Tesla Stock Tumbles as UBS Downgrades to 'Sell' Amid AI Hype Concerns

UBS is downgrading Tesla because the stock has risen 'too much, too soon' thanks to its AI ambitions

Tesla stock is falling after the stock was downgraded by UBS group, which said the shares have risen "too much, too soon," before any real payoff from the company's focus on artificial intelligence. Although Tesla is primarily an electric vehicle company, analysts have put much more value on its pursuit of AI and other technology, such as its Optimus robots, Dojo supercomputer, and a potential fleet of self-driving robotaxis. Ark Investment Management, for example, has forecast where Tesla is worth $2,600 per share by 2029, with 90% of its value coming from robotaxis. But such forecasts rely on investors maintaining their confidence that Tesla -- and CEO Elon Musk, who has faced some controversy over his decision to launch AI startup xAI -- will be able to achieve its goals. Musk has said he wants at least 25% control of Tesla before moving forward with AI plans. He currently owns around 13% of the company's shares, although Tesla is fighting to get his 2018 compensation package through the courts, which could increase his ownership to 20.5%. "While TSLA is investing heavily in AI and the tech is making progress, investment is costly, pace of improvement may slow and the payoff is long dated," UBS analysts led by Joseph Spak wrote in a Thursday note to investors. "If market enthusiasm for AI diminishes, this may impact TSLA's multiple." UBS on Thursday downgraded its position on Tesla from neutral to sell. It also raised its price target to $197 per share from $147 per share. UBS said it would need to see "an even larger opportunity" than what has been already shown to justify rating the stock a buy. Tesla stock fell more than 2% in pre-market trading Friday. The stock had already fell by more than 8% on Thursday -- putting an end to Tesla's 11-day streak of gains -- after it was reported that Tesla is pushing back Musk's promised robotaxi unveiling by two months, to October. Bloomberg News reported that the decision was made to give teams working on the project time to build additional prototypes. Over the past month, Tesla stock has gained more than 33%, reversing much of the losses it took earlier in the year thanks to poor first-quarter sales and mass layoffs worldwide.

Tesla's AI dreams may 'materialize on a longer time horizon (or not at all),' UBS warns

UBS downgraded Tesla stock from a 'Neutral' to a 'Sell' rating on Friday, warning that expectations for the EV giant's core automotive business are deteriorating and its AI investments may not pay off. "While TSLA is investing heavily in AI and the tech is making progress, investment is costly, pace of improvement may slow and the payoff is long dated," analyst Joseph Spak wrote in a note to clients. "Given the lack of visibility and the risk that growth opportunities materialize on a longer time horizon (or not at all)...[we] downgrade to Sell." Spak also said he believes Tesla's valuation may have been driven too high, too fast by overly optimistic AI-loving investors. Despite lower expectations for growth in its EV businesses, Tesla is trading at over 85 times its forward earnings -- compared to around 36 times forward earnings for the wider tech sector. Tesla has struggled with EV demand issues this year amid rising competition, particularly in China, leading its share prices to lag the wider market through the first four months of the year. However, AI opportunities in robotics and self-driving cars, as well as better-than-expected second quarter delivery figures helped spark a huge rally in Tesla stock this summer. Shares have surged roughly 70% from their April 19 low to over $249 Friday. Bullish analysts have long pointed to the potential for trillions in revenue from Tesla's Robotaxi business as a reason to be optimistic about the company's future. ARK Invest's Cathie Wood even argues Tesla shares will surge to $5,000 by 2030 as the company takes advantage of what will be, in her view, an $8 to $10 trillion self-driving car market in under six years. Investor enthusiasm took a big hit this week, however, after Bloomberg reported that Tesla is moving its highly anticipated "Robotaxi Day" -- where it promised to unveil robotaxi prototypes -- from August to October. Tesla stock sank more than 8% on Thursday, but recovered some of those losses Friday. Still, Tesla bulls certainly weren't abandoning Elon Musk and company on Friday. Wedbush tech Dan Ives argued that Tesla's recent stock price drop after the Robotaxi Day event date change was simply the result of a "knee jerk reaction" from investors who don't recognize that a slight delay won't change the long-term potential of Tesla's self-driving car fleet. "We await to hear from Musk but our bullish AI and robotics thesis on Tesla is unchanged if the timing moves from August to October although clearly this is not ideal," he wrote, maintaining his "Outperform" rating and $300 price target.

