UBS Bullish Tesla

UBS analysts upgraded Tesla to ‘Buy’ today, pointing to 50% upside potential in the face of surprisingly higher sales of Chinese-made cars:

  • The European Union passed a law yesterday that will ban the sale of new cars that emit exhaust fumes after 2035, potentially increasing the market for electric car manufacturers and forcing major companies to transform and compete with Tesla, among others;
  • According to UBS analysts, the operating outlook for the company is now ‘better than ever’, due to record order intake and two newly opened ‘gigafactories’. At the same time, however, they are cautious about 2022 EPS forecasts due to the blockades in Shanghai.
  • Tesla’s interest in producing software, semiconductors or even basic batteries could translate into increased profitability. The plan to cut employees according to UBS will also translate into an improvement in the company’s financial position.
  • Tesla’s stock has taken an additional bearish ‘hit’ recently due to Twitter’s takeover bid in which Elon Musk pledged some of his Tesla shares to fund his own takeover bid. Musk remains a key ‘frontrunner’ for Tesla. All the possible ensuing risks as well as the benefits the company could reap from its media-savvy, controversial owner are involved.

UBS analyst Patrick Hummel relayed: “Tesla can outperform its competitors through a combination of the efficiency of its own cells, its lead over global competitors in using LFP cells, and its high proportion of raw materials derived directly from batteries, primarily lithium.” 

Tesla (TSLA.US) chart, D1 interval. The company has been in a strong uptrend since the pandemic, but looking at the fall of 2021 and the current year, the share price has already given up more than 40% from the historical highs and about 31% from the beginning of the year. The valuation of the company’s shares was not helped by the turnaround in the Fed’s monetary policy, negative sentiment around technology companies, inflation and economic blockades in China. We can see that the pattern drawn from November 2021 resembles a bit the one from the past when bulls pulled out of similar oppressions. Currently, declines have slowed down well above the 61.8 Fibonacci retracement. Current price levels near USD 725 may turn out to be the base for demand attack near the 38.2 retracement near USD 790, which is located near the local tops from spring 2021. In the face of raising recommendations and limited problems in China, it seems possible for demand to hit the USD 800 level, and in the broader horizon to try to pass the psychological level of USD 1000. However, much will depend on the behavior of the broad market and the situation on the indices. If the stock continues to weaken despite positive signals, it may be a sign that the supply will look for new lows in the area of USD 500, where we observe 61.8 Fibo wave retracement. Source: xStation5

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