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

“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.