UBS Warns Tesla's Recent Surge Is Driven by 'Animal Spirits,' Not Fundamentals
2min read A team of analysts at UBS Group warned in a report that the stock price of Tesla, the EV leader owned by the world's richest man, Elon Musk, has surged after the U.S. presidential election. They attribute this almost entirely to an emotional boom driven by the animal spirits of the U.S. stock market, rather than actual improvements in the company's fundamentals.
However, despite Tesla's stock price soaring more than 40% recently, UBS remains firmly bearish on Tesla, reiterating its most negative rating of "sell"for the stock and only assigning a target price of $226 to Tesla. The UBS analyst team also sounded a warning about policies that could favor the company.
"Animal Spirits," a term in economics and finance, was originally coined by economist John Maynard Keynes in 1936. Keynes described it as the emotional and confidence factors in human economic activities, specifically the psychological driving forces behind investment, consumption, and economic decision-making, emphasizing that these drivers are often based on irrational factors.
In modern economics, "animal spirits" are used to explain the irrational factors behind market fluctuations and economic cycles, especially when traditional economic models cannot fully explain them. For example, short-term surges and crashes in the stock market.
Despite some potential policy proposals that could be very favorable to Tesla's FSD and Robotaxi following Donald Trump's victory in the U.S. presidential election, which Musk strongly supported, the UBS analysts, led by Joseph Spak, wrote that these not-yet-actual changes are not entirely positive for the company.
Tesla's stock price has broken through the long-standing 300-dollar milestone, which seemed unreachable, in just one week after Trump's election victory. Since Trump announced his win in the U.S. presidential election, the company's stock price has risen by more than 40%. Wedbush Securities, a top Wall Street investment institution that can be described as a Tesla diehard fan, even significantly raised its 12-month target price for Tesla from $300 to $400 after Trump's election victory.
For investors bullish on Tesla's stock price and Musk fans, Trump's return to the White House and his announcement that Musk will lead the U.S. government efficiency department will completely change the narrative for Tesla and CEO Musk's companies in the coming years in terms of artificial intelligence, autonomous driving, and Tesla's AI supercomputing system. They believe that a series of regulatory challenges that Musk has long complained about, such as "federal government inefficiency" and "the long-awaited regulatory review of Tesla FSD and Robotaxi," may finally see a qualitative acceleration in the review process.
However, UBS, led by Spak, poured cold water on the above optimistic expectations and the so-called Tesla "animal spirits." The UBS analysts led by Spak wrote that, for example, eliminating the consumer tax credit for purchasing electric vehicles may force Tesla to significantly reduce prices. They also pointed out that, although the regulatory environment under Trump's U.S. government may be more favorable to frontier technology companies, including FSD technology and autonomous vehicles, Tesla is not yet ready to launch a Robotaxi service network with looser rules compared to competitors like Waymo.
"The rise in Tesla stock is mostly driven by animal spirits/momentum," the UBS analyst team led by Spak wrote in the report. The UBS analyst team, led by Spak, reiterated their sell rating for the stock in the latest research report but slightly raised their target price for Tesla from $197 to $226. The UBS analysis team pointed out in the report that for the market's pricing of the federal government may promote the accelerated approval of Robotaxi, UBS estimates that this expectation will only increase Tesla's market value by $100 billion, not the current presentation of more than $300 billion.