It appears not every analyst on Wall Street, or Bay Street, is buying the hype with respect to electric vehicle maker Tesla Inc. (NASDAQ:TSLA).
In a recent note to clients, RBC analyst Joseph Spak downgraded Tesla stock to underperform from sector perform, inviting investors to consider the potential downside to the impressive growth story that has driven shares of the electric vehicle maker to astronomical levels in recent years.
As with many other growth companies, Tesla's valuation is hinged largely on growth assumptions and margin assumptions which remain very aggressive. The auto manufacturer has been forced to reduce prices substantially to cover lost tax incentives for many buyers who have remained on a waiting list for years for one of the base models of the company's model 3 mass-market car.
It appears demand may be slowing amid a growing range of options for EV buyers from other carmakers, and though Tesla's brand remains strong within the eco-friendly EV community, the company's economics are coming into focus as investors continue to assess the effect of heavy capital investment to fund growth for Tesla's planned vehicle launches.
There also appears to be an "Elon premium" according to Spak, one which is hard to quantify and which poses risks to investors related to continued probing from the SEC. Though many may discount this assessment as an overly bearish analyst note, I believe investors should heed the warnings of Spak and others with respect to Tesla's shares at this current valuation.
Invest wisely, my friends.
