社区

MW Tesla faces more risk than its stock reflects, prompting a downgrade

By Ciara Linnane

Tesla Inc.'s stock slipped 0.9% Tuesday, after Bank of America downgraded the stock to neutral from buy, arguing that it already reflects the long-term potential of such items as robotaxi and energy storage, but not enough of the execution risk.

Analysts led by John Murphy said investor sentiment has become more positive since BofA upgraded the stock last April. Catalysts around future growth drivers have been more fully recognized, especially for robotaxi, which the bank estimates accounts for about 50% of Tesla's valuation.

The latest sum-of-the-parts analysis of Tesla's valuation led the team to increase their stock price target to $490 from $400. The stock was last trading at $412.

"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. We move to Neutral," Murphy wrote in a note to clients Tuesday.

Still, the note highlighted some advantages Tesla $(TSLA)$ has over rivals, such as a large cost advantage on robotaxi versus Uber $(UBER)$ and Lyft $(LYFT)$. BofA expects Tesla's cost per mile to come to $1.58, compared with $3.41 for a typical rideshare.

"With this sizable cost advantage, TSLA's robotaxi service could offer rides at a much lower price to the consumer and still have higher margins," said the note.

Full-self-driving could be worth $480 billion to Tesla and is in the early stages of being monetized, Murphy added.

The BofA team experienced Tesla's FSD during a December field trip to its Austin gigafactory and were impressed by its capabilities, he said.

Adoption has increased to about 60% on Cybertrucks sold in 2024 from 22% in the first quarter of 2023, he said. By 2030, some 23 million vehicles should be capable of running FSD, rising to 75 million by 2040.

" FSD should have meaningfully higher margins than TSLA's core auto business and could generate billions in EBIT annually," said the note. "Our FSD valuation doesn't reflect potential upside from licensing to other OEMs."

Despite those favorable catalysts, Tesla is facing execution risk around issues, including a low-cost model expected in the first half of 2025 and a second one in the second half, both of which are expected to be key drivers of volume growth, said the note.

Then there's the official launch of robotaxi in mid-2025.

The company is also planning to ramp production of the megapack at its Shanghai plant in the first quarter. The megapack is a large-scale, rechargeable lithium-ion battery stationary energy storage product, intended to be deployed at battery storage power stations.

It's expected to offer updates on FSD subscribers, and to start broader production of its Optimus robotic humanoid with a target of 1,000 units by year-end.

There's also the risk that policy will be less favorable for Tesla than expected, after Chief Executive Elon Musk has developed close ties to the Trump administration, said the note.

Tesla's stock has gained 71.6% over the last 12 months, while the S&P 500 SPX has gained 27%.

Read now: Tesla's stock got a big Trump bump. Now Elon Musk needs to get back to work.

-Ciara Linnane

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 07, 2025 10:13 ET (15:13 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.