As oil prices collapse and gasoline prices fall, Morgan Stanley automotive analyst Adam Jonas forecasts Tesla Motors Inc. will sell 40 percent fewer vehicles than the company’s stated target by 2020.

In a note to investors released today, Jonas said he expects the company to deliver 297,000 vehicles by the end of the decade, versus Tesla’s forecast of 500,000 units by the same date.

The challenge will be selling large numbers of the Model 3, slated to be Tesla’s first mass-market vehicle.

“While nobody buying a Model S today [at a price of nearly $105,000] is doing so to save on their monthly expenses, the longer-term story is far more dependent on the volume success of the Model 3,” according to Jonas.

The Model 3 is expected to have a starting retail price of between $35,000 and $40,000. Jonas predicts the price will ultimately fall to somewhere between $55,000 and $60,000. As a result, he revised his Model 3 volume estimates downward by one-third by 2020 and one-half by 2028.

Pricing and the addressable market for the Model 3 is dependent on cutting battery costs, efficiency improvements in competing internal combustion technology, and fuel prices.

Oil prices have fallen to their lowest level in four years, bringing the average cost of gasoline this week to nearly $2.60 per gallon. While this may not have much of an effect on wealthy Model S buyers, low oil prices in the longer term could impact the economic rationale of purchasing a mass-market electric vehicle.

Battery cost reductions will be key to the success of the Model 3. Tesla’s current batteries cost $200-$300 per kilowatt hour. The company believes it can achieve a minimum of 5 percent to 10 percent annual improvements until 2017, and at least a 30 percent improvement by scaling up production at the Giga factory.

One-quarter to one-third of battery production at the Giga factory is expected to serve stationary applications, which could theoretically boost demand and help to reduce costs.

A recent note from Barclays Capital contended that “continuous improvements in the battery manufacturing process give credence to Tesla’s near-term cost-per-kilowatt reduction targets.”

In Jonas’ view, however, if Tesla does achieve significant battery cost savings, it should use those savings to make the Model 3 better, not cheaper. “We believe it is in Tesla’s interest to prioritize driving pleasure, quality and a premium experience above all else during these important, still-formative years of the company's growth,” he wrote.

Jonas, who has long supported Tesla’s stock, lowered his price target from $320 to $290 per share. And while Tesla’s shares have fallen by 14 percent over the last month, Jonas maintained the stock is a good buy.