/4Q19) or Beyond – Tesla potentially crystalizes strategic value with a partner that can fund the ongoing capital requirements of the auto business or can monetize the value of Tesla’s edge compute/machine learning ecosystem.

The analyst concluded, “We understand there is a wide range of complex events that could combine to influence the ultimate direction of Tesla’s stock price. We just wanted to share what we felt was a plausible potential ‘baseline’ that we can mark to market over time as actual events unfold.”

Net net, Jonas reiterates an Equal-weight rating on Tesla shares, with a price target of $291, which represents a slight downside potential from current levels. (To watch Jonas’ track record, click here)

Wall Street believes Jonas is smart to play it safe when it comes to the electric car giant’s prospects ahead, as TipRanks analytics reveal TSLA as a Hold. Out of 27 analysts polled in the last 3 months, 7 are bullish on Tesla stock, 11 remain sidelined, and 9 are bearish on the stock. With a potential upside of nearly 7%, the stock’s consensus target price stands at $320.87. (See TSLA’s price targets and analyst ratings on TipRanks)

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