Bad news continued to mount for Tesla (TSLA) Tuesday as Morgan Stanley outlined a worst-case scenario that calculates a potential 95% swoon in Tesla stock while the company's short sellers are in position to see a highly profitable month of May.
Morgan Stanley analyst Adam Jonas slashed his low-end bear case scenario on Tesla stock to $10 a share, down from $97. That scenario is based on weak demand from China, exacerbated by the ongoing trade war with the U.S.
Jonas kept his main price target on Tesla at 230, and a bull-case forecast of 391.
"Our revised bear case assumes Tesla misses our current Chinese volume forecast by roughly half to account for the highly volatile trade situation in the region," Jonas wrote in a note to clients. The trade war could also lead to an increasing risk of government and regulatory attention, he said.
The electric-car company is in the midst of building out its next flagship factory in Shanghai.
Tesla Stock Below Key Support Levels
Tesla stock closed at 205.08, down 0.1% on the stock market today. Earlier in the day the stock was down more than 3%, below 199. Shares hit their lowest level since January 2017, down more than 14% in the past five days and falling below key levels of support.
The recent slide in Tesla stock started on Friday. A National Transportation Safety Board report said a Tesla vehicle involved in a fatal March 1 accident in Delray Beach, Fla., was operating on "autopilot" at the time of the crash. That marked the third fatal accident involving Tesla cars operating in self-driving mode.
Tesla stock fell 4.4% on Monday as Wedbush analyst Daniel Ives cut his price target by 16%, to 230 from 275. He based that on concerns about slower growth and weak underlying demand for the Model 3.
Ives said Tesla faces a quagmire. It's in the middle of building its Shanghai factory. Tesla also is in the early stages of laying groundwork for building its upcoming Model Y, set for 2020. Further, it's ramping production of the Model 3, all while facing a growing cash crunch and high expenses.
Short Sellers Target Tesla
Analytics company S3 Partners issued a note on Monday that said Tesla short sellers are in position to see May as one of their most profitable months since 2016. By short selling stocks, investors are positioned to profit if the stock goes down in price.
"Tesla continues to be one of the most shorted equities in the U.S., with Apple (AAPL) holding the top spot since April 2019," wrote S3 analyst Ihor Dusaniwsky. "Tesla shares shorted had been gradually declining from April 2018 to January 2019, but short sellers have been reinvigorated in 2019."
In addition to the downbeat report from Morgan Stanley, Baird analyst Ben Kallo slashed his price target by 15%, to $340 from $400. He based that partly on concerns over Model 3 demand.