Tesla will hit roadblocks when the Fed turns off easy money.
The Federal Reserve’s tightening cycle may be closer than expected, and Tesla Motors is among the stocks that investors should short during the liftoff, according to a note from J.P. Morgan on Monday.
“We expect Tesla is going to have to raise a large amount of capital in coming years in order to fund its aggressive and capital-intensive plans to transition to becoming a mass market manufacturer — higher interest rates could make this capital more costly,” analyst Ryan Brinkman said.
Even without the challenges of securing cheap capital as the Fed scales back its easy money stance, J.P Morgan was already downbeat on Tesla TSLA, -0.04% rating it at underweight due to concerns about the affordability of the vehicles and execution risks.
Brinkman also noted that Tesla is more vulnerable than other auto makers to the strong dollar since 45% of its sales are from overseas, while 100% of its manufacturing takes place within the U.S.
The warnings on Tesla were contained in a J.P. Morgan report that looked at the possibility of an earlier-than-expected interest rate hike by the Fed and the implications for stocks if the Fed started to raise rates ahead of expectations.
“After more than six years of zero-interest rate policy, we expect the Fed to begin normalizing rates this year, and project the first 25 [basis point] rate hike at the September 16-17 FOMC meeting,” analyst Dubravko Lakos-Bujas said.