World leader in EVs under increasing pressure in China. UBS cites better opportunities for investors looking at playing the emerging market
Analysts at UBS have cut their price target on Tesla stock by 10%, from $730 to $660. As well as pressure from China, the Swiss Bank also cited delays in getting Tesla’s Model Y to market.
Patrick Hummel, an analyst at UBS said –
“Our key concern shorter-term is that Tesla’s demand momentum in China is slowing, and our checks on the ground suggest that Electric Vehicles from domestic brands are gaining further ground vs. Tesla, which may trigger additional pricing action by Tesla and consequently lower gross margins. The EV launches from competitors with high range, charging performance, and attractive value-for-money, could continue to weigh on the value the market is willing to assign to Tesla’s long-term growth.”
Another factor is that Tesla’s market position is coming under increasing pressure as the world’s largest car manufacturers roll out ambitious plans to change over to EV product lines. With this changeover in mind, UBS has identified four factors that are likely to drive higher performances in auto stocks.
• Strengthening EV sales curve
• Crystalized Portfolio value
• An ability to pass on higher commodity prices
• Outstanding segmental and regional value
When UBS analysts applied these factors across the markets, they found that Tesla’s severest competitor, GM, and Volkswagen scored best. As a result, UBS has raised its target price for GM from $75 to $79 and set a target price for Volkswagen of $357 (from $75 to $79 and set a target price for Volkswagen of $357 (€300). Currently GM stock is trading at $59 and Volkswagen is sitting around the €216 mark. This implies that both companies are a strong buy.
Other companies that had strong re-ratings were Hyundai, Renault, and China’s Li Auto. Ford also got an honorable mention, although USB still rates the stock as neutral.
The analysts at UBS based their findings on the results of a survey involving 11,000 participants in the world’s largest EV markets. The survey showed that 43% of consumers are likely to consider buying an electric car, a 6% rise from a year ago.
It is also the first time that fully electric vehicles are preferred over hybrid models. In the US, the eagerness to switch to EVs is accelerating the fastest out of all the surveyed markets.
In the report, they conclude that – “EV mass adoption is an unstoppable trend with rapidly accelerating momentum.”
The bank raised its sales forecast for China to 2.5 million EVs in 2021 from 1.9 million, overall they expect EVs to make up 20% of global car sales by 2025 and 50% by 2030.
Despite this, Tesla still holds the mantle of the “undisputed leader” in UBS’s books. According to Patrick Hummel, the same survey showed that Tesla was still “strong across the board.”
