Tesla's stock surge is being driven by 'animal spirits,' UBS says

Tesla (TSLA) shares have surged on investor optimism that President-elect Donald Trump will bring forward policies that benefit his ally, CEO Elon Musk. But those gains are entirely based on momentum, not any changes to the company’s fundamentals, UBS (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 capitalization since the election based on Musk’s tight-knit relationship with the next administration.

However, not all of Trump’s policy changes are likely to be absolute positives for the stock.

Removing the $7,500 consumer tax credits for electric vehicle purchases could force Tesla to slash prices to boost demand, Spak notes. Although Musk has said that ending those credits will hurt Tesla’s rivals more than it damages his company, Tesla’s sales would likely still face some blowback, analysts have said.

Plus, while Trump’s administration may be friendlier to streamlining autonomous vehicle regulations, there could still be challenges between state and federal governments over policing drivers and the technology itself. Spak notes that Tesla doesn’t yet have a robotaxi ready to take advantage of any relaxed rules.

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The Austin, Texas-based firm’s Cybercab won’t enter production until at least 2026, and its plans to launch rideshare services and a “fully autonomous” version of Full Self-Driving will likely require state-by-state approval. According to current federal rules, manufacturers are only allowed to deploy 2,500 autonomous vehicles per year under a granted exemption. Musk has said Tesla will eventually make at least 2 million Cybercabs per year.

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

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

Tesla stock is slightly down in trading Monday morning. Shares have gained almost 42% so far this year.

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