Credit Suisse analyst Dan Levy last night initiated coverage of Tesla (TSLA) with an Underperform rating and $189 price target.

The stock closed yesterday down 49c to $219.27.

While Tesla currently leads in areas that will likely define the future of car making, the company faces "risks ahead" and is "likely to settle as a niche automaker," Levy tells investors in a research note.

Volkswagen's (VWAGY) "strong push" on electric vehicles highlights the competition Tesla faces from larger, better-capitalized players, according to the analyst. He believes Tesla lacks the same scale as other automakers and that the company has struggled with the basic "processes" of the auto industry.

If Tesla can't maintain "healthy" margins, then its edge in the differentiating aspects of the auto business will be a "moot point," says Levy.