Both Europe and China retreat, UBS significantly lowers Tesla's delivery expectations and target stock price

Since Elon Musk became a senior advisor to the Trump administration, Wall Street seems to no longer buy into Tesla's good story. UBS, JP Morgan, Goldman Sachs, and others have all lowered their target prices.

On the 10th, UBS released a research report sharply targeting Tesla, significantly lowering its Q1 2025 delivery forecast to 367,000 units, a year-on-year decrease of 5%, and a quarter-on-quarter decrease of 26%, which is 13% lower than the market's general expectations.

Faced with multiple challenges such as slowing demand, profit pressure, intensified competition, and overvaluation, UBS has lowered Tesla's target stock price to $225, representing nearly a 30% decline from the closing price of $262 on March 7.

From a regional market perspective, Europe and China have become the "hard-hit areas" for Tesla's declining delivery volumes. UBS believes that Tesla's long-term growth story has shifted towards AI (Robotaxi and humanoid robots), but these opportunities have already been overdrawn by high valuations. Previously, JP Morgan also significantly lowered Tesla's target stock price to $135, corresponding to a valuation shrinkage to $400 billion. Goldman Sachs lowered its target price from $345 to $320.

In fact, not only on Wall Street, but globally, an increasing number of people are raising doubts about Tesla: from arson at charging stations, to shootings at showrooms, to owners feeling humiliated due to Musk's political stance... A series of events have pushed this electric vehicle giant to the forefront of controversy. In the face of various challenges, how should Tesla regain its growth momentum?

Delivery Expectations Collapse: Dual Failures in European and Chinese Markets

UBS pointed out in its report that Tesla's delivery forecast for Q1 2025 has been lowered from the previous 437,000 units to 367,000 units, a year-on-year decrease of 5%, and a quarter-on-quarter decrease of 26%, which is 13% lower than the market's general expectations.

Even more concerning is that the full-year delivery forecast has also been lowered to approximately 1.7035 million units, a year-on-year decrease of 5%, far below the market's general expectation of a 10% growth.

UBS believes that the shortened delivery times for the Model 3 and Model Y in key markets (usually within two weeks) may lead the company to push for delivery volumes through promotional activities at the end of the quarter, but the overall weak demand trend is difficult to reverse.

Specifically, Tesla's performance in the European market is disappointing. Delivery volumes in major markets such as Germany, France, Norway, and Spain have all significantly declined, with year-on-year declines as high as 45%. UBS believes this is related to European consumers developing a resistance to the Tesla brand, as well as other automakers more aggressively promoting electric vehicle sales in 2025

In the Chinese market, Tesla is also facing challenges. Wholesale sales in the first two months of the first quarter fell by 29% year-on-year, and retail sales in January also dropped by 15% year-on-year. Although Tesla has launched a limited version of FSD (Full Self-Driving) in China, UBS believes that due to data collection restrictions and the inability to share data with the United States, the Chinese version of FSD is less competitive than the American version.

Gross Margin at Risk: Is the Low-Price Strategy Sustainable?

The downward adjustment of delivery expectations directly impacts Tesla's profitability. UBS expects that in the first quarter of 2025, Tesla's automotive business gross margin (excluding carbon emission credits) will drop to 10.3%, significantly lower than 13.6% in the fourth quarter of 2024 and 16.4% in the first quarter of 2024, and also below the market's general expectation of 13.5%.

UBS believes that in addition to the decline in delivery volume, more promotional activities will further compress gross margins. To stimulate demand, Tesla has to resort to price cuts and subsidies, which will undoubtedly sacrifice profits.

Additionally, UBS is cautious about Tesla's upcoming "low-cost" models. Although these models are expected to boost sales, the difficulty in cost control may lead to lower gross margins.

How Long Can the Future Growth Story Last?

Based on pessimistic expectations for delivery volume and gross margins, UBS has significantly lowered its earnings forecast for Tesla. The earnings per share (EPS) for the first quarter of 2025 has been revised down from $0.52 to $0.37, and the full-year EPS has been cut from $3.16 to $2.02, a decrease of 30%, far below the market's general expectation of $2.81.

UBS believes that Tesla's long-term growth story has shifted to AI (Robotaxi and humanoid robots), but these opportunities have already been overvalued. Currently, Tesla's stock price is 90 times the market's general expectation for the 2025 price-to-earnings ratio, and 129 times UBS's own forecast.

UBS has set a target price of $225, based on an 80 times price-to-earnings ratio for its 2026 EPS forecast. However, even an 80 times price-to-earnings ratio is slightly above the +1 standard deviation level since 2022, roughly in line with the average level of the past year. This indicates that Tesla's valuation remains high, facing significant downside risks in the future.

In fact, an increasing number of analysts are questioning Tesla's valuation. JP Morgan believes that Tesla's stock price could fall to $135, bringing its valuation close to $400 billion. JP Morgan pointed out in a report that since 2022, the market's earnings expectations for Tesla in 2025 have dropped by 70%, yet the stock price has doubled, which is inconsistent with typical trends