Jump in Tesla stock mostly driven by 'animal spirits/momentum' says UBS

Investing.com -- Tesla’s recent stock surge of approximately 40% since the U.S. election is being driven more by investor sentiment than fundamental changes, according to UBS analysts on Monday.

The rally has added over $350 billion in market capitalization, propelling Tesla (NASDAQ:TSLA) to what UBS previously considered an upside valuation case.

“From a narrative perspective, especially if one were valuation agnostic, we get it,” UBS said, pointing to factors such as potential regulatory shifts under the incoming Trump administration.

These are said to include a more favorable environment for autonomous vehicle (AV) ventures and Tesla’s relative advantage if electric vehicle (EV) tax credits are removed, which could impact competitors more severely.

However, UBS cautions that the removal of consumer tax credits is not an outright positive for Tesla’s U.S. EV demand.

The bank noted that Tesla’s pricing actions have so far only stabilized demand and that further pricing measures might be needed if credits are repealed. Additionally, competition in China and Europe is said to remain strong, with rivals introducing more competitive EV models.

UBS described the stock’s rise as being driven primarily by “animal spirits/momentum,” a phenomenon seen multiple times in Tesla’s history.

The analysts emphasized that Tesla’s current valuation implies a staggering $1 trillion value attributed to its non-auto businesses, such as AI and robotaxi ambitions.

“We urge investors to think about what one needs to believe to add to TSLA positions at current levels,” UBS wrote.

Highlighting the risks, UBS pointed out that when Tesla’s auto business value relative to total market cap has previously fallen to certain levels, the stock has experienced corrections of over 30% and 70%.

UBS raised its price target to $226 from $197, noting that the current multiple appears “over-extended.”