Tesla's searing rally elicits downgrades, caution on Wall Street

By Aniruddha Ghosh

(Reuters) - A blistering rally in Tesla Inc shares has powered the EV maker's market value toward trillion-dollar levels, prompting some analysts to question its valuation and downgrade the stock.

Goldman Sachs on Monday cut Tesla to "hold" equivalent rating, joining Morgan Stanley and Barclays, which downgraded the stock last week. The brokerages, however, raised their price targets to reflect the momentum in Tesla shares, which have soared 71% since late April and more than doubled this year.

The EV maker's shares were down 2% in premarket trading on Monday. Tesla's market capitalization of $813.29 billion far outstrips that of Japan's Toyota, which is the next biggest global car company by market value.

The brokerages have attributed the rally, which has cost short sellers $12.68 billion this year, partly to the company benefiting from the buzz around Artificial Intelligence.

Tesla shares have also benefited from a string of positive news in the past two months including deals struck by rival automakers Ford and General Motors for gaining access to its charging network, a move that could make its chargers the industry standard.

The stock also got a boost from China's announcement of a 520 billion yuan ($72.3 billion) package of tax breaks for EVs and other green cars last week.

"While the market is now giving the stock more credit for its longer-term opportunities, we are also cognizant of the difficult pricing environment for new vehicles that we think will continue to weigh on Tesla's automotive non-GAAP gross margin this year," Goldman analyst Mark Delaney said.

Morgan Stanley and Barclays pointed out that Tesla's earnings were still at risk of negative revisions as it battles competition in China and may be forced to cut prices.

In April, Jefferies and Truist Securities downgraded Tesla after it reported lower margins in its first-quarter results.

However, the brokerages reiterated that they saw strong growth ahead with Tesla remaining a global EV leader.

(Reporting by Aniruddha Ghosh in Bengaluru; Editing by Anil D'Silva)