Tesla Backfire Isn't Over: UBS Downgrade and Another Annual Delivery Miss Warning

Since Elon Musk took on a senior advisory role in the Trump administration, Wall Street has grown increasingly skeptical of Tesla's growth narrative. UBS, JPMorgan, and Goldman Sachs have all lowered their target prices, citing concerns over slowing demand, margin pressure, and heightened competition.

On Monday, UBS sharply cut Tesla's Q1 2025 delivery forecast to 367,000 units—a 5% year-over-year decline and a 26% drop from the prior quarter, falling 13% below market expectations. The firm also lowered its full-year forecast to 1.7 million units, marking a 5% decline instead of the previously expected 10% growth.

In response to these headwinds, UBS downgraded Tesla's price target to $225, implying a nearly 30% downside from the last closing price. JPMorgan and Goldman Sachs have also lowered their targets, with JPMorgan setting an even more bearish outlook at $135, valuing Tesla at around $400 billion.

Europe and China have emerged as the biggest challenges for Tesla's sales. European deliveries in key markets like Germany, France, Norway, and Spain have plunged by as much as 45% year-over-year, attributed to increasing consumer resistance and growing competition from legacy automakers ramping up EV production.

China's numbers also signal trouble. Wholesale sales in the first two months of 2025 are down 29% year-over-year, with January's retail sales dropping 15%. While Tesla recently introduced a limited version of its Full Self-Driving (FSD) system in China, UBS argues that data-sharing restrictions and regulatory hurdles make it less competitive than its U.S. counterpart.

The delivery slump is directly impacting Tesla's margins. UBS forecasts that Tesla's automotive gross margin (excluding regulatory credits) will fall to 10.3% in Q1 2025, down from 13.6% in Q4 2024 and 16.4% in Q1 2024, missing the market consensus of 13.5%.

To counter slowing demand, Tesla has relied on price cuts and subsidies, further squeezing profitability. UBS is also cautious about Tesla's upcoming low-cost models, warning that while they could boost volumes, they may struggle with cost efficiency, further pressuring margins.

UBS has significantly reduced Tesla's earnings projections, cutting Q1 2025 EPS from $0.52 to $0.37 and full-year EPS from $3.16 to $2.02—a 30% drop, well below the consensus estimate of $2.81.

Tesla's long-term growth story has increasingly shifted toward AI-driven initiatives like Robotaxi and humanoid robots. However, UBS argues that these opportunities are already priced into its lofty valuation. Tesla currently trades at 90 times the consensus 2025 earnings estimate and 129 times UBS's own forecast—far above historical averages.

UBS's $225 price target is based on an 80x P/E ratio for 2026 EPS, which remains elevated. JPMorgan, even more bearish, sees the stock falling to $135, citing a sharp 70% decline in consensus profit forecasts since 2022, despite Tesla's stock price doubling over the same period.