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This Is Why JPMorgan Says Tesla Shares Are “Dramatically Overvalued”

This Is Why JPMorgan Says Tesla Shares Are “Dramatically Overvalued”

This JPMorgan analyst also warns investors against adding to their positions in the stock ahead of Tesla’s addition to the S&P 500 later this month. Here’s why.

JPMorgan analyst and Tesla (NASDAQ: TSLA) bear Ryan Brinkman said this week that the stock is now “dramatically overvalued” and investors considering adding to their holdings in the company ahead of its impending addition to the S&P 500 should hold off. 

Brinkman pointed out that Tesla shares have gained more than 800% in the last two years. In the same timeframe, analysts have raised their price targets by around 450% while also lowering their earnings estimates for the company for 2020 through 2024.

According to Brinkman, that data is “strongly suggestive of the idea that something apart from the fundamentals (speculative fervor?) is driving the shares higher.”

Despite his concerns about the stock, Brinkman raised his price target on the stock from $80 to $90, a 12.5% increase, with the equivalent of a Sell rating. His price target is one of the lowest on Wall Street and is more than 85% lower than where the stock trades at the time of writing.

The JPMorgan analyst cautioned clients against adding Tesla at its benchmark weighting in the S&P 500 when it enters the index on December 21. Brinkman added that index funds will add Tesla stock because they have to in order to match the index’s performance, and many funds use the S&P 500 as a benchmark for performance, making Tesla’s performance a big factor in those funds either beating, or trailing, their benchmark.

“We recommend investors not weight Tesla shares in their portfolio in equal proportion to the S&P because Tesla shares are in our view and by virtually every conventional metric not only overvalued, but dramatically so,” Brinkman wrote. 

But while Brinkman remans bearish on Tesla, the stock got an upgrade from Goldman Sachs analyst Mark Delaney last week from Hold to Buy.

Delaney boosted his price target on the stock form $455 to $780, indicating 24% upside from the current price. 

The Goldman Sachs analyst sees electric vehicles’ share of new car sales around the globe increasing faster than he had previously anticipated.

“We are raising our outlook for EV adoption and now expect EVs to comprise 18% of sales globally in 2030 and 29% in 2035,” Delaney wrote, adding that he believes it is becoming more likely that his estimates are too conservative. And that’s a positive for all EV makers, including Tesla. 

Miller Tabak market strategist Matt Maley said Delaney’s $780 price target is “very achievable” on a longer-term basis. “I think you want to continue to ride the wave right now,” Maley said. “On a short-term basis, it still looks good.”

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