Morgan Stanley piles pressure on Tesla with $10 worst case call

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Tesla lost $700 million in the first quarter, but CEO Elon Musk vows a return to profitability by the third quarter.

Faced with a slumping stock price and questions about demand for its vehicles, Tesla has lowered the United States base prices of its two most expensive models.

Electric vehicle pioneer Tesla has been coming back down to Earth quickly, with its share price barely above the US$200 mark this week.

Perhaps Tesla has finally figured out that there is simply not enough demand for its cars at the current price point, or worse, that its business model isn't sustainable, resulting in what has been a 2019 full of business model changes, price cuts, and employee layoffs.

As with previous price adjustments, Tesla said in a statement that like other auto companies it periodically adjusts prices and available options. Tesla said the decreases offset price increases from a month ago when it offered longer battery range and added a new drive system and suspension.

"Maintain sell/high risk as the risk/reward still appears negatively skewed despite the recent capital raise and stock pullback, mainly on lingering demand/FCF (free cash flow) concerns", the analyst said in a note late Tuesday.

Tesla shares fell as much as 7.5 per cent to US$195.25, breaching the US$200 level for the first time since December 2016.

Tesla said in a statement that the reductions are about 2% to 3% on the prices of the S and X. The company last week raised the price of its top-selling Model 3 by $400, pushing the base price to $35,400.

According to Morgan Stanley analyst Adam Jonas, the key drivers for the "bear case" downgrade are a worst-case outcome of the trade war and rising debts at Tesla. Part of the reason was an analyst's conclusion that the entrepreneur's "sci-fi projects" were proving to be a distraction, and had placed the firm in what he termed a "code red situation". The stock had already closed at the lowest level in nearly 2 1/2 years on Friday, after Chief Executive Officer Elon Musk called for a " hardcore" review of all the company's expenses and another analyst warned of potentially severe fallout from a fatal crash involving Autopilot.

Prior to this, in November 2018, Musk had hinted that his company has plans to establish a "partial presence" in India, Africa, and South America by the end of next year with an aim to expand further in 2020.

This story has been published from a wire agency feed without modifications to the text.

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