Tesla has cash to weather coronavirus storm: Analyst

The electric-car maker can withstand a 'draconian scenario' where demand falls 90%

Tesla has the financial strength to withstand the storm caused by the COVID-19 pandemic, according to Morgan Stanley.

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Shares of the Palo Alto, California-based electric automaker soared Thursday after the company received two upgrades from Wall Street banks.

“We are confident in Tesla’s liquidity and cash-flow profile through a likely turbulent road ahead,” wrote Adam Jonas, an analyst at Morgan Stanley, while upgrading Tesla to “equal weight” and lowering his price target to $460 from $480.

TickerSecurityLastChangeChange %
TSLATESLA INC.585.76+11.76+2.05%

He said that “in a draconian scenario, where demand falls 90 percent," Tesla would burn $750 million per month. The company, however, has about $8 billion of cash on its balance sheet currently.

Jonas thinks the stock is “in a place where investors can potentially begin to add exposure” with shares having fallen 60 percent from their Feb. 19 peak of $917.42 through Wednesday.

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Bank of America analyst John Murphy agrees with Jonas that Tesla shares are attractive at current levels. He raised his rating to “neutral” and price target to $500, “based solely on valuation.”

However, he added that “investor optimism around the company and its business/financial future remains overhyped and a litany of risks remain under-appreciated.”

Meanwhile, Wedbush analyst Dan Ives maintained his “neutral” rating but lowered his price target to $425 from $720, because the COVID-19 pandemic has “dramatically” changed the global demand environment.

While it's not a long-term trend, the “vastly changing near-term economic conditions make Tesla's ability to hit its original 500,000-plus delivery targets for 2020 a virtual impossibility," he noted.

Ives now sees Tesla delivering 400,000 to 415,000 vehicles in fiscal year 2020 as the company “battles through a myriad of production, demand, and delivery challenges” over the coming months.

As for Tesla’s cash position, Ives agreed with Jonas that although the company’s cash burn will be “heightened” in the near-term, the “longer-term trends remain very healthy.”

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Tesla shares were down 13.7 percent this year through Wednesday, outperforming the benchmark S&P 500’s 25.8 percent decline.