BofA Throws In The Towel, Downgrades Tesla, Days After Morgan Stanley Downgrade

Unconvinced by the recent run up in shares, Bank of America has downgraded Tesla to “Underperform” Wednesday morning and moved their price target to $485 from $500. 

Even though analyst John Murphy referred to Tesla as a “trailblazer” in the EV market, investors can’t ignore ongoing and future production challenges, a “spike/burnout” pattern for new models and the company’s continued cash burn, Murphy said. He also pointed out low production/deliveries and elevated costs, especially costs associated with the company’s new facilities.

In other words, Murphy seems to be embracing a bit of reality – not something that Tesla analysts (or shareholders) are especially well-known for doing. The fact is that Tesla remains shut down in Fremont, as it has for the better part of the month, and that Q2 has likely already been severely impacted, despite Tesla’s 88,000 Q1 deliveries number they somehow were able to post.

Murphy is also cautious of the competitive EV landscape in his note. He put a $485 target on shares, saying:

“Our $485 PO is based on a probability-weighted scenario analysis, applying average EV/Sales (0.3x/2.5x/4.5x) and EV/EBITDA (3x/9x /17x) multiples from a set of comparable companies to our 2021-2022 estimates.

We assume a 60% probability for our Base case, 30% probability for Bull case, and 10% for Bear case given TSLA’s admirable progress over the past several years.” 

Murphy also cut his global volume forecasts for autos, saying he believed the recovery will be “tepid” U-shape as economies are reopened.

Recall, just 5 days ago, Morgan Stanley came out and expressed similar doubts. As we noted then, when Adam Jonas is coming out and pouring cold water a Tesla rally, you know things must really be getting out of hand.

But such was the case last Friday when Jonas called the recent move higher in Tesla shares “excessive” given the company’s earnings and demand headwinds this year. 

Jonas wrote in his note that the stock is discounting volume of roughly 4 million units by 2030 by pricing the stock at nearly $750. Jonas’ price target of $440 is based on slightly more than 2 million units, he noted.

Jonas was quick to point out that investors view Tesla’s valuation as reasonable because they are comparing it to megacap technology stocks. He warned that investors need to consider significant inherent differences between Tesla’s business model and the capital intensive nature of the business. 

He concluded his note by reminding readers that Tesla faces execution risk to many of its business objectives that could be higher than many mature companies. 

Regardless, Tesla will open up for trading Wednesday about $230 higher than the mean price target from Morgan Stanley and B of A.