Why Tesla Still Has 'Execution Hurdles' to Clear on the Model X

Updated from 8:51 a.m. to include additional comments from 3rd quarter earnings call in the fifth paragraph.

NEW YORK (TheStreet) –– Tesla Motors (TSLA) shares were falling in early Wednesday trading after Morgan Stanley cut 2015 earnings estimates on back of the delayed Model X launch, citing "execution hurdles."

Analyst Adam Jonas and his team cut estimates for 2015, as Jonas said he now expects Tesla to earn $2.45 a share, down 44% from prior estimates, and well below the consensus estimate of $2.99 a share. He also expects the company to generate $5.6 billion in revenue vs. the consensus estimate of $6.2 billion, largely because of delays with the Model X, which is now expected to begin deliveries in the third quarter of 2015.

Jonas, who rates Tesla "overweight" with a $320 price target, now expects 5,000 Model X deliveries for the year vs. a prior outlook of 15,000. Jonas cited "reasonable execution risk on this important model to ensure uncompromising quality of initial units." Jonas also noted that the Falcon Wing doors on the Model X may be a technical challenge for the Palo Alto, Calif.-based Tesla, but Tesla has been adamant that it's not an issue, saying the concerns are "misplaced," according to Jonas. Not only are there customers who want Falcon Wing doors, but the design was "relatively easy to execute compared to other technical accomplishments at the company."

On the earnings call, CEO Elon Musk noted that though the company is upgrading its Fremont, Calif. factory, it's tough to do so and still maintain the growth rate it and its investors have become accustomed to. "In some cases, when we upgrade the factory, it's like trying to change the wheels on the bus while it's going down the freeway, it's challenging," Musk noted on the call. "There are things where like we need readily to do better which is like manufacturing growth and maybe not being too perfectionist about future product and things like that."

Shares of Tesla were falling 4% to $247.39 in early trading on Wednesday, following a 71.3% return year to date.

Morgan Stanley subsequently raised its delivery forecast for the Model S to 48,000 from 45,000, despite CEO Musk's adamant stance on the third-quarter earnings call. "Actually, I don't think 50,000 is going to be super hard because if you look at sort of how we're exiting the year in production and demand, I think 50,000 seems like a pretty solid number," Musk said on the call. "We don't want to overreach, but I think 50,000 is pretty achievable number. That's more or less a modest extrapolation for where we will be at the end of this quarter."

Despite Musk's insistence that Tesla can execute on delivering 50,000 units next year and the company's previous outlook that it should get to a 100,000 annual run rate by the end of the year, there's still some healthy execution risk for the electric vehicle maker for both the Model X as well as larger issues.

"We believe the Model X is critical to the Tesla story and execution on this product is critical," Jonas wrote in a note. "There is a lot about the Model X which may be easier to execute upon vs. the Model S given high levels of commonality and experience with the factory. However, there are still some unique attributes to the vehicle that could present a near-term challenge."

Even though there are some near-term risks facing Tesla, the future is bright, and investors may want to use pullbacks to add exposure to what Morgan Stanley believes "is the most important manufacturer in global autos."

-- Written by Chris Ciaccia in New York

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