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On Monday, Argus Research adjusted its stance on Tesla Inc. (NASDAQ:TSLA), downgrading the electric vehicle (EV) manufacturer’s stock from Buy to Hold, while maintaining a long-term Buy rating. The timing is notable, as InvestingPro data shows Tesla shares have declined nearly 14% in the past week. The firm highlighted Tesla’s dominant position in the U.S. EV market, holding approximately 50% market share as of the end of 2024, supporting its position as a prominent player with a substantial $956 billion market capitalization. Nonetheless, the stock has been influenced by factors beyond the company’s fundamentals, notably the deteriorating relationship between Tesla CEO Elon Musk and former President Trump.
The tensions between Musk and Trump have escalated following Musk’s criticism of a congressional appropriations bill, leading to Trump’s assertion that Musk’s discontent was due to the bill’s elimination of EV credits. This dispute has intensified, with some of Trump’s base advocating for Musk’s deportation. Additionally, the EV market in the U.S. has not grown as quickly as expected, and competitors like Ford and General Motors (NYSE:GM) are improving their EV offerings. Toyota (NYSE:TM)’s hybrid vehicles, which combine internal combustion engines with electric power, may prove more suitable for the U.S. market, given the current infrastructure limitations.
Tesla’s performance in the first quarter of 2025 fell short of expectations, further contributing to the rationale behind the rating change. According to InvestingPro analysis, the company maintains strong fundamentals with a current ratio of 2.0 and more cash than debt on its balance sheet, though it faces challenges with a modest 17.66% gross profit margin. Argus anticipates that Tesla will navigate through the challenges in the global EV industry, supported by a refreshed product line that includes the new ’affordable’ Model 2. The firm also cited Tesla’s ongoing AI projects, such as Cybercab and Optimus, slated for 2025, as potential near-term positives for the company’s valuation.
Despite the belief that the long-term trend for EV sales remains positive, the firm expressed concern that the "political baggage" associated with Tesla and Musk is currently preventing the stock from trading based on its fundamentals. Musk’s public disputes and the political climate have affected the brand’s appeal to various consumer demographics, with reports of unsold Cybertruck units accumulating.
In closing, Argus Research affirmed its view of Tesla shares as an attractive long-term investment, recognizing Tesla’s unique position in producing profitable EVs, as well as its engagement in energy storage, autonomous driving technology, and advanced robotics. With a P/E ratio of 153.85 and trading slightly above its Fair Value according to InvestingPro, which offers 18 additional investment tips and comprehensive analysis in its Pro Research Report, the firm advised that a Hold rating is appropriate for the intermediate term due to the current circumstances.
In other recent news, Tesla has been the subject of various developments that are catching investors’ attention. Baird analysts recently downgraded Tesla’s stock rating from Outperform to Neutral, adjusting the price target to $320. This move reflects concerns over the anticipated robotaxi service and potential impacts from CEO Elon Musk’s association with former President Donald Trump. Meanwhile, TD Cowen analysts have maintained their Buy rating for Tesla, with a consistent price target of $330, highlighting the potential influence of political developments on Tesla’s sales.
In operational news, Tesla’s Optimus humanoid robot program has experienced a leadership change, with Ashok Elluswamy, the head of Tesla’s autopilot teams, taking over after the departure of Milan Kovac. Additionally, Tesla is preparing to unveil its robotaxi service in Austin, with a pilot program set to operate ten driverless Model Ys. Gene Munster from Deepwater Asset Management has suggested that while political conflicts may impact Tesla’s short-term share performance, the long-term potential of the robotaxi service remains promising.
In the broader automotive industry, China’s car sales have shown slower growth in May, with a 13.9% increase from the previous year, according to the China Passenger Car Association. Electric vehicle sales, including those from leading manufacturer BYD (SZ:002594), also experienced a slowdown, despite new subsidies and incentives. This trend highlights the competitive pressures in the market, which could have implications for companies like Tesla operating globally.
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