Tesla’s escalating production price and active resale marketplace may perhaps be hurting the brand’s appeal and diminish demand for its vehicles, Morgan Stanley stated on Friday, in a counter-intuitive note to customers.

“Quite a few auto corporations make good efforts to keep and remarket their made use of cars to improve accessibility of the made use of item to prospects who otherwise can not afford to purchase new … we note there may perhaps be a simultaneous cost to spend in terms of eroding scarcity worth,” Morgan Stanley analyst Adam Jonas stated in a note to investors.

Jonas added that, at this stage, “the effect on the residual values of Tesla cars and the monetary effect to Tesla and/or its buyer base is unclear.”

The analyst is broadly followed for his thoughts on Tesla and electric cars, as Jonas was one particular of the earliest on Wall Street to point interest to Elon Musk’s firm. His newest note covered a broad variety of points below the heading “Our thoughts on the ever-expanding second-hand Tesla population.”

In the exact same note having said that, Jonas says all the vehicles on the road could support sales.

“With Tesla, we are witnessing a scale of on-the-road auto population development not noticed given that in the much better aspect of a century,” Jonas stated. “Adding extra vehicles to the road is a type of ‘free advertising’ and promotion of the item to would-be purchasers.”

Morgan Stanley estimates there will be extra than 860,000 Tesla cars driving by the finish of this year. That indicates there are “two.five vehicles for each new one particular sold,” Jonas stated. He added that this is “probably a contributing aspect to decelerating demand.”

Morgan Stanley has an equal-weight rating on Tesla with a cost target of $230 a share.