Tesla Downgraded To 'Sell' By UBS Over Concerns That Stock Has Rallied 'Too Much, Too Soon' On AI Enthusiasm - Tesla (NASDAQ:TSLA)

Tesla Inc. TSLA has been downgraded by UBS Group AG due to concerns over the company's artificial intelligence plans. The stock was downgraded to "sell" from "neutral." What Happened: UBS analysts, including Joseph Spak, expressed apprehension that Tesla's shares have surged too rapidly on the back of AI optimism. A potential decline in AI enthusiasm could impact Tesla's valuation, Bloomberg reported on Friday. The analysts cited the lack of visibility and the risk that growth opportunities may not materialize in the near future. They also pointed out that Tesla's stock is currently trading at over 80 times the one-year forward earnings estimate. "One would need to see an even larger opportunity to justify a buy rating," the UBS analysts wrote. This downgrade comes at a time when Tesla is also facing a subdued outlook on electric cars, with declining sales and profit. Before the 8.4% drop on Thursday, Tesla's shares had surged 33% during the month, driven by optimism that CEO Elon Musk could transform the company into an AI powerhouse. This rally, analysts note, is "too much, too soon." Despite this, UBS analysts raised their 12-month target price for Tesla from $147 to $197, indicating an 18% downside from Thursday's close. See Also: Nvidia To Rally Over 40%? Here Are 10 Top Analyst Forecasts For Tuesday Why It Matters: The downgrade comes amid a series of events that have impacted Tesla's AI and robotaxi plans. The company announced a two-month delay in its robotaxi unveiling, leading to a slide in its stock. This delay was intended to allow teams more time to develop additional vehicle prototypes. The delay sparked a heated debate between analysts. Ross Gerber, CEO of Gerber Kawasaki Wealth, criticized Tesla for its "broken promises," while Dan Ives of Wedbush Securities argued that a two-month delay does not significantly impact the bullish AI thesis. Additionally, Gary Black, CEO of Aegon Asset Management, highlighted that Tesla's robotaxi service must match Waymo's performance to gain approval. Black emphasized that Tesla needs to achieve 1 intervention per 17,000 miles to be competitive. Price Action: Tesla Inc. closed at $241.03 on Thursday, down 8.44% for the day. In pre-market trading, the stock is trading lower by 1.44%. Year to date, the EV maker's stock is down 2.97%, according to data from Benzinga Pro. Read Next: Cathie Wood Says Nvidia Performance Exceptional But Forecasts 'Short-Term Indigestion' For Company's Business As Customers Reassess AI Strategies Image Via Shutterstock This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote Market News and Data brought to you by Benzinga APIs

UBS downgrades Tesla to sell rating, warns that AI fervor could wane

The premium attached to Tesla's stock is increasingly difficult to justify as the company's core auto business deteriorates while enthusiasm over the effect of artificial intelligence on its future growth could wane, according to UBS. UBS analysts led by Joseph Spak downgraded Tesla to sell, though they increased their price target by $50 to $197 per share. The higher target still implies 18% downside from Thursday's close of $241.03 per share. "While TSLA is investing heavily in AI and the tech is making progress, investment is costly, pace of improvement may slow and the payoff is long dated," Spak and his team told clients in a Friday note. "If market enthusiasm for AI diminishes, this may impact TSLA's [price-to-earnings] multiple." UBS, after running the numbers, found that Tesla's core auto business represents just $57 of the company's stock price while its energy business is worth $18 per share and its robo-taxi ambitions could equal $18 per share. But taken together, this is only $93 of identifiable value in the current share price, which means future option value represents 61% of today's stock, the UBS analysts said. "We believe that unidentifiable premium is too significant," Spak and his colleagues said. "Given the lack of visibility and the risk that these growth opportunities materialize on a longer time horizon (or don't materialize at all), we rate the stock Sell."

