Tesla shares dropped approximately 2% in premarket trading on Tuesday after Bank of America downgraded the stock from “Buy” to “Neutral.”
Despite raising its price target to $490 from $400, analysts expressed concerns about the high execution risks and valuation. They stated that Tesla’s current trading level already reflects much of its long-term potential across core areas such as automotive, robotaxi services, Optimus, and energy generation and storage.
Bank of America, led by analyst John Murphy, identified Tesla’s upcoming robotaxi service as a pivotal opportunity, contributing roughly 50% of its valuation. Scheduled for a 2025 launch, the service could be worth $420 billion in the U.S. and over $800 billion globally. Initially, Tesla is expected to own and operate the fleet, but the company may eventually open the service to third-party providers.
While the rollout is expected to start slowly with high per-mile costs, analysts predict Tesla will maintain a significant long-term cost advantage over competitors like Uber and Lyft by eliminating driver-related expenses. This could allow Tesla to offer lower prices to consumers while maintaining higher margins.
Tesla’s Full Self-Driving (FSD) technology is another key valuation driver, estimated by BofA to reach $480 billion. FSD adoption has increased, particularly among Cybertruck buyers, rising from 22% in early 2023 to approximately 60% in 2024. The firm projects that FSD-equipped vehicles will grow from 23 million by 2030 to 75 million by 2040, with significant EBIT contributions and higher margins than Tesla’s automotive segment.
Analysts also highlighted potential FSD licensing to other OEMs as a source of additional upside.
Despite multiple upcoming catalysts, including a low-cost model and new vehicle launches in 2025, robotaxi rollout, Megapack production scaling in Shanghai, and Optimus robot development, execution risks remain high.
Additionally, BofA flagged the possibility of a capital raise, which they view as a positive move to accelerate Tesla’s growth trajectory.
