UBS downgrades Tesla from Neutral to Sell

Tesla’s stock continued to fall in the premarket on Friday, falling over 3% after UBS analysts downgraded the company from Neutral to Sell. Tesla following the downgrade of its stock by UBS Group AG, expressed worries that the electric vehicle manufacturer’s stock had increased “too much, too soon” due to hype around its AI initiatives.

The stock plummeted 8.4% on Thursday, capping an 11-day gaining streak, following news that Tesla had opted to reschedule the planned Robotaxi announcement from next month to October to give project teams more time to build more prototypes. UBS analysts increased their 12-month target price for the company from $147 to $197, indicating an 18% decrease from the closing price on Thursday. 

Tesla is significantly more expensive than the other mega-cap technology companies, ranking in the top 10 most expensive stocks in the S&P 500 Index. The stock had risen 44% through Wednesday in the most recent surge, driven by speculation that the company’s billionaire founder, Elon Musk, can turn it into a dominant force in AI. 

Elon Musk, the CEO of Tesla, long promised investors a Robotaxi. He predicted that Tesla vehicles would reach “full autonomy” in three years in 2015. By the end of the next year, Musk said in 2016 that Tesla would dispatch one of its vehicles on a cross-country voyage without human assistance. 

The analysts noted that the company trades at more than 80 times one-year forward expected earnings, and they concluded that the downgrade was justified “given the lack of visibility and the risk that growth opportunities materialize on a longer time horizon (or not at all)”. 

UBS’s action is in line with growing apprehensions regarding the valuations of AI-related companies, as demonstrated by an overnight selloff of Big Tech shares. Tesla is also negatively impacted by the dim prospects of electric vehicles.  Investor enthusiasm for Tesla’s range of activities has increased recently, and UBS analysts said that “one would need to see an even larger opportunity to justify a buy rating.”