Tesla Downgraded in BofA Note Citing Valuation Concerns

Tesla was downgraded to underperform from neutral by analysts at Bank of America who also lowered the company's price target.
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Shares of Tesla  (TSLA) - Get Report were rising more than 2% Wednesday despite a bearish note from analysts at Bank of America who cited concerns about the company's valuation following a strong run up recently.

Bank of America lowered Tesla to underperform from neutral while also lowering its price target to $485 from $500. BofA's price target implies a 29% downside for shares based on the company's previous closing price. Tesla shares rose 2.3% to $702.50 Wednesday. 

According to Bank of America analyst John Murphy, Tesla still faces numerous hurdles, including production challenges, a cash burn that is still too high and increased competition in the electric vehicle space.

Murphy said that Tesla's current valuation suggests the market isn't fully appreciating the company's near-term risk. 

Last week, Goldman Sachs resumed coverage of Tesla with a buy rating and an $864 price target. 

“We believe that the company is well positioned to benefit from long-term secular growth in EVs, and we expect the company’s early-mover advantage and technology cadence … will allow Tesla to maintain good market share and gross margins,” the Goldman analysts, led by Mark Delaney, wrote in a report.

The analysts noted that “we expect Tesla’s revenue CAGR [compounded annual growth rate] over the next 5 years to be well over 20%, and we believe that Tesla screens attractively on EV sales relative to revenue growth compared to auto and tech companies, especially in the context of the improvements the company has made in cash flow.”

Goldman's rating for Tesla came a day after Credit Suisse upgraded the stock to neutral from underperform.