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Deluge of Bad News Highlights Tesla Inc (TSLA) Risks, Says Oppenheimer

After a blitz of bad breaks for TSLA, Colin Rusch believes the company's risk factor stands exposed.


Tesla Inc (NASDAQ:TSLA) investors were just hit a downpour of tough breaks- the latest of which points to a high-yield debt downgrade from Moody’s to B3- now echoing S&P’s B- rating.

This rocky blow follows the National Transportation Safety Board (NTSB) setting loose an investigation of last week’s fatal Highway 101 accident involving a Model X. The NTSB seeks to determine if the electric car giant’s automated control system was responsible, where a collision resulted in the driver’s car catching fire- a kind of investigation that usually takes a year to a year and a half to conclude. Additionally, to add insult to injury, Nvidia, Tesla’s advanced driver assistance system (ADAS) collaborator is currently suspending its ADAS testing program.

Needless, shares slipped 8% yesterday in the market and continue to plunge another almost 2% this morning.

Oppenheimer analyst Colin Rusch believes this “deluge of bad news highlights TSLA risks,” leaving him firmly on the sidelines, apprehensive.

As such, the analyst reiterates a Perform rating on TSLA stock without listing a price target. (To watch Rusch’s track record, click here)

Regarding the Moody’s downgrade of the company’s high-yield notes issued in the third quarter of 2017, Rusch predicts: “We would not be surprised if increased credit concern led to broader expectations for an equity raise, which we believe the company will need to do in 2Q:18.”

“While TSLA requires strict driver engagement with its Level 1 and 2 ADAS, we believe ongoing turnover in its ADAS leadership and delays in its announced autonomous cross-country trip suggest there are technical issues the company is encountering. We believe the NTSB investigation could suggest TSLA’s implied lead in ADAS technology is not as substantial as many investors believe,” continues the analyst.

Meanwhile, the company has odds to confront rivalry in ADAS as well as luxury electric vehicles, with the analyst pointing to a fierce competitive playing field amid the Waymo purchase of a whopping 20,000 Jaguar I-PACE SUVs. These cars boast self-driving units and are poised to kickstart testing by the close of the year. As far as Rusch sees the situation, this could fuel even more grapevine chatter of a Model S redesign.

On a closing note, “We continue to believe that pressure on TSLA’s debt could be amplified in its equity pricing, especially given concerns around delays in reaching profitability. We also believe the increased scrutiny of ADAS programs by regulators along with the NTSB investigation could bring to light any technical issues in TSLA’s system as well as question its implied technical leadership,” surmises Rusch.

According to TipRanks, analysts are largely cautious on the electric auto empire, mirroring Rusch’s sidelined stance. Out of 22 analysts polled in the last 3 months, only 5 rate a Buy on Tesla shares, 9 maintain a Hold, while 8 issue a Sell. Worthy of note, positivity is reflected in consensus expectations, considering the 12-month average price target of $313.44 indicates 12% in potential upside.