Shares of electric vehicle (EV) maker Tesla (NASDAQ:TSLA) are getting hit hard today, as the three major indices all bleed into the red in early afternoon trading. Shares of TSLA stock dropped about 6% today, among the leading decliners in the market and a significant contributor to the decline of market cap-weighted indices today.
While some macro factors can certainly be pointed to as reasons for today’s decline in Tesla and other high-growth stocks (namely, a disappointing bond auction leading to surging yields), Tesla has its own company-specific headwind investors are focusing on today.
HSBC initiated coverage of Tesla today, providing a very dim view of the EV player. With a “sell” rating and a $146 price target, HSBC is penciling in declines of more than 30% for Tesla investors.
Let’s dive into what HSBC analysts believe could lead to such downside and what to make of today’s move.
TSLA Stock Sinks on Bearish Analyst Report
HSBC’s view on Tesla isn’t unique. In fact, seven analysts have put sell ratings on the stock, with more sell or hold-equivalent ratings than buy ratings on Tesla existing right now.
That said, it’s the key risk factors HSBC’s analysts pointed out that appears to have resonated with investors today. The company noted in its analysis that Elon Musk, while a visionary and clearly an incredible asset to the company, could be a major risk. Analysts noted that Musk’s “prominence presents a considerable ‘singleman’ risk,” suggesting that if something were to happen to Musk, the investment thesis behind this company could be blown.
Additionally, HSBC pointed out that a significant amount of Tesla’s valuation is tied to future businesses in robotics, supercomputing, and autonomous driving. However, these businesses will all likely require a significant amount of capital to ramp up and are likely to face significant regulatory scrutiny. Thus, the “expected cost of capital for these businesses should be well above [Tesla’s] average given the regulatory and technological challenges they face.”
Personally, I think these risks the HSBC analyst team brings up are worth considering, and the market has clearly decided to take another look at TSLA stock through perhaps a more bearish lens today. Of course, Tesla remains among the largest and most influential companies out there, and this report isn’t going to change that. However, it might just change how some investors view the former hyper-growth company.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
