Investors should ease exposure to Tesla for the time being, according to Bank of America. Analyst John Murphy downgraded the electric vehicle maker to neutral from buy. He raised his price target to $490 from $400, however, which implies an upside of 19.2%. Tesla shares dropped 2% following the downgrade. TSLA 5D mountain TSLA falls “Execution risk is high, and TSLA is trading at a level that captures much of our base case [long-term] potential from core autos, robotaxi, Optimus, and energy generation & storage,” Murphy wrote. Optimus is Tesla’s humanoid robots business. “There are catalysts ahead, which could support the stock. However, execution risk is high,” the analyst said. “These include: 1) Introduction of a low cost model in [first half of 2025] and another new model in [second half of 2025] (key drivers of volume growth); 2) Launch of robotaxi in mid-2025; 3) Megapack production ramp at Shanghai assembly plant starting in 1Q:25; 4) Updates on [full self-driving] subscribers.” CEO Elon Musk teased the arrival of affordable EV models coming early this year . In October, Musk hyped a $30,000 self-driving Cybercab and a bigger Robovan at an event that seemingly underwhelmed investors . In terms of valuation, Tesla trades at 123 times forward earnings. That’s well above the S & P 500’s multiple of 21.8. Tesla’s current PE ratio is near its highest level since November 2021. Other risks include: “1) increased competition from incumbent OEMs and low-cost competition from China, 2) weakness in demand for EVs, 3) product launch delays, 4) change in regulation and incentives for EVs, 5) new government policies that are less favorable than expected for robotaxi, FSD, etc,” Murphy said. Analysts are split on Tesla. LSEG data shows that 24 of those covering the stock rate it a buy or strong buy. Another 16 have a hold rating on shares. Tesla shares have soared 70% over the past three months, boosted in part by Musk’s close relationship with President-elect Donald Trump — which investors think will help the company move forward with its agenda.
Bank of America downgrades Tesla due to high valuation and risks