Tesla Shares Drop After UBS Downgrade on Concerns Over Rally

(Bloomberg) — Tesla Inc. (TSLA) fell after the stock was downgraded by UBS Group AG, which cited concerns that the electric carmaker’s shares have risen “too much, too soon” on optimism over its artificial intelligence plans.

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Tesla was 1.6% lower in US premarket trading as of 4:30 a.m. in New York. The stock sank 8.4% Thursday, snapping an 11-day winning streak, as Tesla was said to postpone its planned robotaxi unveiling to October from next month to allow teams working on the project more time to build additional prototypes.

The electric-vehicle maker is among the 10 most expensive stocks in the S&P 500 (^GSPC) Index, far surpassing the rest of the megacap technology cohort. Before Thursday’s slump, its shares had soared 44% through Wednesday in their latest rally on bets that billionaire founder Elon Musk can transform the company into an AI powerhouse.

“If market enthusiasm for AI diminishes, this may impact Tesla’s multiple,” UBS analysts including Joseph Spak wrote in a note, cutting their rating to sell from neutral.

FILE - Tesla and SpaceX chief executive officer Elon Musk listens to a question as he speaks at the SATELLITE Conference and Exhibition in Washington, March 9, 2020. A Delaware judge heard arguments Monday, July 8, 2024, over a massive and unprecedented fee request by lawyers who argued that a massive and unprecedented pay package for Tesla CEO Musk was illegal and should be voided. (AP Photo/Susan Walsh, File) — Tesla CEO Elon Musk. (AP Photo/Susan Walsh) (ASSOCIATED PRESS)

The downgrade is warranted “given the lack of visibility and the risk that growth opportunities materialize on a longer time horizon (or not at all),” the analysts wrote, noting the stock trades at more than 80 times one-year forward estimated earnings.

UBS’s move mirrors mounting concerns over valuations of companies tied to AI technology, evidenced by a selloff overnight of Big Tech shares. Tesla is also facing a subdued outlook for electric cars, weighing on its sales and earnings.

The premium that investors ascribe to Tesla for its gamut of initiatives has grown recently on AI enthusiasm and “one would need to see an even larger opportunity to justify a buy rating,” the UBS analysts wrote.

UBS analysts raised their 12-month target on the stock from to $197 from $147, implying an 18% decline from Thursday’s close. They employed a higher price-to-earnings multiple than before to arrive at the new target.

—With assistance from Joel Leon.