Morgan Stanley’s opinion after staying public: no change in rating or price target.
Snippets from note this morning:
In our opinion, Tesla’s CEO still harbors a desire to remove Tesla from the public market (recognizing that it would require an extraordinarily large amount of equity capital). Communication and sequencing of the potential plan clearly faced a number of challenges.
Key thoughts following the end to the ‘take private’ discussion.
1. Fundamentals. Tesla’s ability to multiply production of Model 3 into 3Q and 4Q profitably and with positive free cash flow (as targeted) will, in our view, be the number one factor in determining the direction of the share price by year end. We expect cash flow to remain negative albeit at an improved rate from 1H. We also continue to forecast a $2.5bn equity capital raise in 4Q to de-risk execution and the balance sheet.
2. Direction. Following the events of the past 3 weeks, investors may understandably have concerns around leadership and direction. We acknowledge these are important issues that we are not able to fully quantify at this time. In our view, sentiment around the Tesla story was hurt to some degree and may last for some time. That said, the resolution of the uncertainty surrounding a potential take-private scenario was important for employee morale, relationships with suppliers, governments, regulators and investors.
3. Strategic Value. We continue to believe there is strategic value at Tesla when considering the brand, it’s people, products, and assets (including infrastructure). While we completely understand the reasons behind halting plans to remove Tesla from the public market, we believe the events may have elevated the market’s awareness of the value of the company to potential strategic partners and believe this theme will remain a factor for the investment narrative for the foreseeable future.