Tesla shares (TSLA), which are listed on the New York Stock Exchange, fell Tuesday following a downgrade by a Bank of America Analyst from Buy to Hold.
TSLA traded 3.91% down at 12:26pm after exhibiting some erratic trading behavior early in the day.
The S&P 500 fell by 0.7%.
BofA factorsed in TSLA’s potential growth into its valuation
John Murphy, an analyst at BofA Securities, downgraded Tesla from Buy to Hold, noting that the company’s potential for growth, such as its robotaxi service and its planned expansion, has already been factored in its value.
Murphy, however, raised his target price to $490, up from $400. This suggests a possible 17% increase from the closing price on Monday of $411.05.
Tesla was upgraded by Mr. He in April, when it traded at around $160.
Murphy said that the so-called execution risk of business is very high. Elon Musk, Tesla’s CEO, believes that the company will be able to improve its Full Self Driving (or FSD) software so it is better than human drivers by early next year.
Bulls of the TSLA say
New Street Research analyst Pierre Ferragu, on the other hand, upgraded Tesla from Hold to Buy, and raised his target price to $460 from $250.
Ferragu forecasted a reaccelerated growth in the auto industry due to lower cost models being released, increased efficiency and stable gross margins.
Tesla’s gross margins in the automotive industry, without regulatory credits, are expected to rebound by 2025, reaching 16%.
Stifel’s Stephen Gengaro, a bullish analyst, raised his price target to $492 and maintained a Buy recommendation.
Gengaro cited Tesla’s advancements in autonomous driving technology, and the potential for it to expand its robotaxi fleets by this year, as catalysts that will drive stock price appreciation.
Robotaxi vision drives debate on execution risks
Tesla’s valuation today is largely based on its self-driving roboticaxi project, which will launch by late 2025.
The analysts are aware of the potential transformational impact of this service, but they remain cautious about execution risks.
Tesla’s Full Self-Driving Technology (FSD), which CEO Elon Musk hopes to surpass in 2024, must prove that it is as safe as human drivers.
Ferragu believes that Tesla’s advances in FSD, artificial intelligence and robotics are pivotal in allowing robotaxi fleets to be partially unsupervised in the short term.
Murphy cautions, however, that there are still many technical and regulatory hurdles to overcome before widespread adoption can be achieved.
Analysts are also focused on the anticipated launch of Tesla’s lower-priced ‘Model 2’, with a price starting at around $30,000.
The vehicle will likely expand Tesla’s client base, and increase auto volume.
Analysts think that the Model 2 combined with the continued improvements in Tesla’s Power Generation & Battery Storage businesses could cement the company’s dominance on the market.
Tesla’s stock nears new records, but analysts are divided.
Tesla shares, which have gained approximately $550 billion since Elon Musk’s announcement of the Robotaxi Initiative on October 10, remain a topic of discussion on Wall Street.
Analysts adjust their expectations as the stock’s intraday and closing record highs of $488.54 and $479.86 loom.
The average Tesla price has increased from $214 to $309 since October, but it is still below the current range.
Analysts are in agreement on Tesla’s potential long-term, but stress the need to overcome near-term risks of execution before justifying its high valuation.
The information in this post Tesla (TSLA), drops after BofA’s downgrade: What investors should know, may change as new developments unfold.
