Tesla's stock has seen a significant increase since the election of Donald Trump, but analysts at UBS are concerned about the sustainability of this rally.
UBS analysts argue that the current valuation of Tesla is not supported by its underlying business fundamentals. They have maintained a "sell" rating on Tesla shares and set a price target of $226, indicating a potential downside of 35% from its current trading price.
UBS analysts believe that for Tesla to justify its current valuation, the company would need to achieve ambitious growth targets:
The recent rally in Tesla's stock has been driven by investor optimism regarding the potential benefits of Trump's presidency for the company. However, UBS cautions that this optimism may be misplaced, as the elimination of the EV tax credit could impact Tesla's profitability.
UBS analysts also highlight that the rise in Tesla's stock price appears to be driven more by market momentum and investor sentiment than by solid business fundamentals. They urge investors to critically evaluate the assumptions underlying the current stock price and reconsider their positions.
Tesla's current market valuation is a cause for concern, as its automotive business accounts for only 12% of its total market cap. Similar situations in the past have led to substantial corrections in Tesla's stock price. Other financial institutions, such as JPMorgan, have also expressed caution regarding Tesla's stock.
In summary, while Tesla's stock has experienced a significant rally, the underlying fundamentals suggest that a significant correction may be on the horizon. Investors are advised to critically assess the sustainability of the current valuation and the potential risks associated with the company's ambitious growth projections.