Tesla Inc’s (TSLA.O) shares have experienced a remarkable rally, propelling the electric vehicle (EV) manufacturer’s market value to nearly a trillion dollars. This surge has led some analysts to question the company’s valuation, resulting in downgrades for its stock.
Goldman Sachs recently downgraded Tesla to a “hold” rating, joining Morgan Stanley and Barclays, who had already downgraded the stock the previous week. However, these brokerages raised their price targets to account for the ongoing momentum in Tesla’s shares. Since late April, the stock has skyrocketed by 71%, more than doubling its value this year.
As of Monday morning, Tesla’s shares had declined by 1.2%. Nonetheless, the company’s market capitalization of $813.29 billion far surpasses that of Toyota (7203.T), the next largest global car company in terms of market value.
The brokerages attribute this rally, which has caused short sellers to lose $12.68 billion this year, in part to the excitement surrounding Artificial Intelligence (AI) and Tesla’s association with it.
Over the past two months, Tesla’s shares have also benefited from a series of positive developments. Rival automakers Ford (F.N) and General Motors (GM.N) struck deals to gain access to Tesla’s charging network, potentially making Tesla’s chargers the industry standard.
Moreover, China’s recent announcement of a 520 billion yuan ($72.3 billion) tax break package for electric vehicles and other environmentally friendly cars has given a significant boost to Tesla’s stock.
Goldman analyst Mark Delaney acknowledges that the market is increasingly acknowledging Tesla’s long-term opportunities. However, he cautions that Tesla may face challenges due to the difficult pricing environment for new vehicles, which could weigh on its automotive non-GAAP gross margin this year.
Morgan Stanley and Barclays highlight the risk of negative revisions to Tesla’s earnings as the company faces competition in China and potential price cuts.
In April, Jefferies and Truist Securities downgraded Tesla after the company reported lower margins in its first-quarter results.
Nevertheless, all three brokerages maintain a positive outlook on Tesla, expecting strong growth ahead. They continue to see Tesla as a global leader in the electric vehicle market.
