Tesla's stock has seen a significant increase of around 40% since the recent U.S. election, primarily driven by investor sentiment rather than any major changes in the company's fundamentals.
This surge has added over $350 billion to Tesla's market capitalization, pushing its valuation into a territory that was previously considered optimistic. The rally reflects a broader trend of "animal spirits" and momentum trading, which have historically influenced Tesla's stock performance.
Analysts believe that the current market narrative surrounding Tesla is compelling, especially considering potential regulatory changes expected under the incoming Trump administration. These changes could create a more favorable environment for autonomous vehicle ventures, in which Tesla is well-positioned. Additionally, the potential removal of electric vehicle tax credits could impact competitors more than Tesla, further strengthening its market position.
However, it is cautioned that the elimination of consumer tax credits may not necessarily lead to increased demand for Tesla's vehicles in the U.S. Despite the positive outlook, UBS notes that Tesla's pricing strategies have only stabilized demand so far, and further adjustments may be necessary if tax credits are repealed.
The competitive landscape in key markets like China and Europe remains strong, with rivals launching increasingly competitive electric vehicle models that could challenge Tesla's market share. UBS also raises concerns about Tesla's current valuation, describing it as "over-extended."
Historical data shows that when the value of Tesla's automotive business relative to its total market capitalization has fallen to certain levels in the past, the stock has experienced significant corrections. In light of these dynamics, UBS has raised its price target for Tesla, recognizing the stock's recent performance while acknowledging the potential risks associated with an inflated valuation. Investors are advised to remain vigilant and consider the implications of Tesla's current position in the automotive and technology sectors.