Barclays downgrades Tesla, says investors should take profits after the stock's massive rally

Published Wed, Jun 21 20236:00 AM EDTUpdated Wed, Jun 21 202311:28 AM EDT

It's time to take some profits after Tesla's recent rally, Barclays said Wednesday. Analyst Dan Levy downgraded the electric-vehicle maker's stock to equal weight from overweight but hiked his price target by $40 to $260. Still, Levy's new target implies shares will need to slide 5.3% from where they finished during Tuesday's session. After seeing some downward pressure following its first-quarter earnings report in April, Tesla has surged 80% from that month's lows. By comparison, the S & P 500 gained about 8% during the same period. "We believe the stock's recent rally can be best explained by the market's current AI-driven thematic trade, as well as excitement over recent announcements to open the TSLA Supercharger network to other brands," he said in a note to clients Wednesday. "Yet while we aren't surprised that the stock has participated in the rally, we believe it is prudent to move to the sidelines." The stock has rallied more than 120% year to date, compared with gains of more than 14% and 30%, respectively, for the S & P 500 and technology-heavy Nasdaq Composite . That marks a turn after the stock underperformed in 2022, dropping 65% in the year. TSLA .SPX,.IXIC YTD mountain Tesla vs. the S & P 500 and Nasdaq Composite Levy said there's still a clear long-term opportunity for shareholders and Tesla remains poised to be a winner within original equipment manufacturers amid the shift to electrification. Excitement could build in late 2024 and 2025 over the lower-cost Model 2, he noted. But he said right now, fundamentals may be overlooked as investors buy into stocks with exposure to artificial intelligence amid skyrocketing interest in the technology. While Levy noted the company does have AI exposure, particularly through self-driving technology, it will unlikely be a big winner like Nvidia. Additionally, Levy said part of the rally could be coming from a "dearth of bad news" for Tesla, noting a May article in a German newspaper describing issues with the company's data security and self-driving work was quickly forgotten about. He also said the general sentiment on Tesla has been relatively positive since the article. News such as the changes to eligibility for its Standard Range Model 3 for full Inflation Reduction Act tax credits and the hiring of NBCUniversal ad chief Linda Yaccarino as Twitter CEO could also be helping. Partnerships allowing other car makers to use Tesla's charging technology have also been a recent talking point when considering the stock's move, he said. "Our experience covering TSLA has made us well aware of the potential for TSLA's stock movements to be driven by more than fundamentals," Levy said. "In fact, we have at times been willing to be more generous with our target multiple given the belief that TSLA is far more likely to get the 'more than a carmaker' treatment by the market, with support from different pockets of the investment community, including retail and momentum investors." Disclaimer: NBCUniversal is the parent company of CNBC. — CNBC's Michael Bloom contributed to this report.