Tesla’s stock is declining following a downgrade by UBS Group, which stated that the shares have risen “too much, too soon” before any tangible benefits from the company’s focus on artificial intelligence materialize.
Tesla, primarily known for its electric vehicles, has seen its stock value tied more to its technological pursuits, such as AI advancements, Optimus robots, the Dojo supercomputer, and a potential fleet of self-driving robotaxis. Ark Investment Management has projected Tesla’s share value could reach $2,600 by 2029, attributing 90% of its worth to robotaxis.
These optimistic forecasts depend heavily on investor confidence that Tesla and CEO Elon Musk, who has sparked some controversy with his AI startup xAI, can achieve these ambitious goals. Musk has indicated he wants at least 25% control over Tesla to proceed with AI initiatives. Currently, he owns approximately 13% of Tesla’s shares, but a pending court case over his 2018 compensation package could increase his ownership to 20.5%.
“While Tesla is making significant investments in AI and advancements are being made, the high costs, potential slow pace of improvements, and long-term payoff are factors to consider,” UBS analysts led by Joseph Spak wrote in a note to investors on Thursday. “Should market enthusiasm for AI wane, it could affect Tesla’s stock value significantly.”
On Thursday, UBS downgraded its rating on Tesla from neutral to sell but raised its price target from $147 to $197 per share. UBS indicated that it would need evidence of a substantially larger opportunity than currently presented to justify a buy rating.
As a result, Tesla’s stock dropped more than 2% in pre-market trading on Friday. The stock had already fallen over 8% on Thursday, ending an 11-day streak of gains, after news that Tesla delayed the planned unveiling of its robotaxi by two months to October. The decision, reported by Bloomberg News, was made to allow teams working on the project more time to develop additional prototypes.
In the past month, Tesla’s stock has surged more than 33%, recovering much of the earlier losses this year due to disappointing first-quarter sales and widespread layoffs.