Tesla’s “demand crisis” is coming, may its good days be over?

According to Business Insider, Morgan Stanley analyst Adam Jonas has always been optimistic about Tesla's development, but on Monday, US time, he lowered Tesla's target price from $260 to $240 and maintained a "hold" rating. Tesla used to obtain funding at $250 per share, and Jonas's move may indicate that Tesla's good days in 2019 are over.

Jonas's move suggests that Wall Street analysts, including him, have noticed the slowdown in Tesla's demand growth. However, Business Insider believes that Tesla's real problem is not the slowdown in demand, but how to achieve stable profits.

Previously, many Wall Street investment banks were very optimistic about Tesla, believing that the company would have a place in the US automobile market.

In 2017, Gene Munster, an analyst at research firm Loup Ventures, said Tesla has a potential market of more than 11 million sales in North America. Cathie Wood, an analyst at investment management company ARK Invest, is more optimistic that Tesla's share price may reach $4,000 at some point in the future, and the company will dominate the transportation service industry, although Tesla does not have related services now.

However, the views of these two analysts must be supported by demand growth. Business Insider believes that thinking in this way is equivalent to forcing Tesla into the "disruptive" framework that is common in Silicon Valley.

Demand growth is a very abstract and vague indicator. The important thing is that if you want demand growth, Tesla can no longer be a car company. Because whether the car manufacturer produces electric or fuel vehicles, the profit source of the automotive industry is the same. However, for Tesla's fans, thinking of Tesla as a car company is really underestimating the company.

As Tesla's performance in recent quarters shows, the company's ability to generate cash is amazing. In the fourth quarter of 2018, its revenue even exceeded US$7 billion. However, such a profitable company is also good at burning money. The most important point is how to create and maintain a healthy gross profit margin.

Business Insider believes that this has nothing to do with gaining market share or huge sales volumes, but depends on pricing. The best example is other luxury brands in the automotive industry, such as Ferrari or Porsche, which can make 15%-25% profit by selling cars and do not need to worry about demand growth.

Tesla is facing the same problem now. The company is a manufacturer of luxury electric cars, and there was no other competitor in the market before the company appeared. Now Tesla has a sales rate of nearly 3% in the United States, which is higher than expected.

For Tesla, there are not enough new car buyers in the United States to create new market share for it, and it is unclear whether the company can create demand growth in Europe or China. Business Insider believes that perhaps this situation will make Tesla's investors pay more attention to profits rather than growth rates.

However, investors still attach great importance to growth rate, which is not a good thing for Tesla. Tesla can produce about 400,000 vehicles per year and earn more than 10% profit on each vehicle. If the company wants to carve a path to the mass market and gain demand growth, they must sell affordable cars that are not so expensive and do not make as much money in a way that harms their own interests.

Importantly, Tesla's "demand crisis" is not that people don't want to buy the company's cars, but that analysts have found that Tesla may not have much demand growth in the future. However, Business Insider believes that no one should take those exaggerated demand growth forecasts seriously, and what is happening now just means that investors must accept this reality.

Business Insider believes that this may cause the public to be disgusted with Tesla. However, in the past two years, Tesla's market share in the United States has surpassed BMW. If Tesla can find a way to make the same level of profit as BMW, any financial concerns about the company will disappear.