After an underwhelming start to the year, Tesla (NASDAQ:TSLA) shares have been gaining ground recently, up by 54% over the past 3 months. The rally can be attributed to a combination of various factors, including shareholders’ nod of approval for reinstating CEO Elon Musk’s pay package, better-than-expected Q2 deliveries, and some bullish talk around the company’s potential as an AI play.
While selling cars has been Tesla’s bread and butter, the argument around the EV leader has centered on whether Tesla should be valued as a tech company rather than a pure car maker.
UBS analyst Joseph Spak realizes Tesla is “more than just an auto company,” and notes there are “some positive developments (e.g. Energy, FSD) that add additional support” to its current valuation. As expectations for Tesla’s core automotive business “deteriorate,” this is becoming more crucial. And due to its potential for future growth in other areas, Tesla stock has always carried a premium.
Yet, “properly valuing that optionality is difficult,” Spak goes on to say. “This premium has widened of late, we believe, on AI enthusiasm. After going through the different businesses we can more substantially value, at current levels, we are still left with a >$500bn ‘stub’ for that future growth. Even if we give that ‘stub’ a 5-year time horizon, that implies a 5-year future value of $1T. And this is just to justify current levels.”
While Tesla is heavily investing in AI and the technology is advancing, Spak notes the investment is expensive, progress might decelerate, and the “payoff is long dated.” If market enthusiasm for AI wanes, Tesla’s valuation multiple may be impacted.
As such, given the “lack of visibility and the risk that growth opportunities materialize on a longer time horizon (or not at all),” Spak has downgraded his TSLA rating from Neutral to Sell. Interestingly, however, Spak’s price target heads in the other direction and is raised from $147 to $197. However, that figure still suggests the shares are currently overvalued by ~21%. (To watch Spak’s track record, click here)
Where might Spak be mistaken? The analyst admits that Tesla’s stock price has often “disconnected” from fundamentals and could continue to do so. Additionally, Q2 results could exceed expectations, leading to positive revisions for 2025 and 2026 forecasts, thereby “sustaining momentum.” Investors may also be reluctant to adopt a negative stance ahead of the “robo-taxi” day, which could deliver a “true upside surprise.”
Amongst Spak’s colleagues, 8 others join him in the bear camp and with an additional 13 Buys and Holds, each, Tesla stock claims a Hold consensus rating. Going by the $193.18 average target, a year from now, shares will be changing hands for a 22% discount. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
