Tesla's valuation could 'far exceed' current levels, RBC Capital Markets says

RBC Capital Markets reiterated its Outperform rating on Tesla, raising its price target to $325, now aligning with the current share price, based on 2026 valuation and global humanoid robot penetration estimates. Analyst Tom Narayan highlights significant progress in robotaxi expansion, with the Austin launch exceeding expectations, and the Optimus humanoid robot program, targeting a prototype this year and production in 2025, projecting substantial long-term upside if these ambitious goals are met. However, the firm also notes near-term pressures on the auto business from the end of IRA credits and high used EV inventory, regulatory hurdles for FSD, and a $300 million Q2 tariff impact.

Analysis

RBC Capital Markets maintains a constructive but balanced view on Tesla, reiterating its Outperform rating while setting a $325 price target that suggests the stock is fairly valued at its current level. This valuation is forward-looking, incorporating 2026 estimates and the potential of future businesses, specifically global humanoid robot penetration. The analysis highlights a significant divergence between Tesla's long-term technological ambitions and its near-term operational challenges. On the positive side, the Austin robotaxi launch has exceeded muted expectations, and the V.12 full-self driving software has boosted adoption rates by 25%. Furthermore, the Optimus humanoid robot program presents substantial long-term upside, with management targeting production of one million units annually within five years, a development that could dwarf other business lines if successful. However, these ambitious goals are counterweighed by immediate headwinds. The core auto business is expected to face pressure for several quarters from the conclusion of IRA credits and high used EV inventory. This is compounded by a recent $300 million tariff-related impact in Q2 and persistent regulatory hurdles for FSD approval in key markets like the EU and China, underscoring the execution risk embedded in the current valuation.

Key Decisions for Investors

• Given that the stock is trading at RBC's price target, investors should recognize that the current valuation already factors in significant success in long-term ventures like robotics and robotaxis, weighing this against the noted near-term pressures on the core auto business.
• Monitor key catalysts closely, including progress on the Optimus 3 prototype by year-end, data on robotaxi expansion and performance, and any movement on FSD regulatory approval in Europe and China.
• Investors should scrutinize upcoming quarterly reports for the impact of expiring IRA credits and used EV inventory levels on automotive margins and sales volumes, as these headwinds are expected to persist.
• The bifurcated outlook between long-term potential and near-term challenges suggests continued volatility, prompting a review of position sizing and risk management strategies to navigate potential weakness in the auto segment.