UBS Downgrades Tesla Amid Concerns Over Core Business and AI Hype
- UBS has downgraded Tesla's stock due to concerns that the current share price is heavily influenced by hype surrounding artificial intelligence.
- The investment bank warns that enthusiasm for AI could diminish, negatively affecting Tesla's stock value.
- This decision reflects growing skepticism about the sustainability of valuations based on high expectations.
UBS analysts have downgraded Tesla's stock rating to "sell," citing a decline in the company's core automotive business and potential waning enthusiasm for artificial intelligence (AI) as key factors. Despite raising the price target by $50 to $197 per share, this new target still suggests an 18% downside from the stock's recent close of $241.03. Analysts, led by Joseph Spak, expressed concerns that while Tesla is investing heavily in AI, the costs associated with these investments are high, and the pace of improvement may slow, leading to a long-term payoff that could be uncertain. The UBS report highlights that Tesla's core auto business contributes only $57 to its stock price, with the energy sector adding another $18 and the ambitious robotaxi project contributing an additional $18. Collectively, these segments account for just $93 of the stock's current valuation, indicating that a significant 61% of the stock's value is tied to unidentifiable future growth opportunities. This reliance on speculative growth raises red flags for investors. The analysts caution that if market enthusiasm for AI diminishes, it could negatively impact Tesla's price-to-earnings multiple. They argue that the substantial unidentifiable premium in Tesla's stock is too significant given the current lack of visibility regarding these growth opportunities. As a result, UBS has adopted a cautious stance, recommending a sell rating on Tesla shares.