Tesla stock could lose half of its value, analyst Itay Michaeli says

The stock of Tesla is inflated and could lose half of its value, according to Citi analyst Itay Michaeli.

Michaeli reiterated a sell rating on Tesla's stock with a price target of $424 in a note to clients. The stock of Tesla was trading around $923 per share on Wednesday.

Michaeli's bold call involves skepticism about Tesla's autonomous driving technology and the view that Tesla's stock - which is trading on a lofty forward P E ratio of 76 times - is not factoring in a deepening economic slowdown.

We think the current valuation remains challenging, considering the handful of other companies that have previously achieved Tesla's market cap, which generated $100 billion of gross profit on average compared to Tesla's second half of 2022, which is estimated annualized of $30 billion and $20 billion in the first half. In the current macro situation, we need to be aware that Tesla is adding a sizable Model Y capacity in what are now price-points $60 k US where the US market size is inherently smaller and where other EVs are also ramping up. Michaeli joined JP Morgan analyst Ryan Brinkman in reiterating a sell equivalent rating on Tesla's stock post-second quarter earnings.

Tesla has made a good argument to justify the current valuation of its stock, and maybe even a richer one.

Sales of the second quarter increased by 43% from a year ago to $14.6 billion. Operating profits went up 88% from a year ago to $2.5 billion.

The second quarter was better than feared, with healthy guidance for 2 H by Musk Co. that look achievable with no margin for error, Webush Tesla bull Dan Ives said in a note.

If CEO Elon Musk's prediction is true, the company could see an earnings tailwind later this year from cooling commodities prices.

If I was to guess - and I would take this with a grain of salt - I think inflation will decline towards the end of the year, Musk told analysts on an earnings call. The prices of commodities are seeing a drop. The new legislation could bring back demand-driving EV tax credits, according to Yahoo Finance's Pras Subramanian.

Brian Sozzi is an anchor at Yahoo Finance. Follow Sozzi on Twitter and LinkedIn.