Tesla, Inc. (TSLA) shares opened 5% lower on Wednesday after Moody's Investor Services downgraded the electric car maker's corporate family rating from B2 to B3 and cut its senior notes to Caa1 earlier this week. Given the Model 3 production shortfall, significant negative cash flow and pending maturities for convertible bonds, the credit rating agency believes that Tesla will need a sizable equity raise in the near term to avoid a cash crunch.
Oppenheimer analysts also cited the National Transportation Safety Board's investigation of the accident on Highway 101 last week and NVIDIA Corporation's (NVDA) move to suspend its advanced driver-assistance system (ADAS) testing program as potentially holding back Tesla stock from moving forward. Oppenhiemer believes that the debt issue would be amplified in equity pricing, while the increased scrutiny of ADAS programs could spill over into Telsa's systems. (See also: Tesla Downgraded by Moody's Amid Model 3 Production Woes.)
From a technical standpoint, the stock broke down from key trendline support levels near S1 support at $305.22 earlier this week before breaking below S2 support levels at $267.37. The relative strength index (RSI) appears extremely oversold at 24.03, but the moving average convergence divergence (MACD) remains in a strong bearish downtrend. These indicators suggest that the stock could see some near-term consolidation, but the trend is still bearish.
Traders should watch for some consolidation above S2 support levels at $267.37 if Tesla stock closes above those levels during Wednesday's session. If not, the stock could move down to prior lows of around $240.00 before seeing a period of consolidation. A rebound from S2 support levels could lead to a retest of trendline and S1 resistance at around $305.22, but that scenario appears less likely given the strong bearish sentiment. (For more, see: Traders Betting 'Heavily' Against Tesla's Junk Bonds, Shares: IHS Markit.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.