UBS is not convinced that Tesla’s (TSLA) nearly 30% monthly return is sustainable. UBS analyst Joseph Spak issued a rare Sell rating on the stock, citing valuations.
The downgrade is potentially short-sighted. Valuations do not matter when a firm has multiple growth catalysts ahead. CEO Elon Musk said that the company plans to launch a robo taxi service next month.
FSD – full self-driving – is another catalyst. Customers pre-paid for FSD, so when it arrives, Tesla’s profit margins will expand.
In the electric vehicle sector, global sales will decline while supply overwhelms the market. China is a growing threat, as BYD (BYDDF), Li Auto (LI), and Nio (NIO) aggressively export vehicles. However, both the U.S. and Europe have punitive tariffs that will hurt exports. This will give Tesla time to develop a mainstream, inexpensive, Tesla Model 2.
Risks
The UBS analyst issued a $60 - $90 fair value for Tesla’s auto business. This is based on current sales trends. When adding its energy, FSD, and robotics businesses, the firm has a value of $175.
Your Takeaway
Tesla’s return in the last three years is zero. New investors should be wary of chasing the stock at current levels. Conversely, early investors have no reason to sell Tesla. The firm will continue to dominate the EV market.
