REUTERS: Shares of Tesla Inc were on track for a fifth straight session of losses on Tuesday, as Morgan Stanley analysts outlined a worst case scenario that could see the electric carmaker's stock price fall as low as US$10.
Another brokerage, Baird, was the latest to cut its price target for the Elon Musk-run company to US$340 from US$400, saying concerns over demand, credibility and noise around the company have kept incremental buyers out of the market.
Tesla's stock, which has almost halved in value since last August, was down another 3per cent at US$199. In the last 10 days, it has gained only once, when the company boosted prices of its Model 3 sedan last week.
It was among Wall Street's more heavily shorted stocks with about a fifth of its float on the line. Prices of the company's debt also continued to sink.
Morgan Stanley analyst Adam Jonas, previously a major Tesla bull, said rising debt and geopolitical exposure, including the risk that Chinese demand for the company's cars could suffer, had led him to cut his worse-case scenario to US$10 from US$97.
"Tesla has grown too big relative to near-term demand, putting great strain on the fundamentals," wrote Jonas, rated a five-star analyst by Refinitiv for the accuracy of his forecasting on the company.
"The departure of key executives, price discounting, and extraordinary cost-cutting efforts add to the narrative of a company facing real potential stress."
The market action follows hot on the heels of a US$2.7 billion fundraising round by the company two weeks ago that was oversubscribed, but has done little to settle the nerves of holders of Tesla's existing debt.
Its US$1.8 billion high-yield bond due in 2025 with a 5.3per cent coupon weakened for a third straight day in European trading, with its price edging below 82 cents on the dollar and the yield up to 9.16per cent after touching a record high 9.25per cent overnight.
The spread of its yield over Treasury securities, a gauge of the added compensation demanded by investors for holding Tesla rather than safer government debt, widened to nearly 693 basis points.
By comparison, the average spread on corporate bonds rated "B" - roughly the same as "B-" rated Tesla - is 442 basis points, according to ICE BofAML bond index data.
It was also becoming increasingly expensive to insure Tesla bonds against the risk of default. Its credit default swap prices rose to a seven-month high on Monday and now reflect a 43per cent probability of default within five years, according to data from IHS Markit. That is up from around 36per cent earlier this month.
Jonas, however, kept his equal-weight rating, a price target of US$230 and also has a bull-case valuation of US$391, a reflection of the split on Wall Street around the company.
Of 31 analysts who cover the stock, 10 now recommend buying Tesla shares, nine are neutral and 12 recommend selling, according to Refinitiv Eikon data. The median price target is US$250.19, a fifth above the current market.
While cutting their price target, Baird analysts reiterated their outperform rating, saying Tesla was "positioned to outperform over the long run, as it increases profitability, generates free cash flow and ramps up production of innovating products".
Jonas also pointed to the potential that the share action may just push the company in a different direction to generate value in the years ahead, raising the prospect of a sale that would fit with its Silicon Valley startup profile.
"Based on our discussions with auto companies, suppliers, and technology firms, Tesla's strategic value and technical competency in both hardware and software remains extremely high if not in a league of its own," Jonas said.
"As Tesla's share price declines, the likelihood of the company potentially seeking alternatives from strategic, industrial, financial partners rises."
(Reporting by Tanvi Mehta, Aniruddha Chakrabarty and Vibhuti Sharma in Bengaluru; Additional reporting by Dan Burns in New York; editing by Patrick Graham)