UBS changed Tesla’s rating from “buy” to “sell.” The broker said that the stock gives too much weight to the automaker’s growth plans.
Analysts led by Joseph Spak changed their recommendation for Tesla from “neutral” to “sell.” They also raised their price target from $147 to $197.
Analysts don’t think Tesla will be able to make 5 million cars by 2030; they think the company will only be able to make 3.9 million cars. According to them, the outlook for the next five years, from 2025 to 2027, is 11% worse than what most people think.
“Our view is shaped by the fact that demand for EVs isn’t very strong in the U.S. and that the current model lineup is meeting all of that demand,” they say. “On the other hand, markets in Europe and especially China are more competitive.”
But the note was mostly about Tesla’s chances to grow. “Many people call Tesla “not an auto company” or “more than an auto company.” According to them, “we are more likely to agree with the second option because most of today’s income comes from making and selling cars.”
It’s fair to pay a premium for this potential, but investors should also know how much the auto business and other more easily valuated businesses affect the stock price. This will help them base their valuation and choose when to buy and sell.
UBS starts by looking at the main business of cars. They believed that the average selling price would be $40,000, that the cars would be delivered in 2030, that the normalized auto operating margin would be 15%, and that the forward price-to-earnings multiple would be 20. When they take that out and take into account the cost of equity, they find that auto only makes up 28% of the current market cap.
“The market value of the car was more stable than we thought it would be.” “Since 2021, it has been around $200 billion to $300 billion, or $60 to $90 per share,” they say.
That means that Tesla’s current valuation is mostly tied up in hopes outside the auto business. UBS broke that into Tesla Energy, artificial intelligence, full self driving, robotaxis and the Optimus robot.
“We believe TSLA stock price has gotten caught up in the AI trade/phenomenon. While we don’t doubt Tesla is making very good progress on such initiatives, aside from FSD (we were impressed by recent improvement), the other initiatives are purely R&D,” the analysts said.
UBS valued energy at $18 per share, FSD at $9 a share and robotaxis at $9 a share.
“Going back to our earlier TSLA valuation attribution analysis, on average over the past 2-years, the market has assigned ~$490bn of value (~$141/share) to ex-auto initiatives. Between Energy, FSD and robo-taxi, we only identified $36/share of that, leaving the TSLA premium at $105/share,” they say.
“Given that many of these initiatives are likely to take time to materialize, we believe this seems more than fair.”
That leaves Tesla’s UBS price target at $197, using a 55 price-to-earnings multiple on 2025-2026 earnings.
Tesla shares TSLA, 3.74% dived 8% on Thursday, after delaying its robotaxi announcement. The stock rose on Friday, up 3% to $249.44.
