Tesla (TSLA) shares are rising on Friday despite a prominent analyst giving the stock a “sell” rating, mostly due to valuation.
Tesla fell 8% yesterday after reports that the electric vehicle maker will postpone its robotaxi launch scheduled for August 8, but is still roughly flat so far this year despite a steep sell-off at the start of the year. What concerns Joseph Spack of UBS is that Tesla shares have soared by nearly 30% in the past month.
“TSLA has always traded at a premium to other future growth plans, but at current levels we believe the unspecified premium is too large,” Spak wrote in a client note. “Given the poor visibility and the risk that these growth opportunities will not materialize over the long term (or at all), we rate the stock a Sell.”
Spack acknowledged that Tesla is more than just a car company, something CEO Elon Musk has long maintained. Musk has argued that Tesla is an AI, robotics and autonomous technology company first and a car manufacturer second. Spack also praised Tesla for “positive developments” in other areas. Energy Business And then there’s FSD, or fully self-driving software. But again, he said it’s hard to evaluate these businesses and their long-term potential.
According to Spack’s valuation breakdown, at current levels, the market is valuing Tesla’s core automotive business at around $60-90 per share given its current sales trends, with its “other” businesses such as energy, robotics and autonomous driving making up the remainder at around $175 per share.
The other businesses are valued at about $93 a share, according to UBS’s analysis, which still represents a 60% premium on those businesses — too large for UBS.
Therefore, we believe that the sell rating and $197 price target on Tesla represents an accurate assessment of Tesla, its core auto business, and other initiatives.
Mr. Spack acknowledged that the banks could be wrong: Tesla shares have traditionally traded based on momentum rather than company fundamentals, and that could continue to be the case, he said.
A wildcard to watch is Tesla’s upcoming Robotaxi Day, which Bloomberg reports may be delayed until October, but Spack believes market sentiment is more negative than positive heading into the event, meaning there could be a “genuine positive surprise” — that is, the product or its features may be more advanced than initially thought.
The UBS team believes Tesla is making good progress with robotaxis, but that the challenges are still significant and there is still a long way to go to see results.
“We believe that robotaxis are a technically challenging endeavor, and that the business model may face regulatory hurdles and questions about consumer adoption. Therefore, we believe it will be a long time before we see meaningful robotaxi operations in the U.S. (rather than this decade).”
Finally, Spack said the new, cheaper vehicles Tesla promises to unveil soon could be more meaningful than Tesla’s robotaxis and prompt the company to update its long-term sales model.
Spak and UBS estimate the US standard or small car market to be around 1 million units per year, and given that Tesla’s market share in the mid-size EV market so far is around 40%-50% with the Model 3 and Model Y, annual small EV sales of 450,000 units seems achievable.
According to Bloomberg, 27 analysts currently have rated Tesla shares with a buy or equivalent rating, 19 with a hold rating and 14, including UBS, with a sell rating.
Pras Subramanian is a Yahoo Finance reporter covering the auto industry. twitter and Instagram.
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