Tesla stock extends selloff as UBS downgrades to Sell on valuation concerns

Shares in Tesla (NASDAQ:TSLA) fell more than 8% on Thursday after Bloomberg reported that the electric vehicle (EV) giant is postponing the unveiling of its Robotaxi by two months.

Initially scheduled for an August 8 debut, the Robotaxi launch has been rescheduled to October. Citing sources familiar with the matter, Bloomberg said that the delay is intended to provide the development teams additional time to complete the prototypes.

Tesla stock extended the declines in Friday’s premarket, sliding over 2.6% as analysts at UBS downgraded the stock from Neutral to Sell.

“TSLA is more than just an auto company, and there are some positive developments that add additional support. This is increasingly important as expectations for the core Auto business deteriorate,” UBS analysts said in a note.

“TSLA has always had a premium attached to it for other, future, growth initiatives. Properly valuing that optionality is difficult. This premium has widened of late, we believe, on AI enthusiasm,” they added.

After evaluating Tesla's various businesses, analysts estimate a remaining value of over $500 billion attributed to future growth at current levels. Even with a five-year time horizon, this implies a future value of $1 trillion, which merely justifies current stock levels. To warrant a Buy rating, “one would need to see an even larger opportunity,” UBS noted.

“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. If market enthusiasm for AI diminishes, this may impact TSLA's multiple,” its analysts added.

Tesla’s stock drop on Thursday came after an 11-day rally fueled by a stronger-than-expected second-quarter deliveries report, which had erased the stock’s year-to-date losses. However, with the recent drop, the shares are again in negative territory for 2024.

The year has been challenging for Tesla, marked by widespread layoffs and declining sales, partly due to an aging lineup of EVs and intensified competition in China.