Shares of electric-car maker Tesla (TSLA -1.11%) have had a good run this year. But has the stock's valuation gotten ahead of itself? One analyst thinks so.

Financial services company HSBC initiated coverage of the growth stock today with a "reduce" rating, or a rating similar to a sell rating. In a sobering note for Tesla bulls, the analyst's 12-month price target for the stock sits at $146. This would translate to significant downside for the stock from here.

Here's why HSBC's Michael Tyndall is so pessimistic about Tesla shares.

The stock is overvalued

In short, Tyndall seems to think investor excitement, based on its market capitalization of more than $650 billion today, is speculative and unjustified. The current valuation prices in not just good performance in the company's electric car business but also successful expansion in more nascent parts of its businesses like energy storage, self-driving software, robotics, and supercomputers. But herein lies the problem, Tyndall explains; these parts of Tesla's business may prove to be more technologically challenging than anticipated, expensive to build out, and weighed down by regulatory hurdles.

Much of the bull case for Tesla investors is predicated on the idea that the company's newer businesses will command higher profit margins than its automotive business. If this doesn't play out as expected, shares could prove to be significantly overvalued at their current level.

Elon Musk: A blessing and a curse

Tyndall also notes that CEO Elon Musk is a risk for the stock. Sure, his boldness and leadership have played a key role in the company's success to date. Additionally, his growing fame over the years has also provided the company with significant global awareness. But this means the company is highly dependent on the CEO's fame. Tyndall, therefore, says his "prominence presents a considerable 'singleman' risk" for the company.

What should investors do?

So, is Tyndall right to be so bearish on the stock at its current valuation?

It may depend on your time horizon.

The electric car maker could, indeed, be weighed down by costly expansion projects, expensive product development, and regulatory hurdles over the next five to 10 years. But for the investors willing to hold shares for 10 years or longer, this may give the company enough time to work through complex challenges and ultimately come out on the other side of them with significant competitive advantages. After all, it's difficult for new entrants to come into capital-intensive spaces and succeed. So, Tesla could widen its competitive moat by following through on its ambitious technological aspirations.

With its growing war chest of cash now surpassing $26 billion, Tesla may be one of the few companies well equipped to go after such daunting ventures like robotics, self-driving software, and clean energy.

But the risks are high. For the Tesla bulls with a long enough time horizon, they should keep several things in mind.

  1. The bull case for the stock relies on a significant level of speculation and is, therefore, risky.
  2. The stock will likely remain highly volatile as investors constantly reassess the electric car maker's odds of succeeding at capital-intensive projects that will take years to play out.
  3. Even if Tesla succeeds, long-term investor returns may be subpar given the stock's high valuation today. In other words, a lot of growth is already priced into the stock.

So, for the brave investors who disagree with Tyndall, brace yourselves for a bumpy ride. But if Tyndall's warnings give you pause and ultimately make you question your confidence in the company succeeding in the many capital-intensive projects it has its hands in, perhaps your risk tolerance isn't high enough for Tesla stock, and you should move on.