Tesla’s stock is experiencing a decline following a downgrade by UBS Group, which argued that the shares have surged “too much, too soon” without substantial returns yet from the company’s focus on artificial intelligence.
Although Tesla is primarily known for its electric vehicles, analysts have given significant weight to its AI ventures and other tech projects, such as its Optimus robots, Dojo supercomputer, and the prospective rollout of self-driving robotaxis. Ark Investment Management has predicted that Tesla could be worth $2,600 per share by 2029, attributing 90% of this valuation to robotaxis.
Such optimistic forecasts depend on investors’ continued confidence that Tesla and its CEO Elon Musk, despite some controversies surrounding his new AI startup xAI, will achieve their goals. Musk has stated his intention to control at least 25% of Tesla’s shares before advancing further with AI plans. He currently owns about 13% of the company, though a legal battle over his 2018 compensation package could increase his ownership to 20.5%.
“While TSLA is investing heavily in AI and technological progress is being made, the investment is expensive, the pace of improvement may slow, and the payoff is distant,” wrote UBS analysts led by Joseph Spak in a note to investors on Thursday. “If market enthusiasm for AI wanes, this could negatively affect TSLA’s valuation.”
UBS downgraded Tesla’s rating from neutral to sell on Thursday but raised its price target to $197 per share from $147. UBS stated that a significantly larger opportunity than currently presented would be necessary to justify a buy rating for the stock.
Tesla’s stock fell more than 2% in pre-market trading on Friday, following an over 8% drop on Thursday. This ended Tesla’s 11-day streak of gains after it was reported that the company is delaying the launch of Musk’s promised robotaxi by two months, now slated for October. According to Bloomberg News, the postponement is intended to provide teams more time to develop additional prototypes.
Despite challenges earlier this year, including poor first-quarter sales and worldwide layoffs, Tesla’s stock has gained more than 33% over the past month, recovering much of its previous losses.