Tesla shares tumble as Elon Musk delays robotaxi launch amid rising doubts over autopilot

Tesla Inc.’s stock has been downgraded by UBS Group AG due to concerns that the electric carmaker’s shares have surged “too much, too soon” based on optimism about its artificial intelligence plans.

UBS analysts, including Joseph Spak, lowered their rating on Tesla’s stock from neutral to sell, indicating that if the current market enthusiasm for AI wanes, Tesla’s valuation could be negatively impacted, as reported by Bloomberg

The analysts explained that the downgrade was justified because of the uncertainty and potential delays in realizing growth opportunities tied to AI.

They pointed out that Tesla’s stock is currently trading at more than 80 times the one-year forward earnings estimate, a valuation they find risky given the lack of clear visibility on the company’s AI prospects.

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This move by UBS reflects broader concerns about the high valuations of companies linked to AI technology. Recently, there has been a selloff in Big Tech shares, highlighting investor unease. Tesla, in particular, faces a challenging outlook in the electric vehicle market due to declining sales and profits.

Before a significant drop of 8.4 per cent on Thursday, Tesla’s shares had climbed 44% over an 11-day winning streak. This surge was driven by investor optimism that CEO Elon Musk could transform the company into an AI leader.

However, the UBS analysts noted that the premium investors are placing on Tesla’s various initiatives has grown due to AI excitement. They argued that to justify a buy rating, investors would need to see an even larger opportunity than currently anticipated.

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Tesla is one of the ten most expensive stocks in the S&P 500 Index, surpassing other major tech companies in terms of valuation. The recent increase in Tesla’s share price has been supported by significant revenue growth.

However, sluggish sales and increased competition have created a more subdued outlook for the company. Additionally, Tesla recently postponed the unveiling of its highly anticipated self-driving robotaxi plan from August to October, which has also shaken investor confidence.

UBS analysts raised their 12-month price target for Tesla’s stock from $147 to $197, which still implies an 18 per cent decline from Thursday’s closing price. They used a higher price-to-earnings multiple to arrive at this new target, reflecting their cautious outlook on the stock’s future performance.