Share price of Tesla Motors, Inc. (TSLA) declined to $192.65 on Dec 17, 2014 after Morgan Stanley (MS) decreased the sales outlook and cut the target price for the stock to $290 from $320. Later during the trading session, the stock recouped the losses to close at $205.82.

Although the cutback in target price is a negative, investors in Tesla’s stock will still gain close to 50% over the current share price if the stock reaches the lowered target price.

Morgan Stanley expects that Tesla will be able to sell just about 297,000 vehicles by 2020, significantly below the company’s sales target of 500,000 units. It has also lowered the sales estimate of Model 3 by 48% to 400,000 units through 2028 from the previous estimate of 776,000 units. Morgan Stanley expects lower sales volume due to the expected decrease in oil price in the long term and improvement in internal combustion technology.

In addition, Morgan Stanley projected the average transaction price for Model 3 between $55,000 and $60,000, up from the previous estimate of $35,000 to $40,000. Tesla is designing the Model 3 for the masses.

If the price of the car increases, Tesla will have to limit sales only to the affluent customer base. At present, Tesla offers the Model S electric vehicle priced as high as $105,000. It will also launch the Model X for premium customers. High prices of these vehicles limit their sales.

Tesla’s future growth depends on its ability to produce automobiles suited to customer needs. Sales of the Model 3, which will be launched in 2017, will be influenced by its price along with other factors including cost of the battery powerpack, cost of internal combustion technology and fuel prices.

Other automakers are offering high-quality, fuel-efficient and low-priced vehicles which run on conventional fuel and thus, do not require any charging station. Moreover, progress has been recently observed in internal combustion technology along with reduction in fuel prices. In such a situation, it will be a challenge for Tesla if it is unable to appeal to the masses with Model 3.

Currently, Tesla carries a Zacks Rank #5 (Strong Sell). Better-ranked automobile stocks worth considering include Gentex Corp. (GNTX) and STRATTEC Security Corp. (STRT), both sporting a Zacks Rank #1 (Strong Buy).

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