Tesla’s stock is dropping following a downgrade by UBS Group, which stated that the shares have surged “too much, too soon” without any substantial results from the company’s focus on artificial intelligence.
Though primarily an electric vehicle manufacturer, analysts have assigned significant value to Tesla’s pursuits in AI and other technologies such as its Optimus robots, Dojo supercomputer, and the potential fleet of self-driving robotaxis. For instance, Ark Investment Management has projected Tesla’s worth could reach $2,600 per share by 2029, with 90% of that value attributed to its robotaxi business.
Such predictions depend on investor confidence that Tesla, and its CEO Elon Musk, who has faced some controversy over launching the AI startup xAI, will achieve their ambitions. Musk has expressed a desire to hold at least 25% control of Tesla before advancing AI plans. He currently owns about 13% of the company’s shares, although Tesla is contesting his 2018 compensation package in court, which could increase his stake to 20.5%.
UBS analysts, led by Joseph Spak, discussed the situation in a note to investors on Thursday, suggesting that while Tesla is heavily investing in AI, the costs are high, the improvement pace might slow, and the payoff is distant. They pointed out that if market enthusiasm for AI wanes, it could negatively impact Tesla’s stock valuation.
UBS downgraded its stance on Tesla from neutral to sell, despite raising its price target for Tesla shares from $147 to $197. UBS mentioned it would require a more significant opportunity than currently presented to justify rating the stock as a buy.
Tesla’s stock declined more than 2% in pre-market trading on Friday, following an over 8% drop on Thursday. This drop ended Tesla’s 11-day streak of gains after it was reported that Tesla is delaying Musk’s promised robotaxi unveiling by two months to October, as per Bloomberg News. This delay is intended to provide teams additional time to develop more prototypes.
Despite these recent setbacks, Tesla’s stock has risen over 33% in the past month, recovering much of the losses earlier in the year due to poor first-quarter sales and global layoffs.