By on March 20, 2015

Black Tesla Model S

Thursday was a gift from the blogger gods for anyone slaving away at $25/post plus traffic-related bonuses. Rather than having to cook up clickbait headlines on Tesla, the equity research arm of Morgan Stanley did it for them.

In a video released to the public, MS made the typical hyperbolic case about Tesla, which mostly focuses on how cool Elon Musk is and how much they’d like to sit at his lunch table in the cafeteria. The voiceover asserts that Tesla is the only company they cover that could see its stock rise ten times…but, they caution, it could also be cut in half.

Well, which one is it? MS should know, given that they helped underwrite Tesla’s IPO, and one of their debt offerings, and have written countless notes breathlessly praising the company.

I am not a CFA charterholder and the following is not intended as investment advice. But I do know that this is a company that consistently over-promises and under-delivers, that markets a six-figure car that doesn’t even have Lane Departure, Forward Collision Warning or any other feature that would be mandatory in a traditional auto maker’s flagship, that has yet to turn a profit despite a $25 billion market cap, that loses money on every single Model S and has no revenue stream except for a shaky ZEV credit sales scheme, the value of which will be cut from roughly $4,000 per credit to a little over $1,000 per credit by 2017. If Tesla doesn’t get their mass market Model 3 out by then, they’re in big trouble. We haven’t even seen the long promised Model X yet, so it’s not looking good. Until then, they are nothing more than taxpayer subsidized playthings for the 1 percent.

Oh, and that long awaited announcement about ending range anxiety? Turns out it was a “trip planner” that plots charging points on your GPS screen. Nissan introduced that on the Leaf half a decade ago. Somehow, Elon Musk gets a pass for being some brilliant visionary when his accomplishments so far have been 1) the greatest Svengali the automotive world has ever seen 2) inventing an online payment method that half the world seems to despise. But as long as the tech press can keep living vicariously through him, he’ll be fine.

My own call for Tesla is “sell” with a price target of $0, based on their inability to generate sustainable revenue streams, the constant delays in product development, the obfuscation of key data and concerns regarding company management. Unfortunately, even the activist investors have been swayed by the relentless hype. Where’s Bill Ackman when you need him?

Disclosure: Author holds no position in Tesla but is long the entire S&P 500 via index funds.

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36 Comments on “Morgan Stanley’s Equity Research Clickbait “Tesla Stock Could Go Up 10x…Or Get Cut In Half”...”

  • avatar

    I imagine the Tesla BULLies frantically trying to spin the potential half-priced Tesla stock as “yeah, that’s what happens in a 2-for-1 split!” (or is it 1-for-2, I dunno) Of course, wouldn’t a true $0 price just be a stock undergoing an infinite split?

  • avatar

    This isn’t really hyperbolic click-bait, it’s just MOTO observations about a highly-leveraged startup with negative returns on equity, who are trying to penetrate an established oligopoly without being knee-capped by low oil prices.

    Yes, the stock is absurdly overvalued on pie-in-the-sky hopes for utopian futurism and the second coming of techno-Jesus (if Jobs was the first), but people have also been selling the demise of Amazon for two decades. Bezos always manages to find a way.

    Ultimately, what you’re betting on is Elon Musk, which means characterizations of his business acumen and personality are actually relevant.

  • avatar

    I am REALLY disappointed. I bought in below $30 back during 2012 – right after I made my P85 video because I BELIEVED in TESLA.

    Started with $5000.

    I really, really expected the car to catch on. Expected the Model X to be on the streets already.

    Then they nix the 40KWh entry trim and the price soars to Audi A7 levels…

    Then the P85D is released and it’s 5x the price of the average family car.

    The reason Tesla’s stock has fallen is because the cars aren’t affordable and no one wants to lease their platform. BMW will probably sell more i8 than Tesla sells P85D.

    PHEV are a better option for the immediate future.

    Until their is more EV infrastructure in America, EV don’t stand a chance against I.C.E.

    I made money off Tesla, but I’m angry with them.

    • 0 avatar

      That’s not to mention the fact that once the mainstream automakers decide that luxury EVs like the Model S are worth building, Tesla will get a run for its money like no other. I like Tesla’s cars a lot and would probably buy one…but I would share your anger as a stockholder.

      • 0 avatar

        Tesla will get bought, which is the point of this exercise. Build a brand by front-running the auto industry. Sell.

      • 0 avatar

        I could have made so much more.


      • 0 avatar

        I know a Ford QC guy who’s being courted by Tesla, and he has stars in his eyes. I tried to tell him that the odds of Tesla succeeding as a solo corp longer than 5 years were pretty long. If the EV market catches on, the big guys will jump in and either absorb or crush Tesla (and I believe that Musk would sell in an instant if he saw that a major mfr was really going to go after the EV market). If the EV market does not catch on, Tesla will collapse under its own weight. Either way, long term job prospects for a QC are not good.

