According to information obtained by Zhitong Finance APP, analysts at ubs group pointed out that Tesla's (TSLA.US) recent stock price surge is mainly driven by market sentiment rather than fundamental factors. Analysts emphasized that the valuation of Tesla's auto business now accounts for a lower proportion of its total market cap than the recent average level, a trend that has only occurred twice in the past four years, each leading to significant stock price corrections of 30% and over 70% respectively.

Currently, Tesla's expected price-earnings ratio has reached 100 times, significantly higher than the average level of the past two years. This indicates that investors need strong conviction to continue increasing their shareholding in the stock.

Joseph Spak of ubs group pointed out that since the election, Tesla's stock price has soared about 40%, with its market cap increasing by more than 350 billion USD, reaching a peak of 1.1 trillion USD. However, he warned that the recent increase in Tesla's stock price is more driven by sentiment, specifically optimism regarding the new government's policy changes in the usa, rather than improvements in the company's fundamentals.

Spak wrote, "The rise in Tesla's stock price has mainly been driven by animal spirits/dynamics (this has occurred multiple times in Tesla's history)."

The report indicates that the market now views Tesla as an ai company rather than a traditional auto manufacturer. The valuation of the auto and energy businesses is about 52 USD per share, while Tesla's other businesses, including ai, siasun robot&automation, and Optimus, have a total valuation of 1 trillion USD.

Currently, the auto business accounts for only 12% of Tesla's total market cap, having once dropped to 10%. Historically, when this ratio has reached around the recent average level of 17%, Tesla's stock price has often entered a "downward channel."

Due to Tesla's high valuation, whether the auto business can achieve the expected profits remains uncertain. The report indicates that since 2022, Tesla's 12-month expected pe has fluctuated between 20 and 60 times, but is now over 100 times.

ubs group emphasizes that investors need extraordinary confidence to increase shareholding at the current price levels, such as believing in Tesla's ambitious goals of delivering 15.5 million autos by 2030 and deploying 780 gigawatt hours of energy storage, which far exceed current market expectations.

The impact of policy remains unknown.

Spark stated that while some policy suggestions from President-elect Donald Trump may benefit Tesla, there are also negative policy factors that could harm the fundamentals more than the theoretical upside could benefit Tesla.

After Trump won the election, investors pushed Tesla's stock price to a multi-year high. This was mainly due to Tesla CEO Elon Musk's strong support for Trump, while in return, Trump informally included Musk in his inner circle, allowing him to participate in policy meetings and appointing him to manage a government efficiency committee.

Trump also stated that his views on electric vehicles have improved due to Musk's presence, even though the transition team's report suggested that the federal electric vehicle tax credit may be put on hold.

While the cancellation of the tax credit may harm Tesla's competitors more than Tesla itself, the calculation is not that simple. "The cancellation of the consumer tax credit is not necessarily favorable for the demand for us electric vehicles (and TSLA). Tesla may roll out some new models or update products, which could help. However, we have already seen that pricing actions (excluding tax credits) have only stabilized demand. Therefore, if crediting is canceled, further pricing actions may be needed."

Another bullish outcome of Trump's victory for Tesla is a more favorable regulatory environment, especially for the self-driving taxis launched by Tesla.

Spark wrote that, despite the opinion that simplifying the regulatory "barriers" is beneficial for Tesla's autonomous taxi service, in fact, there are no burdensome federal autonomous vehicle regulations that need to be "relaxed" because the larger issues are being addressed on a state-by-state basis.

However, in fact, the bigger challenge may be the technology itself. Spark wrote: "Regulatory changes will not immediately solve the technical challenges of unmonitored (fully autonomous) driving, nor will it change the timeline for addressing these issues. We still believe FSD is improving, but the product is not yet ready for large-scale deployment of autonomous taxis."