Tesla’s share rise is thanks to momentum and ‘animal spirits’, says UBS

Tesla shares have risen on investor optimism that President-elect Donald Trump will introduce policies that benefit his ally, CEO Elon Musk. But those gains are based entirely on momentum, not any changes in the company’s fundamentals, UBS analysts warned on Monday.

“From a narrative perspective, especially if one were valuation agnostic, we get it,” wrote a team of analysts led by Joseph Spak, noting that Tesla has added $350 billion to its market value since the election based on Musk’s close relationship with the next administration.

However, it is not likely that all of Trump’s policy changes will be absolutely positive for the stock.

Elimination of the $7,500 consumer tax credit purchases of electric cars could force Tesla to lower prices to increase demand, Spak notes. Although Musk has said the end of those credits will hurt Tesla’s rivals more than it hurts his company, Tesla’s sales will likely still face a setback, analysts have said.

Plus, while Trump’s administration may be friendlier to streamlining rules for autonomous vehiclesthere may still be challenges between state and federal governments regarding police officers and the technology itself. Spak notes that Tesla does not yet have a robot axis ready to take advantage of any relaxed regulations.

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The Austin, Texas-based company Cybercab won’t go into production until at least 2026, and its plans to launch carpooling services and a “fully autonomous” version of Full Self-Driving will likely require state-by-state approval. According to current federal regulations, manufacturers are only allowed to do so deploy 2,500 self-driving vehicles per year under a notified dispensation. Musk has said that Tesla will eventually make at least 2 million Cybercabs a year.

“Thus, the rally in Tesla stock is mostly driven by bull spirit/momentum (which has happened several times in TSLA’s history),” Spak wrote in his report. He maintained a sell rating and raised his price target to $226 per share. share from $197 per stock. Tesla shares were trading at $353 as of Monday morning.

The company’s stock has repeatedly been criticized to behave like a meme stock given Musk’s enormous influence over Tesla influencers and retail investors. In the past, analysts have even noticed that they have “painfully” discovered that memes were shared further Reddit can affect the stock more than actual financial metrics.

Tesla shares are down slightly in Monday morning trading. Shares are up nearly 42% so far this year.