Tesla's stock has seen a significant increase since Donald Trump's election victory, but analysts at UBS are skeptical about the sustainability of this rally. They argue that the current valuation of Tesla is not supported by its underlying business fundamentals.
UBS has 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. The analysts believe that for Tesla to justify its current valuation, the company would need to achieve ambitious growth targets, which they find unlikely. They suggest that the recent performance of Tesla's stock is driven more by market momentum and investor sentiment than by solid business performance.
Investor optimism surrounding Tesla has been fueled by the belief that Elon Musk's close ties to the incoming administration will benefit the company. However, UBS cautions that this political optimism may be misplaced. The elimination of the EV tax credit could lead Tesla to implement price cuts on some models, negatively impacting its profitability. The analysts also highlight that Tesla's current valuation reflects an unrealistic growth trajectory and that the stock may be nearing a peak. They note that Tesla's automotive business now constitutes only 12% of its total market valuation, a significant decline from historical levels. In the past, when this metric has dipped below 17%, the stock has typically entered a downward trend.
The UBS report warns that Tesla's stock is showing signs that its valuation may be approaching a near-term peak. The analysts point out that in previous instances when the automotive segment's contribution to the overall market cap fell to around 10%, the company experienced substantial corrections. JPMorgan has also projected a potential downside of up to 48% for Tesla shares, citing concerns about stalled growth in the automotive sector. Analysts are skeptical about Tesla's ability to maintain its rapid growth trajectory in the face of increasing competition and market challenges.
As Tesla faces a rapidly changing market landscape, its future growth prospects remain uncertain. The company's ambitious targets for vehicle deliveries and energy storage capabilities by 2030 will require significant advancements in production and technology. Analysts are closely monitoring these developments, as any signs of stagnation or failure to meet growth expectations could lead to further corrections in the stock price. In the evolving landscape for electric vehicles, investors are advised to critically assess the underlying fundamentals of Tesla's business rather than relying solely on market momentum.