Argus Cuts Tesla’s Rating to Hold, Keeps ‘Long-Term’ Buy Rating
“We are lowering our intermediate-term rating on Tesla Inc. (NGS: TSLA) to HOLD from BUY.
Our long-term rating remains BUY. Tesla is one of the largest electric vehicle (EV) sellers in the world today and holds a significant portion of the EV market share in the United States, with about 50% of the market as of the end of 2024.
However, the stock is now subject to non-fundamental trading, as the formerly close bond between President Trump and Tesla CEO Elon Musk has been replaced by acrimony.
Elon Musk attacked the appropriations bill now in Congress, prompting President Trump to claim Musk’s anger was actually a response to the end of EV credits within the bill.
The dialog between the two has worsened, and some in the MAGA base are calling for the South African Musk to be deported.
Electric vehicle (EV) demand in the U.S. has been slower to materialize than anticipated and rival automakers such as Ford and GM are getting better at making EVs.
For the U.S. with its vast distances and still-deficient infrastructure of charging stations, Toyota’s hybrid approach (ICE and EV under the same hood) may end up being the winning combination.
Those issues have been coalescing for some time but are not what is impacting the TSLA shares at present. CEO Musk is a lightning rod for criticism, which is operational and political at this point.
Tesla is coming off a much weaker-than-expected first-quarter 2025. We expect Tesla to ‘manage through’ the currently difficult landscape within the global EV industry, aided by a refreshed product line-up.
That includes a new ‘affordable’ electric vehicle, the Model 2, which we had been supporting. Additionally, the company reiterated its 2025 timeline for its AI-related projects (Cybercab and Optimus), which we believe are near-term positive catalysts for the company and its valuation. We believe the long-term trend for EV sales is still intact.
However, the amount of political baggage associated with the brand and Musk is preventing the stock from trading on fundamentals. Musk has left the U.S. federal government, but his DOGE cuts weakened the appeal of Teslas among left-leaning, environmentally conscious consumers.
Musk’s feud with the president risks cutting whatever demand there is for Teslas within the MAGA base. Even before the tiff, unsold units of the ‘bro’-associated Cybertruck were reportedly piling up on lots.
We view the shares as an attractive long-term holding. In addition to manufacturing the only line of profitable EV’s in the world, Tesla is also dedicated to energy storage, self-driving technology, and advanced robotics.
At present, however, we believe an intermediate-term HOLD rating is prudent.
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