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Morgan Stanley Ends Research Coverage of Tesla as the Automaker Mulls Going Private

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【Summary】As Tesla CEO Elon Musk explores taking his electric car company private, one of the top Wall Street investment firms is recusing itself from researching Tesla’s financial health.

Eric Walz    Aug 21, 2018 5:38 PM PT
Morgan Stanley Ends Research Coverage of Tesla as the Automaker Mulls Going Private

As Tesla CEO Elon Musk explores taking his electric car company private, one of the top Wall Street investment firms is recusing itself from researching Tesla's financial health. Morgan Stanley announced today that it will no longer rate Tesla for investors.

Morgan Stanley's decision to restrict equity coverage immediately grew speculation that it might be assisting the automaker with its privatization bid. The news boosted Tesla shares to their highest number since August 7, the day when Musk tweeted about taking the electric automaker private.

Tesla shares hit $321.90 after the closing bell on Tuesday, which is nearly 10 percent higher than the company's opening price of $292.38 the day before.

Morgan Stanley becomes the second major financial firm to remove its rating. Last week, Goldman Sachs paired its announcement last week that it was removing its Tesla rating and price target, saying it would be advising Musk on taking Tesla private.

Morgan Stanley hasn't elaborated on what prompted its move. Mary Claire Delaney, a spokeswoman for the bank, and Tesla representatives declined to comment.

Also today, JPMorgan told its clients that funding to take Tesla private "appears to not have been secured" and slashed its December price target for the company's shares by more than a third to $195.

Musk made the surprise announcement on Twitter, saying he was exploring taking Tesla private with a price of $420 per share. He also added to his tweet  "funding secured", indicating some interest from outside sources for the multi-billion dollar deal.

musk tweet 2.png

In a blog post last week, Musk tried explain his tweet. He wrote that the Saudi Arabia sovereign wealth fund has approached him multiple times over the past two years about taking Tesla private. Musk added that they held several additional meetings with him over the next year to reiterate this interest and to try to move forward with a going private transaction.

After the Saudi fund bought almost 5 percent of Tesla stock on the public markets, Musk claims they reached out to ask for another meeting. That meeting took place on July 31st.

Musk added that the managing director of the fund expressed regret that Tesla had not moved forward previously on a going private transaction with them.

Tesla has been struggling with production issues since July of last year, when the first Model 3's starting rolling off the assembly line. The Model 3 is Tesla's first mass-market car and key to reaching profitability.

The company has burned through cash as it worked to fix what it called "production bottlenecks". Meanwhile, delivered to customers were delayed.

Tesla received received over 450,000 pre-orders for the Model 3 since the company began taking deposits for it in March 2016.

It is not clear if Tesla will secure the billions in funding it needs to go private. However, if the company was able to deliver its new car as promised, its financial situation might be much better than it is today.

Tesla CEO Elon Musk is reportedly prepared to meet with the SEC to discuss his privatization-related tweets.

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