Tesla Stock Alert: UBS just issued a valuation warning for TSLA shares

UBS analyst Joseph Spak has his Tesla (NASDAQ:TSL) price target for the stock from $147 to $197. The new price target is based on a P/E ratio of 55 for the next twelve months (up from 45).

At the same time, he lowered his rating from “neutral” to “sell,” citing valuation concerns. While Tesla has always commanded a premium valuation given future growth opportunities, Spak believes the current valuation is stretched.

“After going through the various companies that we can better value at current levels, we are still left with a residual of over $500 billion for this future growth. Even if we give this residual a time horizon of 5 years, it results in a future value of $1 trillion in 5 years,” the analyst wrote.

Spak used a sum-of-the-parts (SOTP) analysis to value TSLA stock. Let’s dive into the details.

TSLA shares: UBS raises price target to USD 197, lowers rating to “sell”

Spak’s valuation analysis shows that the market has historically valued Tesla’s core automotive business at $60 to $90 per share, while his SOTP model gives a value of $57. The valuation of Tesla’s other businesses has a two-year average of about $140 per share, although it is currently close to $175 per share.

Spak estimates Tesla’s energy business will contribute $18 per share, while fully autonomous driving and robotaxis are also estimated to contribute $18 per share. Together, the core auto, energy and FSD/robotaxis businesses, or what Spak calls the “more easily identifiable value,” are worth $93 per share.

However, the analyst points out that Tesla’s share price has deviated from its fundamental value in the past and could continue to do so for some time. Tesla will also announce its earnings on Tuesday, July 23, which is an important catalyst for the company.

Tesla’s Robotaxi Gamble

Investors have also been skeptical about Tesla’s robotaxi event, especially given that it was postponed from its original August 8 date to October. Spak believes TSLA could see a boost if CEO Elon Musk exceeds expectations at the event.

“More significant than the robo-taxi is the launch of the new vehicle, as it could change the 25/26F numbers. But the consensus is already for higher volumes, and we believe the vehicle could put pressure on automakers’ margins,” Spak wrote.

At the time of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com Publishing guidelines.

At the time of publication, the editor in charge did not hold any positions (either directly or indirectly) in the securities mentioned in this article.