Is Tesla 'Too Big to Fail'? Morgan Stanley Says Yes

There's never a dull moment for Elon Musk and his electric vehicle (EV) maker Tesla Inc. (TSLA). The Palo Alto, California-based company, one of the Street's most polarizing tech stocks, has seen its story become even more interesting on a note from a team of analysts who suggest that its large employee base may serve as a major factor in its long-term survival. (See also: Tesla’s Problem—Model 3 Batteries: Oppenheimer.)

Morgan Stanley analyst Adam Jones issued a note to clients Wednesday in which he indicated that the EV market pioneer, led by outspoken serial entrepreneur and angel investor Musk, "may be more on the 'too big too fail' spectrum than the market realizes." He noted that Tesla's U.S. workforce numbered 37,543 at the end of 2017. Jonas expects that number to surge to 50,000 by as early as 2019.

"The vast majority of the company's workforce is in the United States, and across many states," wrote Jonas. "Rule of thumb on the economic multiplier says that one auto-related job can support as many as seven other jobs throughout the economy." The significant impact that automakers have on the U.S. economy and American workers is the reason why the government ultimately decided to bail out General Motors Co. (GM) and Fiat Chrysler Automobiles NV (FCAU) during the financial crisis a decade ago.

TSLA's 'Most Critical Time'

Jonas, who maintains an equal weight rating on TSLA, reduced his price target from $379 to $376, reflecting a 27% upside from Thursday morning. Trading at $294.66, TSLA reflects a 5.4% decline year-to-date (YTD) and a more than 500% return over the most recent five years, compared to the S&P 500's 0.7% increase and 15.1% gain in the same respective periods. 

Jonas views the next three months as "the most critical time in Tesla's history since the Model S launch six years ago," as the company attempts to ramp up production of its first mass-market vehicle, the Model 3 sedan, to reach a new target of 6,000 per week. "The fundamental pendulum could move in either direction or in both directions in a big way, making Tesla the ultimate high risk name in autos," wrote Jonas in the note titled "Tesla's Next Move: $200 or $400?"

While Musk has reiterated the fact that Tesla will not need to raise more capital in 2018, Morgan Stanley is unconvinced, expecting the firm to raise $2.5 billion in the third quarter through a stock sale. Jonas is among the bears who doubt that the firm can hit its lofty production targets, writing that "we don't expect a 5k/week run-rate to be achieved before late 4Q'18." (See also: Tesla Investors: Don’t Worry About the Model 3.)

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