Tesla’s rally tied to relaxed regulatory environment, but risks loom – analyst

Tesla’s (NASDAQ:TSLA) meteoric climb since President-elect Trump’s victory has added another $350M to its market cap as the expectation for a relaxed regulatory environment is more favorable to Tesla (NASDAQ:TSLA) than its competitors, in both electric vehicle production and autonomous vehicles (“AV”).

But UBS’s Joseph Spak warns investors to tread carefully at these levels, as the fundamentals are not as bullish for Tesla (TSLA) as the price action suggests. Although Spak lifts his price target by 15% to $226 to accommodate the recent stock movement, he retains his Sell rating on the stock.

The removal of EV consumer tax credits will likely hurt Tesla’s (TSLA) competitors more, but there are caveats that might undermine Tesla (TSLA) shares. First, recent pricing action by the company has only stabilized demand. So, if credits go away, further pricing action will be necessary, which will pressure profit margins. Second, competition from China remains high, with more competitive models coming out (see NIO’s Onvo).

On the robotaxi front, there is a view that an easier regulatory hurdle is a positive for Tesla (TSLA), but there are few “onerous” federal AV regulations to relax. And a battle could emerge between regulators with the state responsible for drivers against the federal government, which regulates technology.

“We continue to believe that [full self-driving] is improving, but the product is not ready for wide scale robotaxi deployment,” Spak says, adding that, “the rise in Tesla stock is mostly driven by animal spirits/momentum, which has happened multiple times in TSLA’s history.”

Tesla (TSLA) shares are trading defensively on Monday but continue to circle the 2 ½ year high of $361.50.