UBS believes Tesla’s share price has risen well above its earnings and is overvalued. UBS said Thursday that the electric car maker’s share price is expected to fall 28 percent over the next year. Tesla’s share price has been soaring, rising nearly 120 percent in the past six months. The company is also the world’s second-largest carmaker, with a market capitalisation of more than $100bn, second only to Toyota.
But Patrick Hummel, an analyst at UBS, said that while Elon Musk’s company’s earnings were taking off, its share price was off track.
Mr Hummel said UBS believed Tesla’s share price had overheated.
Hummel is the new analyst at UBS that tracks Tesla. He continued the view of a former analyst at the investment bank, insisting on the investment bank’s selling rating on Tesla.
But he raised UBS’s target price for Tesla to $410 a share from $160. While the price is well below current levels, Hummel is optimistic in his report about the core parts of Tesla’s technology and production.
Hummel said Tesla could become the most profitable automaker if it doubles its sales by 2022. Based on known products and capacity, we expect Tesla to achieve a 10% operating margin starting in 2022 and generate $3-5 billion in free cash flow per year.
Hummel reiterated that his rating and price targets reflect eddy valuations he believes Tesla’s current share price is well above its 2022 outlook.
Hummel said the impact of implementation risks and the elimination of U.S. subsidies on demand could be ignored by the market.