Tesla Falls Victim to the Collapse of the Silicon Valley Bank (SVB) As Wolfe Research Downgrades the Stock on Credit Availability Implications
This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
When a company is as big as Tesla, its financial health is a function of not only idiosyncratic factors but also macroeconomic ones. In light of the dramatic collapse of the Silicon Valley Bank (SVB) last week and the ensuing fears of a full-blown banking contagion, Tesla shares have received a rare downgrade on credit availability implications.
As we detailed in a dedicated post earlier today, the crisis began on Thursday when SVB announced that it would book a $1.8 billion after-tax loss on a fire sale of investments intended to boost liquidity. SVB also announced that it would try to raise $2.25 billion via equity offerings. However, the bank failed to raise the required capital, prompting the regulators to shut it down on Friday.
As with almost all things in the financial world, the buck stops at the door of the US Federal Reserve, whose monetary tightening regime has exposed tier-2 banks in the US, such as SVB and the First Republic Bank, to accelerated outflows of deposits as clients tap US Treasuries and money market funds in search of higher yields. This adverse macroeconomic environment was made worse by the SVB’s choice to retain a large number of high-duration debt securities on its balance sheet without adequate hedging. Since such securities suffer a greater reduction in value in a rising interest rate environment, SVB was forced to absorb an ever-increasing amount of unrealized losses as the fair value of such securities continued to decline relative to their book value. When faced with accelerating deposit outflow, SVB had no choice but to try to raise additional
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