        • 0 avatar

          The moment it’s possible to build a car like the Model S and sell it at a profit, BMW, Mercedes, Audi and Porsche will jump in with superior products and crush Tesla, who will be years behind in refinement and design, considering that it’s taking them years just to build a raised wagon version of their 5 door hatchback.

  • avatar

    So much ink has been spilled about this company and it’s “Cult Of Personality” leader that not much new can be added at this point. I think the key take-away from your article is the “click-baiting” that is in almost every investment article. Old stories are just rehashed with even more sensational headlines (“Warren Buffet eats a human baby every day—will this help your portfolio?”) and true information is lacking. And I think Elon Musk is the King Of Click Baiting, using Twitter to keep him and his non-performing company in the headlines.

    People keep referring to him as the next Henry Ford, the next Thomas Edison. I sincerely doubt he ever got his hands dirty on designing a car or a rocket. I think he is much more like Henry Kaiser after WWII–a man who had incredible success in one (or many) different areas of commerce, but was not able to copy it to the auto industry.

    • 0 avatar

      And Thomas Edison was a craven thug and animal-abuser, a crook who stole patents from hard-working inventors and even had a gang of enforcers sent around to intimidate and beat people up for supposedly using his patents instead of using the courts.

    • 0 avatar

      I certainly agree with what you’ve said about Elon Musk’s clickbait-y tendencies after this week’s announcement. He makes claims about having something that will end all range anxiety, and then we find out later on that it’s just a function that will tell you if you’re out of range of a supercharger station. How can you not feel like a chump after such an anticlimactic announcement…?

  • avatar

    Slow clap. Good article, Derek.

  • avatar

    I’m waiting for the article that combines the following subjects:

    Tesla Valuation
    72-month financing
    UAW organizing efforts in RTW states

    Think of all the clicks we could save!

  • avatar

    To defend Tesla – They have accomplished a LOT. I’m not writing them off. I think Musk has some business plans he doesn’t even tell his next door neighbor, Scott Painter. At some point he might be able to sell of his retail network for some heavy loot IF he doesn’t wait too long. It will be tough to spin that but that effort has already begun. The low fuel prices have not done them any favors. And I expect they will be with us for about 24 months. That’s an eternity for Tesla.

    There are about 400 Model S for sale on Craigslist, AutoTrader, and other online sites. Mannheim sold about 200 of them last year. ADESA, perhaps 100.These are big numbers compared to total sales. What does it mean? In my view, there are MANY who wanted to be seen as an original owner who did not view it as a long term vehicle. When the dust settles, we will see what Tesla really is. Even though the truth might be less sexy than the myth, Tesla could still be successful. They aren’t going to wipe out franchised dealers. They aren’t going to cause most vehicles to be sold like Apple products. If that’s what is required for them to be “successful,” you can call them “toast” today.

    But I have hopes for them and want them to survive as a viable company. They will have to recognize the facts of life for that to happen. One of those facts is that in the auto business one inevitably encounters a period where supply exceeds supply. If your business model pretends that will never happen to you, you will fail. Because it WILL happen to you. That is my primary fear for Tesla. Even Toyota once thought they could moderate production to keep demand greater than supply to support a One Price initiative they attempted a few years ago in their home market. It lasted for a few months. In the case of Tesla, when it happens Musk will obfuscate as long as he can before the truth comes out. We have found that it isn’t the deed that is so damaging. It is the exposed cover up that is the killer. If you’re a stock holder, you might consider that. It isn’t a question of IF it will happen, it is only “when.”

    Will they survive that?

  • avatar

    “the greatest Svengali the automotive world has ever seen”

    He’s an effective CEO, albeit an annoying one. You should not discount the importance of good management.

  • avatar

    The stock price does seem crazy, and I’ll be interested to see if people try shorting it. And the news about getting rid of range anxiety is a joke.

    But they did a superb job on the car, so far as I can tell without having driven one. (I did get a ride in the sports car in ’06, which was very impressive.) The brand equity is very high. I’m just not sure how you integrate massive brand equity and massive business vulnerabilities to come up with absolute value.

  • avatar

    Tesla, Schmesla … It’s SpaceX that impresses me. Whether Musk turns a wrench on a rocket or not, they’re doing something pretty impressive; especially if they get the reusable booster working. I’ve wanted to see a real rocket land upright since my 1950s sci-fi fanboy days.

  • avatar

    Seems to me supply of these things always will outpace demand until another Henry Ford comes along with a way to make them accessible to a critical mass of consumers. Until then, they will be little more than status symbols and not legitimate alternatives to fossil fuel-burning cars and trucks that most of the world drives.

  • avatar
    Land Ark

    I was convinced they were going nowhere when I sold my stock for a rather healthy loss at $28 after watching it flounder for 2 years.
    I’ve since bought in again and am in the same position as before. Some people never learn.

    It’s amusing to look at yesterday’s graph and see it going up as anticipation mounted and then at 12pm on the dot it plummeted.

