It’s been a rough Tuesday for Tesla (TSLA) so far.
In a note to clients, Bank of America analyst John Murphy downgraded Tesla’s rating to Neutral from Buy, saying most of the EV maker’s upside has been recognized since the company traded shares in April last year upgraded. Since then, Tesla shares have risen more than 60%, although most of that increase came after President Trump’s election victory in November.
Tesla shares fell 4% in late trading.
However, Murphy raised his price target from $400 to $490, but with some caveats.
“While this still implies a positive impact, execution risk is high and TSLA is trading at a level that reflects much of our base case. [long-term] potential of nuclear cars, robotaxi, Optimus and energy generation and storage,” Murphy wrote.
From an automotive perspective, Murphy expects Tesla to increase its share of the global auto market to 5% in the long term, placing the company among the top 10 automakers. Tesla’s advantage: the continued trend toward electrification, Tesla’s lower cost structure compared to other automakers, and technological edge with software features such as full self-driving.
Additionally, new vehicles will expand Tesla’s total addressable market or available maximum revenue opportunities, something necessary for more impactful growth beyond product innovations. Murphy expects Tesla to launch its cheaper vehicle in the first half of 2025, alongside another new model coming later this year.
Murphy is most optimistic about the launch of the robotaxi, which he says is worth $420 billion in the US alone. “This reflects our assumption that TSLA could achieve significantly lower costs per mile than Uber, Lyft and taxis, allowing the company to price aggressively, expand the total addressable market, and also achieve significantly higher profits per mile,” he wrote .
The risk? Execution. In addition to expanding robotaxi testing and releasing the service on time without major problems, Tesla will also have to roll out new products on time in 2025, scale up the robotaxi division without cannibalizing its entire self-driving software business, China’s EV face competition, and negotiate an uncertain regulatory framework both in the US and abroad – all while demand for electric vehicles is weak.
Possible benefits: licensing of self-driving software, technical breakthroughs from Tesla, and the possibility of additional federal or state incentives.
Unsaid by Murphy is the impact of CEO Elon Musk’s close relationship with newly elected President Donald Trump, which could help the automaker achieve a favorable regulatory environment. Earlier on Tuesday, for example, NHTSA opened a safety investigation into Tesla’s autonomous feature Actually Smart Summon — an investigation that could be limited if a more Tesla-friendly government is in control.
