Tesla (TSLA) shares fell on Tuesday after a Bank of America analyst downgraded the stock from Hold to Buy.
TSLA was trading 3.91% lower at 12:26 pm after showing some erratic behavior in early trading.
Meanwhile, the S&P 500 was down by 0.77%.
TSLA’s growth potential factored into valuation: BofA
BofA Securities analyst John Murphy downgraded Tesla to Hold from Buy, citing that much of Tesla’s growth potential, including its proposed robotaxi service, is already factored into its valuation.
However, Murphy raised his price target to $490 from $400, suggesting a potential 17% upside from Monday’s closing price of $411.05.
He previously upgraded Tesla in April when the stock traded near $160.
So-called business execution risk is high, said Murphy. Tesla still has to make its autonomous-driving software—Full Self Driving, or FSD—better than humans, something CEO Elon Musk believes will happen early this year.
What TSLA bulls say
Contrastingly, New Street Research analyst Pierre Ferragu had on Monday upgraded Tesla to Buy from Hold, raising his price target to $460 from $240.
Ferragu predicted re-accelerated auto growth due to the anticipated release of lower-cost models, improved cost efficiencies, and stabilizing gross margins.
He foresees Tesla’s automotive gross margins, excluding regulatory credits, rebounding to 16% by 2025.
Meanwhile, Stifel analyst Stephen Gengaro echoed bullish sentiment, raising his target price to $492 while maintaining a Buy rating.
Gengaro highlighted Tesla’s progress in self-driving technology and its potential to scale robotaxi test fleets this year as key catalysts for stock appreciation.
Robotaxi vision drives debate on execution risks
A significant portion of Tesla’s current valuation is tied to its ambitious self-driving robotaxi plans, expected to launch in late 2025.
Analysts recognize the transformative potential of this service but remain wary of execution risks.
Tesla must demonstrate that its Full Self-Driving (FSD) technology is safer than human drivers—a hurdle CEO Elon Musk aims to overcome in 2024.
Ferragu sees Tesla’s advancements in FSD and artificial intelligence as pivotal, enabling partially unsupervised robotaxi fleets in the near term.
However, Murphy warns that the road to widespread deployment remains fraught with technical and regulatory challenges.
Tesla’s anticipated rollout of its lower-priced “Model 2,” with a starting price near $30,000, is another focal point for analysts.
This vehicle is expected to expand Tesla’s customer base and drive growth in auto volumes.
Analysts believe the Model 2, combined with continued advancements in Tesla’s Power Generation & Battery Storage business, could solidify the company’s market dominance.
Analysts remain divided as Tesla nears record highs
Tesla stock, which has added approximately $550 billion in market value since Elon Musk announced the robotaxi initiative on Oct. 10, remains a subject of debate on Wall Street.
The stock’s record closing high of $479.86 and intraday high of $488.54 loom large as analysts adjust their expectations.
While the average price target for Tesla has climbed from $214 in October to $309, it still trails the current trading range.
Analysts agree on Tesla’s long-term potential but emphasize the importance of overcoming near-term execution risks to justify its lofty valuation.
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