Tesla (NASDAQ: TSLA) has captured the attention of Wall Street as the automaker with the most potential to emerge out of the coronavirus pandemic with the most momentum.
The results from a Morgan Stanley survey shows that Tesla was picked by analysts over GM and Toyota for its leadership in technological advancements within its vehicle infrastructure, making it the prime candidate to head out of the pandemic with full steam. Additionally, 56% of the surveyed investors believe its either “extremely unlikely” or “somewhat unlikely” that legacy automakers will be able to “earn its cost of capital” in manufacturing electric or autonomous vehicles, CNBC reports.
Morgan Stanley asked 25 investors a hypothetical question: Assuming a $10 billion investment fund comprised of Toyota, General Motors, and Tesla were given to them for five years, who would they choose to invest in. 20% chose GM, 24% picked Toyota, and the remaining 56% chose Tesla.
Despite Morgan Stanley’s positive stance on Tesla, Bank of America questionably downgraded its rating of the electric automaker from neutral to underperform. Bank of America states Tesla has several hurdles to jump over to regain a positive outlook. These include ongoing and future production challenges and continued losses and cash burn from low production and deliveries, MarketWatch said.
Interestingly enough, Tesla’s 2019 Q4 earnings call showed a $930 million increase in cash and cash equivalents to $6.3 billion, and $1 billion operating free cash flow in the final quarter of the year. Additionally, Tesla’s delivery numbers for Q1 2020 showed the company beat Wall Street’s 75,000-80,000 estimate by giving cars to 88,400 people within the first three months of the year.
Tesla has also confronted production issues by planning the construction of an additional Model Y production line at its Fremont plant in California, and a revamp of the facility’s paint shop.
Tesla’s shares are up 67% in 2020 and closed at $732.11 when trading ended on April 22. Meanwhile, GM has fallen 42% to $21.30, and Toyota is down 14% to $121.43 since the turn of the new decade.
Morgan Stanley does expect Tesla to burn $1 billion or more of cash flow in 2020 due to production shutdowns, but the firm also predicts a volume growth of between 5 and 10 percent. The average automaker, however, is forecasted to lose between 20 and 25 percent of free cash flow, and anywhere between 10 and 30 percent of its market cap, Morgan Stanley said.
Tesla’s Q1 2020 earnings call is scheduled for Wednesday, April 29.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.