Tesla Oversold Amid AV Fears, But Still Not A Buy For KeyBanc

Uber’s suspension of self-driving tests and investigation into a fatal crash have cast doubt on the future of autonomous vehicles.

The new narrative, coupled with a Model X fatality and Moody’s downgrade, has prompted a 17.8-percent sell-off in Tesla Inc TSLA ― an overreaction as far as some analysts are concerned.

The Rating

KeyBanc analysts Brad Erickson and Elliot Arnson maintained a Sector Weight rating on Tesla with no price target.

The Thesis

KeyBanc considers Tesla’s stock oversold in the near term.

“How can we possibly say this is oversold given all the concerns? Because people love the cars and the CEO is Elon Musk,” Erickson and Arnson wrote in a note.

Shorting the stock can only be justified by expectations of demand declines or Tesla’s conceded ability to raise capital. KeyBanc wouldn’t bet on those circumstances.

The analysts’ channel checks indicate Model 3 deliveries are ramping, and although the segment continues to track below the targeted rate of 2,500 per week, it appears on pace to meet KeyBanc’s 8,500 quarterly estimate.

“Finally, we think the Model 3 backlog continues to grow while conversion is not proving disappointing thus far as many investors seem to think,” the analysts wrote.

Long-term, KeyBanc considers investors overly optimistic about Tesla’s ostensible leadership in automotive innovation, particularly amid the risk of recurrence of this week’s events.

Price Action

Tesla traded up about 1 percent to $260.25 in Thursday's pre-market session.

Related Links:

Fatalities Will Decline With Autonomous Vehicles, Gene Munster Says After Uber Incident

Nvidia To Halt AV Fleet Testing As Uber Investigates Fatal Crash