MORGAN STANLEY: Tesla Will Not Be Building 500,000 Cars By 2020

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elon musk tesla model x Tesla Design Studio in Hawthorne, California February 9, 2012REUTERS/David McNewElon Musk shows off the next Tesla, the Model X SUV.

Morgan Stanley lead auto analyst published a research note to clients on Wednesday in which he expressed skepticism about Tesla's stated goal of building 500,000 electric cars annually by 2020.

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Jonas thinks it will be less than 300,000.

He also cut his price target for Tesla, to $290 from $320.

There's blood in the water around Tesla right now. The stock dipped below $200 per share for the first time in months. In morning trading on Wednesday, it fell to $193 before rebounding to around $200.

Shares are down from a trading peak of $291, hit in early September.

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Here's Jonas: 

Contrary to the prevailing view in the market, we have long viewed Tesla as a play on demand for premium high-performance vehicles (that just happen to be electric). While nobody buying a Model S today [for $105,000] is doing so to save on their monthly expenses, the longer-term story is far more dependent on the volume success of the Model 3, which is widely expected to have a starting price in the $35k to $40k range. Among a range of other factors, the pricing and addressable market of the Model 3 is dependent on (1) Tesla's ability to achieve cost reduction on the battery powerpack, (2) the prevailing state of the art and cost of internal combustion technology (and hybridized [internal combustion engine] tech),and (3) fuel prices.

So what's going on here?

Two things.

First, the Tesla story for the better part of a year and half has been a markets story - all about the stock, which is up more than 1,000% since the company's 2010 IPO.

But now it's beginning to dawn on investors that Tesla is actually a car company. It's more of a tech company than any other car company. But like General Motors of Ford, its current and future business hinge on building automobiles and convincing people to buy them. 

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As CEO Elon Musk has pointed out, it isn't easy to build machines as complicated as cars. It also isn't cheap. The auto industry is highly capital intensive - Tesla is going to require an enormous amount of money to build 100,000 cars, much less 500,000.

Second, Tesla doesn't exist in an economic bubble. The same dynamic that's turning consumers away from hybrids and that has doomed nearly every other electric car startup except Tesla is at least temporarily undermining Musk's objectives.

The world's major automakers are all now selling relatively inexpensive, high-quality, fuel-efficient cars that don't run on electricity. They committed to this just before and after the financial crisis, largely to satisfy U.S. government requirements to increase the overall mileage ratings of their fleets.

AND the price of oil is collapsing. Over the six months, this will translate into much cheaper gas. Unless you are very loyal to Tesla, its business model, and the whole idea of replacing internal combustion engines with electric motors, you may not be a prospective customer for either the company's forthcoming Model X SUV or its mass-market Model 3, slated to arrive in 2017.

A regular old SUV that burns (cheap) gas is affordable to own and doesn't need any special charging apparatus could be just fine.

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In this context, Jonas' questions about Tesla's pricing for the Model 3, when it does arrive, are critical.

Significantly higher pricing than expected would be a problem. Every since Tesla made it through an existential crisis in the 2008-09 period, the company's destiny has relied in having a lineup of electric cars. The electric car companies that have failed struggled to sell one car. Tesla has so far been able to sell two: the Roadster and the Model S sedan. 

All along, the plan has been to sell a portfolio of three cars: S, X, and 3. 

The S, at $100,000, and the X - likely to be priced around $60,000-70,000 - can be luxury cars.

But the 3 needs to appeal to the masses. If it doesn't, Jonas is right: Tesla will not become a high-volume automaker - it will remain a premium player in the same ballpark as BMW and Mercedes.

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Tesla Chart 12/17Yahoo FinanceTesla was up from recent lows in early trading on Wednesday.