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Tesla is facing an ‘existential crisis,’ says market watcher

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A day after Tesla CEO Elon Musk‘s April Fools’ joke that the company was facing bankruptcy, its shares lost $2.3 billion in value.

One market watcher wonders whether the joke was a prank or a cry for help as the electric car maker faces mounting pressure.

“Behind every good joke there’s always a little bit of a kernel of truth,” Boris Schlossberg, managing director of FX strategy at BK Asset Management, told CNBC’s “Trading Nation.” “It speaks to the kind of psychological pressure he’s under.”

The main concern, Schlossberg says, is its rising pile of debt.

“Tesla is really sort of in an existential moment at this point because they’re facing a massive, massive amount of debt due over the next 18 months and a big capital expenditure spend,” Schlossberg said.

By the end of December, Tesla held $7.2 billion in total recourse debt on its balance sheet. That was up around 42 percent from December 2016. It ended 2017 with $3.3 billion in cash and cash equivalents.

“The only way they can get out of it is to do a capital raise,” said Schlossberg. “That’s the big question: Can they do another capital raise and kind of pull the rabbit out of the hat and go forward?”

Last week, Moody’s analysts downgraded their credit rating on Tesla to B3 from B2. The firm said the company would need to raise more money and soon to cover its cash flow and expansion plans.

A large chunk of the market is betting on Tesla’s failure, added Schlossberg.

“The shorts are feeling like they’re just circling like sharks in the water at this point and I think they finally may have nailed the company to the downside,” he said. Musk is “facing some very serious problems because debt is absolute. Stock is relative, sales are all relative.”

Tesla has short interest at 22.6 percent of its float, making it the most shorted stocks on the Nasdaq 100. The Nasdaq 100 has an average 3.5 percent short interest.

Tesla shares have fallen 35 percent since hitting a 52-week high in September. The descent puts Tesla well within bear market territory of a 20 percent drop from its recent highs.

Tesla’s technical picture puts Oppenheimer’s Ari Wald on the sidelines. Wald, head of technical analysis, told “Trading Nation” that Tesla’s 200-day moving average has moderated and its recent downside gap makes any solid rebound more challenging. Shares could see a bounce if they reach $240, a March 2017 low, though $280 could prove a level of resistance, he added.

Tesla shares trade around 24 percent below a 200-day moving average of nearly $334. Tesla broke firmly below that key level in mid-March after bumping against it since the beginning of the year. It is on track for a 19 percent drop in 2018, its worst annual decline in its history.

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Dow futures rise more than 200 points after Wall Street worst sell-off in months

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Shares of Japan’s Sony after firm raises annual profit forecast

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A man walks past the logo of Japans Sony displayed at the company’s showroom in Tokyo on October 28, 2020.

KAZUHIRO NOGI | AFP via Getty Images

SINGAPORE — Shares of Sony surged in Tokyo on Thursday, a day after the Japanese electronics giant raised its annual profit forecast.

Sony shares in Japan were up 6.3% in Thursday afternoon trade even though Japan’s broader index, the Nikkei 225, was lower by around 0.3%

On Wednesday, Sony raised its forecast for its annual operating income by 13% to 700 billion yen (approx. $6.7 billion). It came as the firm announced a operating profit of about 317.8 billion yen (around $3.04 billion) for the three months ended Sept. 30.

Jefferies Asia’s Atul Goyal told CNBC on Thursday that he’s “extremely bullish” on Sony. The firm owns the stock and currently has a “buy” rating on Sony, with a price target of 13,230 yen per share — more than 50% higher than where the price currently sits.

… this is one of the best companies that we have seen in our coverage.

Atul Goyal

Managing Director, Jefferies Asia

Sony is set to release its next generation video game console, PlayStation (PS) 5, which would come on the back of the blockbuster success of PlayStation 4.

“It is looking very solid, very strong for PlayStation 5 and the whole cycle that lies ahead of us for the next 5 to 6 years,” Goyal, a managing director at Jefferies Asia, told CNBC’s “Squawk Box Asia” on Thursday. He highlighted Sony’s claims that the company received as many preorders in 12 hours for the PS5 as it did in 12 weeks for the PS4.

“You would hear shortages of PlayStation 5 because there’s more demand than supply,” the analyst said.

It’s not due to supply disruptions as “they have been able to recover from the … supply-side shortages that they were facing early on because most of the assemblies are happening in China and most of the supply chains have recovered almost entirely in China.”

“Demand is so strong for the product that that will keep the news flow that this product is sold out in most places for a while,” Goyal added.

Coronavirus impact

The video game sector has been among the few that have benefited from more people staying at home as a result of the coronavirus pandemic. That has raised questions over the sustainability of that bounce in a post-pandemic environment.

“The increase of gaming that we have seen partly is because of stay home, not just working from home, but vacationing from home where people are not traveling, and even the weekends you stay home,” Goyal pointed out. “This increase, part of that will be reverted as and when Covid goes away, and in my base case it doesn’t go away entirely until the end of 2021.”

Still, he said some of these habits that have changed as a result of the pandemic “could last longer.”

“We’re not factoring in (the) next five, six years of Covid-driven earnings increase. What we are factoring is Playstation 5-driven upside, driven by digital sales,” the analyst added.

Looking beyond Sony’s gaming business, which accounts for a sizable chunk of its operating income, Goyal said the firm’s music business is “also spectacular” while its image sensing business is also set to recover.

“All in all, this is one of the best companies that we have seen in our coverage,” he said. “Businesses in these three areas are all duopoly or oligopoly, and Sony’s a leader in all of them, with meaningful growth ahead.”

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Boeing (BA) earnings Q3 2020 results: Another rough quarter

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