Tesla’s Turbulent Tuesday: Analyst Downgrades Stock Amidst Execution Risks
Tuesday has been a challenging day for Tesla, with Bank of America analyst John Murphy downgrading the electric vehicle maker’s stock from Buy to Neutral. This decision comes despite a 60% surge in Tesla’s shares since April last year, largely driven by President Trump’s election win in November. As a result, Tesla’s stock plummeted 4% in late trading.
Murphy’s Mixed Signals
Murphy’s downgrade is attributed to his belief that most of Tesla’s upside has already been recognized. However, he did boost his price target to $490 from $400, citing potential growth opportunities. “While this still implies upside, execution risk is high, and TSLA is trading at a level that captures much of our base case [long-term] potential,” Murphy wrote.
Tesla’s Strengths: Electrification, Cost Structure, and Tech Edge
Murphy remains optimistic about Tesla’s prospects, driven by the ongoing trend toward electrification, the company’s lower cost structure compared to other automakers, and its technological edge with software features like full self-driving. New vehicle launches will also expand Tesla’s total addressable market, paving the way for more impactful growth beyond product refreshes.
Robotaxi Launch: A Game-Changer?
Murphy is particularly bullish on Tesla’s robotaxi launch, which he estimates could be worth $420 billion in the US alone. He believes Tesla can achieve a lower cost per mile than Uber, Lyft, and taxis, enabling it to price aggressively, expand the total addressable market, and achieve higher profits.
Execution Risks and Challenges Ahead
However, Murphy highlights several execution risks that could hinder Tesla’s growth. These include expanding robotaxi testing, releasing the service on time, rolling out new products in 2025, scaling the robotaxi division without cannibalizing its full self-driving software business, and navigating Chinese EV competition and uncertain regulatory frameworks.
Potential Upsides and Unmentioned Factors
Murphy also notes potential upsides, such as the licensing of self-driving software, tech breakthroughs, and additional federal or state incentives. Notably, he omits the impact of CEO Elon Musk’s close relationship with President-elect Donald Trump, which could influence the regulatory environment and benefit Tesla.
Regulatory Uncertainty Looms
Earlier on Tuesday, NHTSA opened a safety investigation into Tesla’s Actually Smart Summon autonomous feature, which could be limited if a more Tesla-friendly administration takes control. As Tesla navigates these challenges, investors will be watching closely to see how the company addresses its execution risks and capitalizes on its growth opportunities.
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