Auto investors have spent the last few years choosing sides between Tesla Inc (Nasdaq: TSLA) and the legacy U.S. Detroit automakers. However, analysts say Tesla and the “Big Three” U.S. automakers have a lot to…
Auto investors have spent the last few years choosing sides between Tesla Inc (Nasdaq: TSLA) and the legacy U.S. Detroit automakers. However, analysts say Tesla and the “Big Three” U.S. automakers have a lot to offer each other, and a partnership with a major U.S. manufacturer could alleviate many of the problems that have plagued Tesla.
Morgan Stanley analyst Adam Jonas says Ford Motor Co. ( F), General Motors Co. ( GM) and Fiat Chrysler Automobiles ( FCAU) all have the capital, the manufacturing, the logistics and the delivery infrastructure that Tesla desperately needs. Conversely, Tesla has the type of software, connected car and electric vehicle expertise that the Big Three will need to survive in the 21st century. Perhaps most importantly, a partnership with Tesla’s powerful brand could help a company like GM or Ford unlock value in its stock simply by association.
“These firms have significant amounts of capital, cash, and access to data, but the market is putting as low a value on these assets as at any other historical cycle top,” Jonas says.
At the same time, Jonas said a partnership with a larger automaker could provide Tesla with the financial anchor it needs to survive.
“Tesla has not proven it can sustainably fund its ambitious plans without continued access to outside capital,” Jonas says. “And for a variety of reasons, the stock market is beginning to seriously question whether the fountain of outside capital will keep flowing.”
Tesla has repeatedly missed Model 3 production targets over the past year. Despite claims that Tesla will be cash-flow positive and profitable for the first time ever in the third quarter, the company reported a record net loss of more than $718 million in the second quarter. Tesla has said it will not need to raise additional capital in 2018, but several Wall Street analysts are expecting otherwise.
As a result, TSLA stock is down 9.2 percent over the past year.
Up to this point, Tesla and CEO Elon Musk have demonstrated a steadfast commitment to building Tesla from the ground up. However, Jonas says necessity is the mother of invention in the boardroom, and Tesla’s precarious financial situation may force the company to consider a partner if it can’t get on the right track on its own in the near future.
Morgan Stanley has an “equal-weight” rating and $291 price target for TSLA stock.