Morgan Stanley: 'Prepare To Buy The Dip' On Tesla's Q2 Earnings

In a report issued Wednesday morning, Morgan Stanley analyst Adam Jones said he expects Tesla's (NASDAQ: TSLA) second quarter earnings report to contain some items that may weigh on the company's shares.

Jones wrote, "The market's more nearsighted lens creates good opportunities for long term investors."

This optimism on Tesla's long-term outlook comes after a report released Tuesday in which Jones suggested investors reduce exposure to U.S auto. In fact, Jones pointed out in Wednesday's note that Tesla is the only OEM in his North American auto coverage that offers material upside.

Jones expects the following for the company:

• Weak third quarter volume guide - Jones noted, extensive work being done to the Fremont plant to prepare for higher volume and the Model X could cause short-term constraints.
• Significant decline in N. American Model S volume - Jones is looking for a 20 percent year-over-year decline in N. American revenues. However, he believes that with the release of the Model X by the middle of next year, concerns of market saturation should be put to rest.
• Strong order backlog in China, limited ability to meet volume - Jones estimates China will account for 22 percent of Tesla volume by 2020. However, he suggests investors adjust their expectations from "systematic, uninterrupted growth" to a "slower ramp".
• Little detail on Gigafactory - Jones does not expect much detail on Tesla's Gigafactory until the company receives a "firm confirmation" from Panasonic.