Apu Gomes/Getty Images; Chelsea Jia Feng
Tesla shares could be poised for a double-digit correction, as the car company's fundamentals don't support the surge in its stock price since the election, UBS analysts said.
In a note on Monday, the bank maintained its "sell" rating on Tesla stock and issued a price target of $226 a share. Though that's slightly higher from the bank's previous price target of $197 a share, it implies 35% downside for Elon Musk's carmaker, which traded at around $353 at midday on Monday.
Analysts expressed doubts about Tesla's recent stock rally, with shares of the EV maker surging around 40% since Donald Trump secured his election win at the beginning of this month.
Investors are feeling bullish that Elon Musk's ties to the President-elect will be positive for Tesla. The company was reportedly onboard with ending the EV tax credit, which analysts have said would primarily hurt Tesla's competitors. Investors also think loosening regulation in the AI space, and potentially making investigations on Tesla's full self-driving software "go away" are bullish developments for the company, the UBS note said.
However, that optimism isn't supported by the fundamentals of Tesla's business, which looks to be on a slower growth trajectory than its current stock price implies, the analysts said.
"Thus, the rise in Tesla stock is mostly driven by animal spirits/momentum (which has happened multiple times in TSLA's history)," the firm wrote. "We urge investors to think about what one needs to believe in adding to TSLA position at current levels."
Tesla's valuation, which got a $350 million boost to recalaim a $1 trillion valuation after the election, implies the company will grow so fast that it will deliver 15.5 million vehicles annually by 2030, UBS estimated, more than triple the 4.8 million deliveries Wall Street is expecting for that year.
Tesla's energy business, meanwhile, would need to store 780 gigawatt hours of energy in 2030, more than five times the 134 gigawatt hours of storage Wall Street is expecting that year.
Tesla's robotaxi business would also need to gain around $300 billion in value, the. analysts said.
The idea that Tesla will benefit from Trump's second term in office may also be misguided, the bank suggested. Eliminating the EV tax credit, for instance, may not be completely positive for Tesla, as it could push the company to resume price cuts on some of its models.
The stock is also flashing warning signs that its valuation could be approaching a near-term peak. At the moment, Tesla's car business only makes up 12% of its total valuation. In the past, when Tesla's car business fell below 17% of its total market cap, its stock tended to "enter a downward channel," UBS added.
Bloomberg, Factset, UBS Research
"The prior two times that metric has hit ~10%, we've seen corrections of >30% and >70%," analysts wrote.
Other forecasters have turned more cautious on Tesla, despite the stock climbing over 40% from levels since the start of the year. Prior to the election, JPMorgan said it foresaw as much as 48% downside for Tesla shares, pointing to the company's "stalled automotive growth."
