Adam Jonas Sees 'Unanswered Questions' At Tesla, But Remains Overweight

• The share price of Tesla Motors Inc TSLA declined 14.17 percent over the last three months, hitting a low of $206.93 on October 30.
• Morgan Stanley’s Adam Jonas has maintained an Overweight rating on the company, with a price target of $450.
• Jonas mentioned that CEO Elon Musk has not answered the question of whether there was a business case for providing on-demand electric mobility services to the consumer directly from Tesla Motors’ own platform.

Analyst Adam Jonas believes that “the way Tesla may approach new business opportunities in the automotive industry is not clearly understood by the investment community at this time.”

The company reported its Q3 gross auto margin ahead of the estimate, while guiding to higher than expected Q4 volume. The Q3 non-GAAP OP came in at a loss, albeit better than the estimate, with key operating costs lower than estimated.

Related Link: Why This Analyst Remains Cautious On Tesla Despite Model 3, Gigafactory Optimism

On the other hand, cash burn during Q3 was twice the estimate, while customer reservation balance was relatively stable quarter on quarter.

Jonas stated that the company’s “ambitions to disrupt the car industry continue to come at the price of cash burn, hitting a record high in the quarter which could limit the extent of a relief rally.”

However, Tesla was positive regarding its order rate, production and delivery rates for Q4 and its 2016 guidance, despite the near-term challenges to the production launch of Model X.

Although the company guidance to Q4 deliveries above the estimate, management also highlighted “uncertainty” regarding the Q4 plans, given the company’s focus on quality over quantity of production.

In addition, the Morgan Stanley report mentioned that given the pace of cash burn, there could be some questions regarding “how the company can continue to pursue its ambitious growth strategy in automobiles and energy storage and its ability to absorb potentially necessary up-front cash expenses as it expands these business lines.”