Credit Suisse Initiates Tesla At Underperform, Says Company Compares 'Most Appropriately' To Volkswagen

Another analyst has initiated bearish coverage on Tesla Inc TSLA.

The Analyst

Credit Suisse analyst Dan Levy initiated coverage of Tesla with an Underperform rating and $189 price target.

The Thesis

Levy said investors should be comparing Tesla’s business and valuation to an auto industry incumbent, and he said Tesla compares “most appropriately” to Volkswagen VWAGY given Volkswagen’s size and focus on EVs.

In the battle against the legacy automakers, Levy said Tesla has several advantages, including leading electrification technology and software and cost efficiencies. In addition to having lower battery costs, Tesla doesn’t face the same challenge in updating legacy factories and technology, Levy said.

Tesla also has several disadvantages to established automakers. Levy said Tesla is smaller and less capitalized, it operates on a much smaller scale and is has struggled with even the basic auto industry processes.

In the long term, Levy said Tesla will most likely “settle as a niche automaker,” and he expects the Tesla versus Volkswagen debate to continue for at least another decade. For investors, Levy said Tesla’s potential upsie will come down to whether or not it can differentiate itself from the low-multiple legacy auto stocks.

“Ultimately, if Tesla can’t maintain healthy margins, then its edge in the differentiating aspects of the auto business will be a moot point,” Levy wrote in a note.

Price Action

Tesla shares traded around $219.42 on Thursday morning. The stock is down 35.7% overall in the past year.

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