MORGAN STANLEY: Tesla’s slump could be the buying opportunity ‘investors have been waiting for’

Tesla Chief Executive Elon Musk stands on the podium as he attends a forum on startups in Hong Kong, China January 26, 2016.

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Tesla Chief Executive Elon Musk stands on the podium as he attends a forum on startups in Hong Kong, China January 26, 2016.
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Bobby Yip/Reuters

After losing more than 17% since the beginning of the year, Morgan Stanley says Tesla is trading right in the middle of its bull and bear cases for the stock, which could finally be a buying opportunity.

“We think that we are looking at one of the buying opportunities that many investors have been waiting for,” analyst Adam Jonas said in a note to clients Wednesday. “We’d use further weakness from here as an opportunity to build an Equal-weight position in the stock.”

Tesla’s stock price has been smoked in the first months of 2018 amid reports of exacerbating production problems on its mass-market Model 3 sedan. A fiery crash in California last week and a downgrade from Moody’s have only worsened things for the electric automaker.

“For much of the past seven years, Tesla has nearly monopolized Auto 2.0 amongst the publicly traded OEMS. In our opinion, the next seven years may be a far more volatile and crowded narrative.”

That steeper competition is coming from many angles. Waymo announced Tuesday it will partner with Jaguar to use 20,000 of its new, all-electric I-PACE SUVs in its self-driving pilot program. The SUV is considered to be one of the fist direct competitors to Tesla’s vehicles. Other electric cars from Nissan, Hyundai, Kia and Niro will only add to this pressure.

All eyes will be on Tesla’s Model 3 upcoming production numbers, which are expected to be released early next month. The company has historically fallen short on these delivery numbers, especially for the Model 3.

“Investor focus is still very largely dominated by the Model 3 ramp … specifically its ability to affect sentiment and near-term cash flow (working capital),” Jonas said.

“The precise timing of when Tesla can achieve a 2,500/week and then a 5,000/week production run-rate for its mass market sedan can make the difference between whether Tesla is potentially raising capital from a position of weakness at a price near our $175 bear case or whether it can access capital from a position of strength with a stock price near our $561 bull case.”

Morgan Stanley maintains its equal-weight rating for Tesla with a price target of $379 – 30% above where shares opened Wednesday.

Despite a few downgrades in recent weeks, Wall Street as a whole remains bullish on the stock, with a price target of $360 for the stock.

Shares of Tesla are down 4% in trading Wednesday.