Tesla is no longer a value to hold, at least for now, Bank of America warned.
The bank analyst John Murphy just downgraded the electric vehicle maker to neutral from buy on Tuesday. Despite the downgrade, Murphy also raised his price target for Tesla to $490 from $400, implying a potential upside of 19%.
Tesla shares dropped almost 2% pre-market. The stock have surged 62% during 2024, partly due to Musk's close relationship with President-elect Donald Trump, which investors believe will help the company advance its agenda.
Murphy highlighted the high execution risks associated with Tesla, noting that the stock is currently trading at a level that reflects much of the company's long-term potential from its core automotive business, robotaxi, Optimus humanoid robots, and energy generation and storage sectors.
There are catalysts ahead that could support the stock, but execution risk is high, Murphy wrote. He pointed to several upcoming events as potential catalysts, including the introduction of a low-cost model in the first half of 2025, another new model in the second half of 2025, the launch of the robotaxi in mid-2025, the Megapack production ramp at the Shanghai assembly plant starting in Q1 2025, and updates on full self-driving (FSD) subscribers.
Tesla CEO Elon Musk has teased the arrival of affordable electric vehicle models early this year. In October, Musk announced a $30,000 self-driving Cybercab and a larger Robovan at an event that left some investors underwhelmed.
Tesla's valuation remains a concern, as the company trades at 123 times forward earnings, significantly higher than the S&P 500's multiple of 21.8. Tesla's current price-to-earnings (PE) ratio is near its highest level since November 2021.
Murphy also identified other risks for Tesla, including increased competition from established original equipment manufacturers (OEMs) and low-cost competitors from China, potential weakness in demand for EVs, product launch delays, changes in regulations and incentives for EVs, and new government policies that may be less favorable than expected for robotaxi and FSD.