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4 Conditions Morgan Stanley Considers Critical For Tesla's Successful Move Off The Markets

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4 Conditions Morgan Stanley Considers Critical For Tesla's Successful Move Off The Markets

Tesla Inc (NASDAQ: TSLA) CEO Elon Musk shocked the markets this week with a blunt, informal declaration that Tesla may go private. Analysts say the process could be more complicated than Musk’s nine-word announcements suggests.

The Analyst

Morgan Stanley analyst Adam Jonas maintained an Equal-Weight rating on Tesla with a $291 price target.

The Thesis

Jonas reviewed the conditions that would be required for Tesla’s continuation and success as a private entity. (See the analyst's track record here.) 

“In our view, Tesla and high amounts of leverage do not mix for both financial and strategic reasons,” the analyst said. “Tesla’s lifecycle, growth and risk profile require greater amounts of equity vis-à-vis debt, in our view.”

Going private would depend on four factors, Jonas said: 

  • Existing shareholders do not sell, so Tesla does not have to secure as much external capital;
  • sovereign wealth, industrial or technology firms step forward as strategic partners;
  • the market appropriately values Tesla’s prospects for a shared, autonomous electric vehicle fleet; and
  • SpaceX and Tesla plan to collaborate to better capture synergies from their complementary services.

“From the perspective of a Tesla shareholder, a positive development of the aforementioned factors could conceivably make a $72-billion buyout as little as $15 to $20 billion of true incremental capital … possibly less,” the analyst said. 

If the deal fails to materialize, it may be challenging for Tesla shareholders to look past the jolt and accept Tesla going back to business as usual.

Price Action

Tesla shares were trading down 3 percent at $359.22 at the time of publication Thursday morning. 

Related Links:

Musk Explains Go-Private Goal, Says It Wouldn't Necessarily Be Permanent

Elon Musk's Tesla Go-Private Tweets: Are They Legal And Is The Deal Even Plausible?

Photo courtesy of Tesla. 

Latest Ratings for TSLA

DateFirmActionFromTo
Nov 2019MaintainsBuy
Oct 2019MaintainsEqual-Weight
Oct 2019DowngradesNeutralSell

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