Tesla (NASDAQ:TSLA) shares dropped 36 points, or more than 2%, in early trading Tuesday to $1,503.30 after Bernstein’s Toni Sacconaghi downgraded the stock of the electric vehicle (EV) maker to the equivalent of “Sell” from “Market Perform”, while leaving his price target unchanged at $900 a share.
In a research note to clients Sacconaghi said that despite being bullish on the EV industry in general and the structural advantage Tesla may hold, he still finds it “difficult to justify (the company’s) current valuation even under our most bullish/imaginative scenarios.”
Saccaonaghi also said that he understood the bull case on Tesla, involving the company’s position as a leader in an under-penetrated market and its potential for margin expansion, but noted the name’s “mindboggling’ valuation is unprecedented for a large-cap stock outside of the tech bubble.
Tesla’s current $274 billion market cap is roughly equal to that of Toyota Motor ($172 billion) and Volkswagen ($86 billion) combined, yet those companies make a collective 20 million cars versus Tesla’s 500,000.
“We struggle to translate our positive views on Tesla as a business into an expected value that is north of ~$900/share,” the analyst wrote in the note, adding that “Tesla now even looks expensive vs. large cap growth tech.”
Tesla shares were trading down by 4% at $1,473 at the time of publication Tuesday. Shares have had an incredible run so far this year, spiking about 270% as of Monday’s close, far outpacing the 0.3 percent gain of the S&P 500.