Morgan Stanley cut its price target on Tesla shares to $291 from $376. Morgan Stanley sees Tesla as trading near fair value with a balanced risk reward, according to the note issued Tuesday. Jonas cut his long-term operating profit margin forecast for Tesla from 14.3% to to 9.8%.

Tesla declined to comment on Morgan Stanley’s price cut. Tesla shares were down more than 3% to $282.24 in afternoon trading.

Here’s what is behind Morgan Stanley’s move.

Model 3

Morgan Stanley said one reason for making material reductions to its earnings estimates was because of “lingering manufacturing issues with the Model 3—most recently at Fremont final assembly,” the note read in reference to Tesla’s Fremont, Calif. factory.

Tesla has been grappling with production problems on its new Model 3 vehicle for months. Tesla’s Model 3 production problems were first revealed in early October when the automaker reported it had produced just 260 of its new Model 3 electric cars in the third quarter and delivered only 220. Production improved to 2,425 Model 3s in the fourth quarter and 1,542 deliveries, but it was still below expectations.

Tesla reported in April that it had fallen short of its target to produce 2,500 Model 3s per week by the end of the first quarter. The company produced 2,020 Model 3 vehicles in a week at the end of the quarter, prompting Musk to admit that his reliance on automation had caused production bottlenecks.

Margins

Morgan Stanley tied the prospect of profitability—or inability to reach it—back to problems with the Model 3. The firm lowered its earnings forecast based on medium and long-term gross margin assumptions for Tesla’s product portfolio, notably the Model 3.

“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,” according to the note.

Jonas also noted that while Tesla management believes the Model 3’s margin performance below its 25% target level will be temporary, Morgan Stanley believes “this headwind is more structural.”

The company lowered its long-term auto gross margin forecast to 27% from 34%. Changes in Morgan Stanley’s margin forecasts drove nearly 90% of its price target reduction to $291, according to the firm.

Earlier this month, Tesla reported first quarter earnings that included a record loss, but still managed to beat Wall Street expectations. Despite the fifth straight quarter of record losses, Tesla spun the results as a positive along with voicing optimism about the rest of 2018. Tesla made “significant progress” on increasing production of the Model 3, Tesla said in a letter to shareholders.

The upbeat tone in the letter wasn’t enough to satisfy Wall Street, which reacted negatively to Musk’s earnings call after markets closed on May 2. The call started out normal until the 32-minute mark, when Musk cut off analysts, called their questions boring, and then turned to a YouTube video blogger who was allowed on the call. Shares fell in response.

Management Turnover

Jonas also mentioned recent executive departures from Tesla, including the temporary leave of Doug Field, senior vice president of engineering.

“A recent increase in the pace of management departures and an apparent reorganization of the business suggest to us the need to address some of the technical and fundamental hurdles weighing on company margins,” Jonas wrote.

Delays to the Tesla Shared Mobility Network

Musk has said the company will eventually launch a shared mobility network that will let Tesla owners add their vehicles to a shared fleet to earn income. The idea is that these vehicles will be fully autonomous and have the ability to shuttle people from Point A to Point B.

Morgan Stanley believes the mobility as a service will be delayed by a year. The delay contributed around $7 to its price target reduction.

“We now forecast 2k units fleeted in 2019 ramping to over 50k by 2021, 1 million by 2027 and 1.7 million by 2030,” Jonas wrote.