UBS reaffirmed its sell rating for Tesla shares as earnings expectations are too high given the costs associated with launching the new Model 3 vehicle and a likely drag from its newly acquired solar business.
The company's shares are up 31 percent this year and 80 percent in the past 12 months through Wednesday. Tesla acquired SolarCity for $2.6 billion in November 2016.
"We struggle to understand the run-up, particular as Q4 deliveries missed, though positive spin on the Musk-Trump relationship, reconfirmed Model 3 launch timing, and expectations of new reveals (including more autonomous features) are likely factors," analyst Colin Langan wrote in a note to clients Wednesday. "We remain cautious with expected accelerated cash burn ahead of the Model 3 launch … [and] negative earnings revisions with the inclusion of SCTY."
Tesla is scheduled to report fourth-quarter earnings on Wednesday.