Tesla shares drop after UBS downgrade on concerns over rally

Tesla was 1.6 per cent lower in U.S. premarket trading as of 4:30 a.m. in New York. The stock sank 8.4 per cent Thursday, snapping an 11-day winning streak, as Tesla was said to postpone its planned robotaxi unveiling to October from next month to allow teams working on the project more time to build additional prototypes. The electric-vehicle maker is among the 10 most expensive stocks in the S&P 500 Index, far surpassing the rest of the megacap technology cohort. Before Thursday's slump, its shares had soared 44 per cent through Wednesday in their latest rally on bets that billionaire founder Elon Musk can transform the company into an AI powerhouse. "If market enthusiasm for AI diminishes, this may impact Tesla's multiple," UBS analysts including Joseph Spak wrote in a note, cutting their rating to sell from neutral. The downgrade is warranted "given the lack of visibility and the risk that growth opportunities materialize on a longer time horizon (or not at all)," the analysts wrote, noting the stock trades at more than 80 times one-year forward estimated earnings. UBS's move mirrors mounting concerns over valuations of companies tied to AI technology, evidenced by a selloff overnight of Big Tech shares. Tesla is also facing a subdued outlook for electric cars, weighing on its sales and earnings. The premium that investors ascribe to Tesla for its gamut of initiatives has grown recently on AI enthusiasm and "one would need to see an even larger opportunity to justify a buy rating," the UBS analysts wrote. UBS analysts raised their 12-month target on the stock from to US$197 from $147, implying an 18 per cent decline from Thursday's close. They employed a higher price-to-earnings multiple than before to arrive at the new target.

Tesla is downgraded by UBS due to valuation concerns

Tesla (NASDAQ:TSLA) fell in early trading on Friday after UBS downgraded the electric vehicle giant to a Sell rating after having it slotted at Neutral. UBS analyst Joseph Spak and his team noted that the premium Tesla (TSLA) trades at is due to its future growth initiatives may be reeled back. "While TSLA is investing heavily in AI and the tech is making progress, investment is costly, the pace of improvement may slow, and the payoff is long-dated," he warned. "If market enthusiasm for AI diminishes, this may impact TSLA's multiple," added Spak. After crunching the numbers, the UBS analysts think the valuation of the core auto business is between $60 and $90 per share, the valuation of the Tesla (TSLA) energy business is ~$57 per share, and the robotaxi business is estimated to have a value of around $18 per share. That large gap from TSLA's current trading price led to the new bear rating on the stock. UBS assigned a price target of $197 based on a 55X price-to-earnings multiple. Tesla (TSLA) was down 1.99% in premarket trading after shedding 8.44% on Thursday. The EV stock has gained in 11 straight trading sessions before the downswing. Short interest on TSLA stands at only 3.30% of the total float. Looking ahead, Tesla (TSLA) is lined up to report Q2 earnings on July 23. Analysts expect revenue of $24.2 billion and EPS of $0.61 to be reported. The Austin-based company has missed revenue and EPS estimates for the last three quarters.

Tesla Sell Off Continues As Analysts Warn AI Hype Has Gone Too Far

Tesla shares fell during premarket trading Friday after UBS downgraded the electric carmaker over fears AI hype had inflated its stock value, the latest blow for the company after a nearly two-week rally unraveled yesterday following reports the anticipated unveiling of Elon Musk's robotaxi service would be postponed. Friday's slump comes off the back of a precipitous drop of more than 8% by market close on Thursday. The fall, one of Tesla's worst single-day drops in months, pulled the brakes on the carmaker's longest streak of consecutive gains since last May, an 11-day rally that added nearly $260 billion to its market capitalization. The reversal in fortunes followed a Bloomberg report that the carmaker would be delaying the anticipated unveiling of its robotaxi program by roughly two months to allow teams to build more prototypes. The project, which Tesla CEO Musk has hyped as a central element to the company's future for years, will now be revealed in October, rather than early August. The AI boom has propelled the stock value of many companies skywards in recent months. The UBS analysts join an increasing chorus warning that the sector may be getting too hot and its rapid growth unsustainable. Some suggest the AI bubble may soon deflate or even pop. Big Tech stocks for giants like Apple, Microsoft, Alphabet, Amazon and Meta have all invested heavily into AI and made the technology key for their future plans, with many partnering with, acquiring or investing heavily in smaller players and startups like ChatGPT maker OpenAI, Perplexity, Claude maker Anthropic and Inflection for AI talent and products. Growing fears have sparked a selloff among Big Tech stocks and the Magnificent Seven -- Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla -- collectively lost nearly $600 billion in market cap Thursday, the group's second-biggest one-day loss on record. Musk is the richest person in the world with an estimated net worth of $245.7 billion. Much of Musk's fortune is tied to the companies he cofounded and leads, notably carmaker Tesla, and his fortune fell by around $11 billion, 5%, on Thursday after the firm's stock price fell. Musk also cofounded and leads rocket firm SpaceX, tunneling company The Boring Co., brain implant company Neuralink and new AI startup xAI, which Tesla investors have sued him over. He also owns social media platform X, which he controversially acquired in 2022.

