Wall Street is starting to worry about Tesla's valuation amid the rapid rise of Chinese electric car companies including Nio, Xpeng Motors, and BYD.
In a research note Tuesday, UBS analyst Patrick Hummel lowered his price target on Tesla to $660 from $730, maintaining a "Neutral" rating.
Hummel said this was because the company faces several negative factors and the situation is more favorable for Tesla's competitors in the coming quarters.
UBS survey results show that 43 percent of consumers are likely to consider buying an electric car, 600 basis points higher than last year. In terms of awareness, Tesla remains the most popular electric vehicle brand, the analyst noted.
But, Nio, Xpeng, and BYD are all showing strong momentum and posing a threat to Tesla, the analyst said.
In addition, Volkswagen and General Motors also offer a re-rating opportunity and their ecosystem assets are currently heavily undervalued, the analyst said.
"Our key concern shorter-term is that Tesla's demand momentum in China is slowing, and our checks on the ground suggest that BEVs (battery electric vehicles) from domestic brands are gaining further ground vs. Tesla, which may trigger additional pricing action by Tesla and consequently lower gross margins," Hummel said.
He added that delays in the European launch of the Model Y, fully automated driving (FSD), and the Fremont plant's next-generation 4680 battery will also affect market sentiment.
In order to get better market performance, Tesla needs "new hard evidence" to prove its leadership in software and FSD.
Tesla shares closed down 1.16 percent to $680.76 on Tuesday, with a market cap of $653.43 billion. The stock is down 6.72 percent so far this year.
Nio closed up 1.9 percent to $50.34 on Tuesday, closing above $50 for the first time since Feb. 24. Xpeng closed down 2.18 percent to $44.32.
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