Associated Press

In a private call with clients on Wednesday, the Morgan Stanley analyst and Tesla perma-bull Adam Jonas painted a bleak picture for the company he's been touting for so long.

Jonas sees Tesla floundering under its debt load now that it's no longer a growth story.

He also sees the company's next moves — the new Model Y, the refresh of the Models S and X — as insufficient to bring it back to good.

"Maybe retail consumers aren't ready to get into the segment the way Elon thought they were," he mused.

Tesla did not immediately respond to a request for comment on this story.

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No one can say that Adam Jonas of Morgan Stanley has not been a true believer in Tesla. For years, the analyst has been one of the company's biggest cheerleaders, an evangelist for its technology, and a supporter of Elon Musk's vision for the auto industry.

But on a private call with Wall Street clients on Wednesday, Jonas sounded as if there was little hope that the company would go back to being the growth story he loved anytime soon. Business Insider obtained a copy of the call.

Jonas kicked off the call by telling a tale of two companies: one that investors saw at the end of the fourth quarter of 2018, and another they're seeing now. In Q4 2018, Tesla demand was exceeding supply, cash flow was strong, and "by our lens," Jonas said, "there was excitement around the Model Y."

Now everything has changed. Here's how Jonas put it:

"Today, supply exceeds demand, they're burning cash, nobody cares about the Model Y, the company raised capital near lows, no strategic buy-in ... There could have been a strategic involvement in the capital raise — someone to fill the board to provide some know-how."

But there wasn't, Jonas bemoaned. And now Tesla is not a growth story but "a distressed-credit story."

We should note here that earlier this month Morgan Stanley was one of the lead underwriters on Tesla's $2.7 billion capital raise.

The angel of debt

The problem, at its most basic level, is debt.

Jonas still thinks Tesla's technology is second to none. For example, he told listeners that he'd been all over the world talking to people about the company's autonomous-driving technology, for example, and that experts say it's incredible.

"Does it mean the company is worth more than its debt? No," he said.

After the first quarter, Tesla is holding about $13 billion in gross debt, $8.4 billion in net debt, according to Jonas' calculations. That's fine when you're growing. It's death when you're not.

Jonas thinks it's possible that Tesla could deliver just about 70,000 cars in Q2, putting it on track for 250,000 for the year — 100,000 fewer cars than the company has projected.

That would send Tesla on a road to perdition, Jonas said. And by 2020, the company would need a massive infusion of capital or "to be seeking strategic alternatives for the company."

The market knows this already. For one thing, prices to insure Tesla's debt are at an all-time high. For another, Morgan Stanley's industrials specialist, Mark van der Pluym, was also on the call, and he said that over the past week, three-fourths of the Tesla stock he's sold has been to short-sellers.

"It's the first time I can remember sentiment in Tesla matches with broader sentiment in the auto sector," van der Pluym said.

Rescue rangers

The questions that followed Jonas' dirge were all about what could possibly come to Tesla's rescue:

Could Tesla advertise to save itself? Jonas responded that the company already had great brand recognition and that advertising would be "a disturbing development."

What about selling electric-vehicle credits to other automakers? Jonas thinks that would bring in only about $100 million a quarter.

What about lowering prices to save the company? No, those levers have been pulled, Jonas said.

What about leasing? Jonas responded by asking where Tesla would find the third-party financial partner willing to gamble on the company's lack of information about the residual value of its cars.

Models S and X refresh? Would that help? "We're not going to be having this call in December saying the S/X refresh really saved demand this year," Jonas said "It's got to be on the Model 3. That's the emphasis." Plus, he said the refresh would only change what would be a 50% decline in S and X sales to a 30% decline.

What if Tesla could be purchased by another tech firm, like Apple? Jonas doesn't see that happening either. He doesn't think the firms want to take the risk of buying an automaker whose cars sometimes burst into flames. "Perhaps these big tech firms don't want to expose themselves to that up front ... and they realize the autonomous race is more like a marathon."

What about the new China factory? "Could there be a worse time for China to be selling robot cars?" Jonas asked. He also said that, trade tensions between the US and China aside, the Chinese car market is in dire straits right now. It would take a gargantuan effort to surmount these obstacles, and "we don't think investors are willing to pay for that right now," Jonas said.

Jonas made it clear that this story is about the debt now. If someone could get a hold of Tesla's assets, cut the company's headcount, and get rid of the debt, "there's tremendous value there," he said.

But that doesn't help in a world that Jonas now worries just isn't ready for EVs.

"Maybe retail consumers aren't ready to get into the segment the way Elon thought they were," he said.

Tesla did not immediately respond to Business Insider's request for comment.

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