Why Does This Analyst Downgrade His Rating For Tesla, While Raising The Price Target?
2min read Tesla had a tough trading day on Tuesday. As of the close of the market on Tuesday, the EV maker's stock fell by 4.06%, closing at $394.36.
Moreover, John Murphy, an analyst at Bank of America, released a new report, downgrading Tesla's rating from buy to neutral, while also issuing some warnings. However, at the same time, he raised the target price for Tesla's stock from $400 per share to $490.
Murphy pointed out that since the bank upgraded Tesla's stock rating last April, most of the upside for the electric vehicle manufacturer has been realized. Since then, Tesla's stock price has risen by more than 60%, with most of the increase occurring after President Trump won the election in November last year.
In discussing this adjustment, he wrote, While this still implies upside, execution risk is high and TSLA is trading at a level that captures much of our base case LT potential from core autos, robotaxi, Optimus, and energy generation & storage.
Tesla's Advantages
Specifically, from the perspective of core automotive, Murphy believes that in the long run, Tesla will capture 5% of the global automotive market, becoming one of the top ten global automakers. He mentioned Tesla's advantages: the ongoing trend of electrification, Tesla's lower cost structure compared to other automakers, and the technological advantages of software features such as full self-driving.
In addition, he pointed out that new vehicles will expand Tesla's total addressable market or maximum revenue opportunities, which is more influential for growth than product updates. Murphy expects Tesla to launch a low-cost vehicle in the first half of 2025 and another new model later this year.
On the other hand, Tesla Energy deployed a record 11 GWh of energy storage in the fourth quarter and 31.4 GWh of energy storage in the fiscal year of 2024, showing an outstanding performance for the year.
Finally, Murphy is most optimistic about the launch of robot taxis, which he believes are worth $420 billion in the United States alone. He wrote, This reflects our assumption that Tesla can achieve lower per-mile costs than Uber, Lyft, and taxis, allowing it to price aggressively, expand the entire potential market, and achieve higher per-mile profits.
Headwinds
Tesla's vehicle delivery performance for the fourth quarter of 2024 and the fiscal year of 2024 was weaker than expected, and the company's overall annual sales also declined. Murphy pointed out that although investor sentiment has improved due to Trump's victory, he emphasized that the company faces some execution risks this year.
He explained that in addition to expanding the testing of autonomous taxis and launching the service on time without major issues, Tesla must also launch new products on time in 2025, expand the autonomous taxi department without affecting its full self-driving software business, deal with competition from other electric vehicles, and negotiate uncertain regulatory frameworks in the U.S. and abroad.
Finally, in the aforementioned report, Murphy listed a specific execution timetable and risks, including the Launch a low-cost model in the first half of 2025, and another new model in the second half (key drivers of sales growth, Robotaxis in mid-2025; the production of Megapack at the Shanghai factory, as well as updates to FSD subscribers, and so on.
However, Murphy did not mention the potential impact of Tesla CEO Elon Musk's close relationship with Trump, which may help automakers obtain a favorable regulatory environment.