"We are making material reductions to our earnings estimates to reflect lingering manufacturing issues with the Model 3," Jonas said in a note to clients Tuesday. "It is our view that the challenges in ramping up Model 3 production reflect fundamental issues of vehicle design, manufacturing process, and automation levels that can weigh against the profitability of the vehicle."

Morgan Stanley's Adam Jonas slashed his price target to $291 from $376 for Tesla shares, roughly flat to the stock's Monday close.

Morgan Stanley is getting more negative over profitability of Tesla's Model 3 electric car.

Tesla shares declined 2.7 percent Tuesday after the report.

The analyst also pointed to the company's significant recent management turnover. He reduced his long-term operating profit margin forecast for Tesla to 9.8 percent from 14.3 percent.

"Following 1Q18 results, we are making significant cuts to our near-term and long-term auto margin forecasts and allow for marginally greater equity dilution," he wrote. "We see Tesla as trading near fair value with a balanced risk-reward."

Jonas reiterated his equal-weight rating for the stock.

Jonas was one of the analysts who was stunned earlier this month during Tesla's first-quarter earnings call, when CEO Elon Musk dismissed many of their questions as "stupid" and "boring." The questions included the electric car maker's cash burn, its relationship with SpaceX and production of the Model 3.

"Tesla's 1Q18 analyst conference call was arguably the most unusual call I have experienced in 20 years on the sell-side," Jonas wrote on May 3. "Many investors we spoke with post the call agree."

Tesla declined to comment for this story.