Tesla Downgraded To 'Sell' By UBS Over Concerns That Stock Has Rallied 'Too Much, Too Soon' On AI Enthusiasm

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.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote