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Tesla's 'Overly Hyped' Product Update Presents A Mobileye Pair Trade Opportunity

Tesla's 'Overly Hyped' Product Update Presents A Mobileye Pair Trade Opportunity NASDAQ:MBLYNASDAQ:TSLA

Brian Johnson of Barclays isn't a fan of Tesla Motors Inc TSLA 0.54% new product announcement, which he described as being "overly hyped."

In a report Thursday, Johnson noted that Tesla's stock outperformed the S&P 500 index by 400 basis points since its CEO Elon Musk tweeted about the product announcement. Over the same time period, Mobileye NV NYSEMBLY saw its stock fall more than 8 percent.

Johnson said Tesla's stock should now "take a breather" and Mobileye's stock is expected to outperform and investors should consider this unique pair trade.

The pessimistic view towards Tesla stems from the fact that the company's strategy of selling cars with the most advanced hardware along with an unproven self-driving software package is a risky strategy. In addition, Tesla's hints of a "Tesla Network" merely reinforces financial concerns plaguing the company, which were already high prior to Wednesday's product launch.

"While TSLA will be drawing on hardware from other vendors, it will be writing its own software, with Elon noting that TSLA would not use any third-party software," Johnson wrote. "This does not come as much surprise given the push TSLA has made to bulk up its software team (including well-known chip architect Jim Keller). That said, TSLA will need to accumulate millions of miles of real-world driving data in order for the system to be validated, and even then we're not sure it will be able to handle the corner cases that end-to-end black-box approaches may have difficulty with."

Bottom line, the analyst believes that Wednesday's announcement reinforces his view that Mobileye's first mover advantage in the autonomous driving space combined with increasing adoption of core ADAS (advanced driver assistance systems) will aid Mobileye in widening its competitive mote.

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