Tesla’s stock is dropping after UBS Group downgraded its rating, citing that the shares have increased “too much, too soon” without a substantial payoff from the company’s focus on artificial intelligence.
While Tesla is mainly known for its electric vehicles, analysts have placed significant value on its AI initiatives and other technological advancements, such as Optimus robots, the Dojo supercomputer, and a potential fleet of self-driving robotaxis. For instance, Ark Investment Management projects that Tesla could be worth $2,600 per share by 2029, with 90% of its value stemming from robotaxis.
These optimistic forecasts depend on investors’ confidence that Tesla and its CEO, Elon Musk, can achieve their ambitious goals. Musk, who has faced controversy over the launch of his AI startup xAI, has stated he wants at least 25% control of Tesla to advance its AI plans. Presently, he owns around 13% of Tesla’s shares. The company is also attempting to secure his 2018 compensation package through the courts, which could increase his ownership to 20.5%.
“While Tesla is heavily investing in AI and is making technological progress, the investment is costly, the pace of improvement may slow, and the payoff is long-term,” UBS analysts led by Joseph Spak stated in a note to investors on Thursday. “If market enthusiasm for AI diminishes, it could affect Tesla’s multiple.”
UBS downgraded Tesla’s rating from neutral to sell and raised its price target to $197 per share from $147 per share. UBS indicated that a greater opportunity than currently perceived would be needed to justify a buy rating.
Tesla’s stock fell more than 2% in pre-market trading on Friday, following an 8% drop on Thursday, ending the company’s 11-day streak of gains. This decline came after reports that Tesla is delaying the unveiling of Musk’s promised robotaxi by two months to October to allow teams more time to build additional prototypes.
Despite its recent decline, Tesla’s stock has gained over 33% in the past month, offsetting many of the losses it suffered earlier in the year due to poor first-quarter sales and widespread layoffs.