BofA Downgrades Tesla, Says Company 'Faces Several Hurdles'

Tesla shares traded higher on Wednesday despite one Wall Street analyst downgrading the stock and questioning its valuation.

The Tesla Analyst

Bank of America analyst John Murphy downgraded Tesla from Neutral to Underperform and cut his price target from $500 to $485.

The Tesla Thesis

Murphy updated his outlook for the entire auto industry on Wednesday, calling for messy first-quarter results, including a 24% drop in global production and an 11% drop in U.S. production. For the full year, Murphy is projecting global production volumes will drop 23% compared to 2019.

Earlier this month, Tesla reported 88,400 first-quarter vehicle deliveries, up more than 40% from a year ago. Despite a global health crisis that has crippled the auto industry, Tesla shares have rallied 67.5% year-to-date in 2020. Tesla shut down production at its factory in Fremont on March 23 due to the COVID-19 outbreak. Since the production shutdown, the stock is up 61.4%.

Murphy said Tesla remains an electric vehicle trailblazer.

“However, Tesla faces several hurdles, including: 1) ongoing/future production challenges, 2) spike/ burnout pattern for new models, 3) continued losses/cash burn from low production/deliveries, elevated cost, and new facility construction, and 4) the prospect of new competition and technology/model obsolescence,” Murphy wrote in the note.

He said Tesla’s current valuation suggests the market isn’t fully appreciating the company's near-term risks.

Benzinga’s Take

Many of Tesla’s critics aren’t bearish on the company’s growth trajectory and instead focus on the stock’s valuation. Tesla’s market cap is now $126 billion. The peak Ford Motor Company F market cap back in 1999 was $80 billion, while the peak General Motors Company GM market cap of all time was $66 billion in 2017.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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