  • avatar

    Geez, Derek, were you rear-ended by a Tesla this morning? That’s an angry article. I completely agree that Tesla is doomed; they don’t have the size to compete in the lower-priced EV market even if they had the desire to do so, they are dependent on ZEV credits to stay afloat, and if demand for high end EVs ever reaches a significant level, the real players will jump in and crush them. But give Musk his due: he created a car company from nothing that currently make the nicest EV available in the world and Autopilot can finally do all those functions that you pointed out were lacking. When it was introduced Paypal answered a problem for a lot of tiny internet entrepreneurs; it’s not Musk’s fault if Ebay screwed it up. And SpaceX is achieving actual results for a lot less money than Lockheed Martin and Boeing are milking the government for.

  • avatar

    UR in High Cotton dealing with the likes of Moregone Stanley. Be aware – most free brokerage house reports are sorta in house shill pieces.

    They tend to go along the lines of:

    “In our last report, we recommended XYZ Corp as a buy at $30. Currently, at $15, it represents a tremendous buying opportunity.”

    Somehow, $50 oil and Tesla stock ??????

  • avatar

    Great ranting article, Derek.

    To me Tesla is the modern equivalent of Dr Snively’s Travelling Emporium and Medicine Show from the late 19th century. These barkers were to be found at county fairs, and the man with the golden tongue dressed up as a guru in a top hat, sold hope through hype.

    A bottle of Dr Snively’s Cure-it-All cost half a week’s wages, was 50% alcohol and heavily laced with laudanum (opium). The imbiber entered a state of euphoria, narcotically induced, where nothing mattered and life was sweet. Purchasers swore by the stuff.

    On the back of taxpayers largesse and carbon credits, Elon Musk the promoter looks like a champ to the true believers, making them forget the simplicity of electric drive by layering on the gloss.

    The major manufacturers, particularly VW, will run over this circus show in a New York minute when it suits them. That time will be when actual professional cost analysts decide there’s real money to be made. Tesla stock is really worth zero, as you say.

  • avatar

    The Tesla may well be the most advanced/fastest/coolest/(insert your own hyperbolic adjective) electric car on the market, but as far as the long term viability of the company and its business model, there’s a huge point that is often overlooked: cost.

    With its 6-figure price tag, the model S is not an option for 99% of people. This is a toy for the 1%-ers, for wealthy pseudo-green Silicon Valley hypocrites. At this price, it’s just not even remotely a transportation option for the vast majority of people (considerations of ‘range anxiety’ and everything else aside).

    It’s sold in surprisingly good numbers so far, but, the size of the wealthy Silicon Valley elitist market is limited. Once the uptake among venture capitalists and Google/Facebook/Apple executives is filled, who else will be buying them? Musk knows this, which is why the model X is so critical to the company’s future – but only if it can be actually brought to market with range and a price competitive with conventional internal combustion cars. Which means, a range of 200+ miles and a price no higher than $30-something. Given that Tesla is loosing money on every $100,000 model S it builds, it seems like a long shot that they will be able to successfully deliver a car with similar range performance at 1/3 of the price.

    It always makes me both laugh, and raises my blood pressure, when I see a Tesla with a “No emissions vehicle!” license plate. Despite what the clueless bureaucrats at CARB might think, neither the Tesla, nor any electric car, are “zero emissions” vehicles. They are remote emissions vehicles. The electricity is not an energy source, but a means of storage. The electricity has to come from somewhere and be produced by something else. In this country, 66% of electricity comes from fossil fuels, and 20% from nuclear. So, unless someone is completely off the grid and has wind turbines and photovoltaic panels on their sensitively decorated mid-century modern in Atherton, the reality is that they’re driving a coal or nuclear powered car.

  • avatar

    Thank You Derek!!!
    Finally! Somebody puts my thoughts down correctly.
    Wow…so well written.
    Again, than you.
    Those 4th and 5th paragraphs were just brilliant.

  • avatar

    My rule is to avoid any business whose price has been pushed up by legions of wishful amateur speculators. Based on the knowable information before me, as an investment Tesla has folly written all over it.

  • avatar


    I remain amazed with how much stunning ignorance can be found on one web page, followed up with even more in the comments!

    As the buyer of three Tesla Model S’s (two new, one used, and with a fourth MS on order and a Model X on reservation), I remain profoundly thankful that so much misinformation continues to be endlessly repeated by the profoundly ill-informed–it allows me to buy even more TSLA stock at a discounted price.

    Thank you, TTAC, for having an asteroid-sized blind spot. Please, keep up the absurd repeating of inaccurate information and gross misunderstandings of the game-changing company that is Tesla Motors and I’ll be able to retire in just a few years with millions of dollars worth of TSLA stock.

  • avatar

    Tesla was always a play on “Peak Oil”. Now the Texas wildcatters, pesky fellows that they are, have busted that bubble for decades to come. Even the Saudis are running scared.


  • avatar

    “Sometimes people don’t want to hear the truth because they don’t want their illusions destroyed.”

    – Friedrich Nietzsche

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