Bank of America admits 'rude awakening' for its bearish Tesla call, but still predicts plunge

Tesla bear Bank of America was forced to hike its forecast on the electric carmaker’s stock, after its massive rally has left the bank’s old target in the dust.

Analysts at the bank reiterated their underperform rating on Tesla, while raising its 12-month price target on Tesla to $350 from $240 on Wednesday. The new target is still far below Tesla’s Tuesday close of $566.90, representing a 38% drop.

“BofA has had a rude awakening,” analysts led by John Murphy said in a note to investors on Wednesday. “While we admit TSLA is a trailblazer in the electric vehicle market. We believe investor optimism about TSLA’s addressable market for electric vehicles, volume growth trajectory, and, most importantly, sustainable profits/cash flow inflection is overblown.”

The move came before Tesla reports its quarterly earning after the bell. Its shares have skyrocketed about 120% since it last delivered an earnings report in October.

Tesla’s rapid rally has pushed its market capitalization above $100 billion. Investors are mostly bullish on the company’s strong outlook in China as CEO Elon Musk started delivering cars from a new vehicle factory in Shanghai in January.

The company also reported deliveries of 112,000 vehicles globally during the fourth quarter, a personal best for Tesla. That number significantly topped Wall Street estimates, and hit the low-end of Musk’s year-end sales goal.

Bank of America’s action marked the latest in a string of similar boosts by Tesla analysts playing catch-up with its share price. In the last month, 18 of 26 analysts have raised their price target on Tesla, according to CNBC analysis. Still, 11 of them remain a sell rating, eight recommend the stock and six have it as a hold.

While hiking its price target, Bank of America analysts listed 10 key reasons to remain cautious on Tesla’s stock, including market demand, competition, “skeptical” credit investors,” and a rotation into value stocks in the market.

“An investment in TSLA is high risk, as the stock is extremely volatile,” Murphy said. “Based on momentum over the last year, has resulted in both forced selling from long investors and forced buying from shorts.”

Shares of Tesla rose 0.7% on Wednesday. Wall street is expecting Tesla to report non-GAAP earnings per share of $1.72 and revenue of $7.02 billion, according to Refinitiv.

UBS said Tuesday Tesla’s stock is “over-shooting right now,” calling for the electric automaker’s shares to drop 28% in the year ahead.

— CNBC’s Ethan Kraft and Michael Bloom contributing reporting.