UBS analysts said in a note to investors on Monday that Tesla (NASDAQ: TSLA) remains “fundamentally overvalued” as it approaches its second-quarter earnings release, despite short-term support for auto stocks driven by expected sector-wide production beats and foreign exchange (FX) gains.
In a broader analysis of the U.S. autos, auto-tech, and parts sectors, UBS projected that Q2 2025 results would generally surpass market expectations, citing stronger production and favorable FX conditions.
Still, the firm struck a cautious tone, noting that since March, there has been an average ~20% valuation rebound in the sector, but the core challenges from before the tariff rollout remain unresolved.
Focusing on Tesla, UBS pointed to regulatory and policy-related risks, stating:
“We see real risk to regulatory credit revenue for both Tesla and Rivian (RIVN), as well as potential demand headwinds if EV credits are rolled back.”
The analysts added that while Q3 could see a final wave of pulled-forward demand, long-standing valuation concerns are still relevant.
Nonetheless, market reaction in the short term may hinge more on investor sentiment and CEO Elon Musk’s commentary, rather than the earnings numbers themselves.
“We believe TSLA remains fundamentally overvalued, but the price reaction will depend on Musk’s call comments,” UBS said.
They emphasized that the tone of Tesla’s guidance and any policy commentary could have a greater influence than the headline financial results.
For the upcoming quarter, UBS forecasts earnings per share of $0.43, in line with consensus, and expects automotive gross margins (excluding credits) at 14%, slightly above the Street’s 13.5% estimate—though they acknowledge margins could improve further after Tesla’s delivery beat.
