Tesla Stock Soars: Analysts Warn of 35% Drop Amid Overvaluation Concerns

Tesla Stock Surge Raises Concerns Among Analysts

Tesla shares have experienced a remarkable surge of approximately 40% since the presidential election, significantly outpacing the S&P 500’s modest 3% increase. However, this rapid ascent has prompted UBS analysts to voice concerns about the sustainability of Tesla’s current valuation.

In a recent report, UBS maintained its “sell” rating on Tesla stock, predicting a potential 35% drop in value. This forecast, if realized, would effectively erase much of the gains made since the election. The bank has set a price target of $226 per share for Tesla, up slightly from its previous target of $197, but still indicating substantial downside risk.

While investors appear optimistic about Elon Musk’s relationship with the President-elect and potential regulatory changes, UBS warns that this enthusiasm may be misaligned with Tesla’s projected growth trajectory. The bank attributes the recent stock surge more to market momentum than to fundamental business improvements.

Tesla’s current valuation implies ambitious growth projections that far exceed Wall Street’s forecasts. To justify its present market value, Tesla would need to deliver 15.5 million vehicles annually by 2030, more than triple the 4.8 million units analysts currently expect. Additionally, the company’s energy business would need to achieve 780 gigawatt hours of storage, vastly surpassing the anticipated 134 gigawatt hours.

UBS analysts also suggest that expectations of Tesla benefiting from a potential second Trump term may be misguided. They argue that ending the EV tax credit could force Tesla to reduce prices on some models, potentially impacting profitability.

The report highlights a concerning valuation metric: Tesla’s car business currently represents only 12% of its total market capitalization. Historically, when this figure falls below 17%, Tesla’s stock has often experienced significant corrections.

These concerns echo similar sentiments from other financial institutions. JPMorgan previously predicted a 48% downside for Tesla shares, citing stalled automotive growth as a key factor.

As Tesla’s stock continues to climb, the disconnect between its market valuation and business fundamentals grows wider, leaving analysts and investors alike questioning the sustainability of this remarkable rally.