The Arafura Rare Earths Ltd (ASX: ARU) share price is under pressure on Tuesday.
At the time of writing, the rare earths developer's shares are down 5% to 53.5 cents.
This means the Arafura share price has now dropped almost 24% since hitting a 52-week high less than a month ago.
This has been driven by concerns over comments out of electric vehicle giant Tesla, which revealed plans to phase out rare earths from future vehicles.
And while this decline is disappointing, it could prove to be a great buying opportunity for investors.
Broker tips major upside for Arafura share price
According to a recent note out of Bell Potter, its analysts have described the Tesla-induced selloff as "a knee jerk reaction."
As a result, it recently upgraded its shares to a speculative buy rating with a 72 cents price target. Based on the current Arafura share price, this implies potential upside of almost 35% over the next 12 months.
The broker commented:
The recent 16% sell-off in ARU in reaction to the Tesla Investor Day presentation was a knee jerk reaction and in our view, was overdone. We maintain our valuation for ARU of $0.72/share and return to a Speculative BUY recommendation.
Bell Potter continues to believe that demand for rare earths will grow materially and support strong prices even without Tesla in the equation. It explains:
The result reduced our NdPr demand estimates by 10ktpa, which would still require the addition of 4.3x of Nolans capacity over the next 7 years. Given the scale, grade and advanced nature of the Nolans project we would still view this as a difficult task to achieve thus concluding price support for NdPr should be maintained.
