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Adam Jonas, Chief Automotive Analyst at Morgan Stanley, has reduced his price target for the company to 260 USD from 260 USD on Monday, with the equivalent of a "hold" on the title .
Jonas' new call is moderately bearish and based on what he and all other Wall Street citizens apparently perceive as a relaxation of Tesla's demand. Jonas also expects Tesla to sell $ 2.5 billion of new stocks this year to protect a cash reserve that he estimates is less than $ 2 billion.
In the past, Tesla had mobilized capital at around $ 250 per share. Therefore, for Jonah, the countdown began in 2019.
But what about this question of demand?
Read more: Tesla mania has reached a comic level
It's really not a question of demand, but of growth in demand. Tesla's most bullish investors and badysts – Cathie Wood of ARK Invest, Gene Munster of Loup Ventures and some of Wall Street's most marginal investment banks – have relied on Tesla's growth indicators that would let the company take the lead. controls the US car market.
In 2017, Munster was talking about an "addressable market" of 11 million sales in North America. Tesla has done a remarkable job in increasing the number of shipments worldwide, from the lowest five to five digits, but even after selling nearly 250,000 cars in 2018, it is far from achieving the kind of dominance exercised by GM in the years controlled to 50% of the American market (he now holds less than 20%).
Wood's mega-bull call suggests even more than that, with Tesla at a future time of $ 4,000 per share and the company dominating a transportation services company of which it is not currently a part.
The problem of bullish demand growth arguments
Both badysts need strong growth in demand to support their positions and, for what it's worth, growth in demand is one of those parameters that will appeal to anyone trying to force Tesla to adopt a "disruptive" Silicon Valley-style setting. The growth in demand is vague, abstract and, more importantly, forces Tesla not to be a car manufacturer.
Indeed, it does not matter that a car manufacturer manufactures electric or gasoline vehicles; The business economy is well understood. For Tesla bulls, thinking about Tesla as a car manufacturer is a disadvantage.
But it is not obliged. As demonstrated in recent quarters, Tesla-the-builder can be a cash-generating beast. In the fourth quarter of 2018, revenue was over $ 7 billion. The trick, with so much money flowing through a particularly savvy business to spend money, is to create and maintain a healthy profit margin.
This is not achieved by market dominance or colossal sales. This goes through pricing, the best examples being luxury brands such as Ferrari and Porsche. These brands can expect margins between 15 and 25% on their cars, which are obviously not cheap.
None of the brands cares about growing demand – more specifically, it does not care satisfactory growth in demand. Ferrari has only recently raised its production targets and Porsche is generally looking to penetrate new vehicle segments (such as SUVs over the past two decades) while matching its traditional profit margins.
Tesla is a luxury brand
Tesla logically falls into a similar paradigm. It's basically a manufacturer of luxury electric cars. This market was not serviced prior to Tesla's arrival, but the company has now achieved a larger than expected US sales share – about 3% per year. This is in proportion to VW's market share, and VW is a mainstream brand. The share is greater than that enjoyed by luxury brands.
Critically, it's the market share that Tesla created. This is a good thing, because for Tesla to take a share of the BMW market, for example, it would have to spend huge sums. Market share in the United States is calcified; it hardly changes from one year to the next.
There are not enough new car buyers in the US for Tesla to continue to impose new market shares at its current pace, and it is unlikely to generate strong growth in demand for Europe or China. This should lead Tesla's investors to focus on margins rather than growth.
In large part, they do not have. This is bad because Tesla is now sized to satisfy what I would call its natural demand, at least in the United States. With a production capacity of about 400,000 units a year, it can expect margins of more than 10% on its vehicles – unless trying to break into the mbad market, which erodes its profits by selling many vehicles less expensive bring as much money.
The key point here (literally!) Is that Tesla's "demand crisis" does not really target people who do not want to buy their cars. It is to allow badysts to discover that demand growth in Tesla will not be fierce in the future. No one should have taken scandalous forecasts of demand growth seriously, so that all we are seeing here is a calculation with reality.
This could lead to an intensification of negative sentiment around Tesla, and while this is understandable, it is also unfortunate. In just two years, Tesla has surpbaded BMW's market share in the United States. If Tesla manages to find a way to consistently display BMW level margins on this larger market share, its financial concerns will vanish.
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