UBS cuts Tesla stock rating to sell, raises target by $50 By Investing.com

On Friday, UBS downgraded shares of Tesla Inc. (NASDAQ:TSLA) from Neutral to Sell, while simultaneously raising the price target to $197 from $147. The revision comes amid a reassessment of the electric vehicle and energy company's valuation, considering the broader market's anticipation of its growth prospects, particularly in artificial intelligence (AI). The UBS analyst acknowledged Tesla's diversification beyond automotive manufacturing, highlighting positive developments in its Energy and Full Self-Driving (FSD) segments as factors providing additional support. Despite these advancements, expectations for Tesla's core auto business are on the decline. The analyst pointed out that Tesla's valuation has traditionally included a premium for its potential growth in various initiatives. However, the challenge lies in accurately valuing such "optionality." Tesla's premium has recently expanded, driven by heightened enthusiasm around AI. After evaluating Tesla's different business segments, UBS concluded that the current stock price leaves an implied value of over $500 billion for future growth initiatives. To justify the current stock levels, a future value of $1 trillion would be needed within a five-year horizon, and even more to support a Buy rating. The UBS analyst expressed concerns over the costly investments in AI technology, the unpredictable pace of improvement, and the long-term nature of potential returns. The firm cautioned that if the market's excitement for AI wanes, Tesla's stock multiple could be adversely affected. With the current stock trading at 86 times next twelve months (NTM) P/E, the lack of visibility and the potential for growth opportunities to materialize later than expected -- or not at all -- warranted the downgrade to Sell. In other recent news, Tesla has diversified its Model 3 lineup with a new rear-wheel drive long-range variant priced at $42,490. This addition is part of the company's strategy to offer a more affordable long-range option to consumers. In another development, Tesla's anticipated Robotaxi service debut has been postponed from August to October. Furthermore, Tesla has adjusted the prices of its Model 3 vehicles across several European countries in response to tariffs imposed by the European Commission on China-made electric vehicles. On the investment front, Morgan Stanley (NYSE:MS) has revised the valuation of Tesla's energy storage business to $50 per share, citing an expected global surge in electricity demand due to the rise of artificial intelligence technologies. This marks a significant increase from the previous estimate of $36 per share. Investment firm Oppenheimer has projected that Tesla's energy storage sales could surpass $3 billion in the current quarter. Meanwhile, ARK Investment Management's CEO, Cathie Wood, has reassured investors about the firm's flagship fund strategy, despite recent underperformance. Wood expressed confidence in the fund's potential turnaround with a fall in interest rates. Among the fund's top investments as of May 31 were Tesla, Coinbase (NASDAQ:COIN), and Roku (NASDAQ:ROKU). InvestingPro Insights Amid UBS's downgrade of Tesla Inc. (NASDAQ:TSLA) and the market's focus on the company's AI prospects, InvestingPro's real-time data and analytics provide additional context. Tesla's market capitalization remains robust at $768.69 billion, reflecting its substantial presence in the industry. The company's P/E ratio, a key metric for investors, stands at 56.61, indicating a premium valuation that aligns with UBS's assessment of Tesla's growth expectations, particularly in AI and other initiatives. From an operational standpoint, Tesla's gross profit margin over the last twelve months as of Q1 2024 is 17.78%, which underscores the challenges mentioned by UBS regarding the company's core auto business. However, Tesla's strong performance is evident in its 1-month and 3-month price total returns, boasting 35.95% and 40.91%, respectively. These returns highlight the market's recent positive reception to Tesla's prospects, despite the broader concerns. InvestingPro Tips reveal that Tesla holds more cash than debt on its balance sheet and that analysts have revised their earnings upwards for the upcoming period, suggesting confidence in the company's financial health and future performance. Additionally, there are 19 more tips available on InvestingPro that can provide deeper insights into Tesla's financial and market position. For those seeking to leverage these insights, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.