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No. of Recommendations: 0
? [US’ financial system is under pressure at the economy peak]
? [More costs with less fiscal supports and market demands]
? [Sell as risks are asymmetric: no supports none demands]

The US has experiencing a rising economy and bull market for the last ten years since the 2008 crisis with sustain strong growth rate and low unemployment, represents the peak of the economic cycle. Fears of the up-coming economic downturn with interest rates rising and inflation is in the air. A constant trend in monetary tight and investment restriction of fiscal policy along with a potential US market 2019 to a bearish situation. In contrast, Chinese is experiencing the slowest economy growth in the past 3 decades, with the government announcement of lowering growth range to 6-6.5% to pull off the deceleration.

Fears of recession reduce consumer demands especially in fancy products like EV which is not a necessary during bearish. Reduction in government subsidies with 50% Federal Tax Credit cut on EV further sank Tesla’s price. Pressured with tough US market, Tesla expanding to China while facing a 25% import tariffs, which could be higher due to the trading war. Moreover, a tax cut of $298Bn and an additional 3% cut of value added tax aims to benefit domestic manufacturer of fancy products from Chinese government puts Tesla in disadvantage of fierce competition. With less awareness of ESG, EV sales keeps falling in the past 2 decades and continue to decrease. TSLA sales in China may slump further to the bottom line.

Tesla is off by >7% on the first trading days 2019 and continue to sink. Shares have down nearly 10% in Jan, EPS has fallen to -5.72 compares to -4.22 same period last year. Carrying debt-to-equity ratio 254.64 and mere cash on hand without earnings, but a negative ROE of -21.31, Tesla can’t produce sufficient profits to fund its expenditures and debts. As a volatile stock, Tesla is not a good option in the downturn economy. Our recommendation is to sell Tesla.

The catalysts to our recommendation include inflation, interest rates increasing, Either of these would destroy market confidence on Tesla thus cause the stock price fall. Upside risks could be a converse fiscal supports to EV and a recovery in oversea market benefit from tariffs constrain. However, as the continuing tight monetary and restrict fiscal policies, we see stronger downside catalysts than upside risks in next year.

[TSLA 276.59] [Market Cap 49.077USDbn] [Consumer Cyclical]
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