UBS downgrades Tesla, says recent rally fully accounts for demand boost

Published Mon, Jul 24 20235:46 AM EDT

The recent rally in Tesla shares prices in a bump to demand for the electric vehicle maker's cars after their prices were cut, according to UBS. Analyst Patrick Hummel downgraded the stock to underweight from neutral while raising his price target by $50 to $270 per share. His new target implies shares could advance just 3.8% over the next year. "We think the recent strong share performance fully reflects the strong demand response seen after the price cuts, as well as a solid execution in 2024," Hummel said in a note to clients Monday. "We continue to see Tesla globally leading the race to affordable electric and autonomous mobility, but on a 1-year view, risk/reward looks balanced." Tesla has cut prices on multiple models this year . The move has been seen as a way to buoy demand for the company, while experts have wondered if it could trigger a price war in the broader electric vehicle market. TSLA YTD mountain Tesla's monster 2023 Hummel said that the demand boost following the cuts is now accurately reflected in the share value following its recent rally. The stock has surged coming out of 2022's selloff, with shares up more than 110% this year. Tesla stock was down more than 1% in premarket trading Monday. Last week , Tesla posted an all-time high quarterly revenue, though a slide in operating margin concerned some analysts. While Hummel noted a "reassuring" gross margin trend, he also pointed to worse-than-expected operating expenses and free cash flow. Looking ahead, Hummel said he is watching for the first cybertruck, which is expected to come before 2023 ends with 2024 expected as a "ramp" year. But he said the most relevant catalyst for margins and valuation is still autonomous driving, with Tesla's new Dojo supercomputer having the potential to be a "game-changer" in the self-driving software space. Still, he noted autonomous driving should be considered a multi-year story, with the big financial upside seen once full autonomy is reached. — CNBC's Michael Bloom contributed to this report