Noting that Tesla Motors’ (TSLA) stock had rallied 60% between February and yesterday’s close, UBS warned investors that it does not believe that the appreciation in the stock’s price is supported by the company’s fundamentals. The firm kept a Sell rating on the shares ahead of the company’s much-anticipated unveiling of its “mass market” Model 3 vehicle.

WHAT’S NEW: Commenting on Tesla’s recent share strength, UBS analyst Colin Langan attributes the rally primarily to the company’s decision to draw down its $1B asset backed loan. By taking this action, the company has prevented investors from worrying about its liquidity for now, Langan stated. However, the company’s Model 3 vehicle, due to be released this week, is facing significant headwinds, the analyst thinks. Specifically, a number of other auto makers will launch similar electric cars in 2017 and the Model 3 could cannibalize Tesla’s existing cars if it’s “too exciting,” according to Langan. Moreover, although the Model 3 will be significantly cheaper than Tesla’s Model S, it will still be meaningfully more expensive than conventional vehicles, even in 2025, the analyst estimated. As a result, Tesla will probably not be able to profitably sell the Model 3, he predicted. Additionally, Tesla’s stock plummeted 14% in the month after it launched its Model X vehicle, creating “a cautious precedent” for the automaker’s shares in the wake of the Model 3 launch, Langan believes. Meanwhile, Tesla will have to raise more capital by the end of this year, Langan predicted. Finally, the sales of Tesla’s energy storage devices will come in well below expectations, as the company and the market are improperly forecasting demand for the product, Langan stated. He kept a $140 price target and Sell rating on the shares.

WHAT’S NOTABLE: If the Model 3 vehicle is as popular as Tesla expects it to be, government subsidies for the vehicle could eventually drop significantly, The Wall Street Journal reported yesterday. After 200,000 Model 3 vehicles are sold in the U.S., buyers of the vehicle will only receive 50% of the tax credit for two quarters and 25% for two quarters after that, the newspaper explained. Eventually the subsidies will be phased out altogether, it added.