UBS analysts have noted that Tesla's (TSLA, Financial) recent stock price surge is largely driven by market sentiment rather than fundamentals. The analysts highlighted that the valuation of Tesla's automotive business as a proportion of its total market value has fallen below its recent average level, a trend that has only occurred twice in the past four years, leading to significant stock price corrections of over 30% and 70% respectively.
Tesla's expected price-to-earnings ratio has now reached 100 times, significantly higher than the average level of the past two years. This indicates that investors need strong conviction to continue increasing their holdings in the stock.
Since the U.S. election, Tesla's stock has risen by about 40%, with the company's market value peaking at $1.1 trillion. The UBS report warns that the recent rise in Tesla's stock price is more sentiment-driven, fueled by optimism regarding policy changes under the new U.S. administration, rather than improvements in the company's fundamentals.
The report suggests that the market now views Tesla as an AI company rather than a traditional electric vehicle manufacturer. The automotive and energy businesses are valued at approximately $52 per share, while Tesla's other ventures, including AI, robotaxi, and Optimus, are collectively valued at $1 trillion.
Currently, the automotive business accounts for only 12% of Tesla's total market value, having once dropped to as low as 10%. Historically, when this proportion reaches the recent average level of around 17%, Tesla's stock tends to enter a "downward channel."
With Tesla's valuation remaining high, it remains uncertain whether the automotive business can deliver the expected profits. The report notes that Tesla's forward 12-month price-to-earnings ratio has fluctuated between 20 and 60 times since 2022 but now exceeds 100 times.
UBS emphasizes that investors need extraordinary confidence to increase their holdings at current price levels, such as believing in Tesla's ambitious targets of delivering 15.5 million vehicles and deploying 780 GWh of energy storage by 2030, far exceeding current market expectations.
