Here’s what could bring down Tesla shares this week

July 30, 2014, 2:36 PM ET

By Claudia Assis

AFP/Getty Images

Brace for a dent in Tesla Motors Inc. shares this week, Morgan Stanley analysts warned.

The company could deliver a weak third-quarter production forecast with its second-quarter earnings, they said in a research note Wednesday.

Tesla is slated to release earnings after the market closes on Thursday.

The analysts, led by Adam Jonas, are still bullish on Tesla /quotes/zigman/118681/delayed /quotes/nls/tsla TSLA +0.14% , saying that any price dips are an opportunity to get one’s hands on shares of the only U.S. auto company with significant long-term upside potential.

The problem is rooted in the idling of the Fremont, Calif. plant earlier this month. The assembly line had to be retooled so it could make both the Model S sedan and the upcoming crossover Model X, expected to hit the market next year.

That could lead to short-term supply constraints that Tesla might want to telegraph into a third-quarter volume outlook, the analysts said.

It’s still possible that Tesla will reiterate its goal of delivering 35,000 cars by year-end, but reaching that mark will be “heavily dependent” on a fourth-quarter catch-up, the analysts added.

TSLA

On Thursday, investors will be waiting to hear more about deliveries, Tesla’s planned ‘gigafactory,’ and business in China — a key market for Tesla. The company is expected to report second-quarter adjusted earnings of 4 cents a share.

Here are other potential pitfalls that could bring shares down:

Model S volumes in the U.S. are likely to continue to go down, leading investors to wonder whether the company is approaching saturation in markets like California, the Morgan Stanley analysts said. “We expect a vastly superior Model X … to put an end to these concerns,” they said.

In China, Tesla is likely to report a “very strong” order backlog and demand forecast, but the weakest link there is the company’s ability to distribute and service the cars. The journey in China, the world’s largest car market by far and the largest market for premium cars, will be bumpy, the Morgan Stanley analysts said. “The new ‘Tesla rules’ in China may require investor expectations of systematic, uninterrupted growth to be dialed back to allow a slower ramp,” the analysts said.

A lack of ‘gigafactory’ details could raise more questions than answers on Thursday. Reports this week that Panasonic Corp. is about to sign an agreement with Tesla to invest in the battery factory might nudge the company to discuss its plans in more detail, but without a confirmation from Panasonic, details on timing, partners, and investment needs could be scarce. That could lead to fears the timeline for the mass-market Model 3 will be pushed back. Without the ‘gigafactory’ to make cheaper, plentiful batteries, the Model 3 doesn’t leave the drawing board.

However spooked investor might be Friday morning, Tesla is in a “unique position” in terms of performance vehicle engineering, driverless cars, and energy storage — all of which “are not fully appreciated by a market focused on short term news flow and momentum,” Morgan Stanley said.

– Claudia Assis