Morgan Stanley has lowered its rating of the German car manufacturer Volkswagen to “underweight” from “equal weight”. The bank also cut its target price to EUR20 from EUR28.

Bank analyst Adam Jonas said in a client note that Volkswagen would fall into net operating losses within the next year and a net debt position within 18 months.

He added that a high degree of volatility was expected in the short term as a result of continued speculation surrounding Porsche’s position in Volkswagen.

Jonas also cut his price target on Porsche to EUR7 from EUR10, saying the company was using complex derivative instruments and debt to buy Volkswagen stock at a price which was three or four times its fair value.

“While we fundamentally support the combination of Porsche and Volkswagen, we are concerned that the financial outcome may leave Porsche in a difficult position,” Jonas wrote. He maintained his “underweight” rating on the sportscar specialist’s stock.