Tesla’s stock is seeing a decline following a downgrade from UBS Group, which cited concerns over the shares increasing “too much, too soon” without significant yield from the company’s focus on artificial intelligence.
Tesla, known primarily as an electric vehicle company, has its valuation significantly tied to its AI pursuits and technology ventures, including Optimus robots, the Dojo supercomputer, and a potential self-driving robotaxi fleet. Ark Investment Management has projected Tesla’s worth at $2,600 per share by 2029, with 90% of its value attributed to robotaxis.
These optimistic forecasts hinge on investors’ confidence in Tesla and its CEO, Elon Musk, who has faced criticism over his AI startup, xAI. Musk aims to control at least 25% of Tesla before advancing AI plans but currently owns about 13% of shares. Tesla is also engaged in a legal battle over Musk’s 2018 compensation package, which could boost his ownership to 20.5%.
UBS analysts, led by Joseph Spak, expressed caution in a note to investors, stating that while Tesla is making progress in AI, the investment required is substantial, the rate of improvement could slow, and the payoff is distant. They warned that diminishing enthusiasm for AI could negatively affect Tesla’s market valuation.
As a result, UBS downgraded Tesla from neutral to sell and adjusted its price target to $197 per share from $147 per share. UBS indicated that a larger opportunity than currently evident would be necessary to justify a buy rating.
Tesla’s stock dropped over 2% in pre-market trading on Friday, having already declined more than 8% on Thursday. This downturn came after reports that the unveiling of Musk’s promised robotaxi had been delayed by two months to October, allowing for the development of more prototypes.
Despite these setbacks, Tesla’s stock has increased by more than 33% over the past month, recovering from earlier losses in the year from poor first-quarter sales and global layoffs.