UBS downgraded Tesla to “Neutral” on Monday, citing the stock’s significant rally this year. While UBS acknowledges the long-term potential of Tesla, they believe that the current stock price reflects near-perfection. UBS has identified three important questions that Tesla investors should consider.
Firstly, can Tesla meet its 50% growth target? UBS believes that although Tesla should achieve its 1.8 million delivery target for 2023, achieving 50% growth in 2024 would require a flawless ramp-up of Cybertruck production. UBS is confident that Tesla’s new affordable platform will be a game-changer from 2025 onwards.
Secondly, will Tesla maintain its lead over competitors? UBS states that, other than BYD, no other OEM comes close to Tesla’s cost position and vertical integration. They believe Tesla will continue to gain market share and beat competition on pricing, while generating positive free cash flow.
Lastly, will Tesla achieve full autonomous driving within the next 12 months? UBS does not think so. While they recognize Tesla’s AI competency with its purpose-built supercomputer capacity (Dojo), they believe that full self-driving iterations will take several more years. UBS expects North America to be the first region where full autonomy is reached, which will significantly impact Tesla’s financials.
UBS also downgraded Tesla to “Neutral” because they believe that the recent stock performance already reflects strong demand response and positive executive performance. Although UBS maintains a bullish long-term view on Tesla, they raised their 12-month price target to $270 from $220, reflecting a potential upside of about 3% from current levels.