A Tesla Model S is displayed during the London Motor and Tech Show at ExCel on May 16, 2019 in London, England.

Analysts at Credit Suisse initiated coverage of Tesla Wednesday with a relatively bearish outlook on the electric vehicle maker, thanks in part to ambitious, old-school competitors like Volkswagen.

Analyst Dan Levy came out with a $189 price target — roughly 15% below where the stock closed on Wednesday — and an "underperform" rating on the stock based on the view that the stock does not reflect key profit risks at its current levels. While Tesla is leading in areas like electrification and software that will "define the future of carmaking," according to Levy "it faces risks ahead – reflected in our below-consensus estimates."

"While we see clear growth ahead for Tesla, we believe its volume trajectory more likely positions it as a niche automaker," he said in a note to clients Wednesday. "While we appreciate Tesla's edge, we nevertheless believe the risks ahead must be acknowledged."

Tesla shares are down 34% year to date amid weaker demand for its electric cars and questions about manufacturing. For Model 3 manufacturing, Levy pointed to a 2018 tweet in which outspoken Tesla CEO Elon Musk called it "production hell."

"While it has shown an ability to demonstrate consistent improvement, it is arguably not yet at a manufacturing consistency level similar to other automakers," Levy said.

As a framework to value the stock, Credit Suisse took the approach of comparing it to another "niche" auto industry incumbent: Volkswagen. Both are betting on a long-term industry shift to electric. But VW is the "definition of an industry incumbent" selling more vehicles annually than any other automaker in the world and more than 40x Tesla's volume in 2018, Levy said. Through that lens, Tesla is a "small newcomer to an industry which has historically had extremely high barriers to entry."

"The Tesla vs. VW debate could be relevant for the next decade or more," he said. "Both automakers are treating the long-term industry shift to vehicle electrification as an existential matter. Yet they are coming from vastly different positions."

Levy pointed to VW's going "all in" on electric cars and commitments to launch 70 new battery electric vehicle cars in the next decade and invest more than $34 billion around vehicle electrification, he said. To be sure though, Levy said Tesla does have some key advantages over legacy automakers including lower battery costs.

"Despite the myriad challenges facing Tesla, we believe Tesla deserves due credit," he said.

WATCH: Watch the highlights from Elon Musk speaking at Tesla shareholder meeting