Tesla shares fell by more than 8% during premarket trading on Wednesday after the company reported lackluster second-quarter earnings. This decline comes on the heels of a 2% drop in the stock price on Tuesday, following better-than-expected sales but lower profit margins. The electric carmaker has been struggling to maintain profitability, with profits dropping 45% in the second quarter due to the need to cut prices in order to boost demand in the face of increased competition and sluggish sales in key markets like China.
Investors are growing increasingly concerned about Tesla’s heavy investment in AI and other long-term initiatives, as the company’s core auto business continues to struggle. CEO Elon Musk has repeatedly emphasized the importance of AI in Tesla’s future. The company has been pouring resources into AI technology as well as related hardware like chips and robotics, in line with Musk’s vision for the company. However, investors worry that Tesla’s stock price has been inflated by speculative bets on the future success of these ventures, creating a potential bubble that could burst.
Swiss bank UBS recently downgraded Tesla from neutral to sell, citing concerns about the company being overvalued based on its AI initiatives rather than its core auto business. UBS analysts see a 20% downside risk to Tesla stock due to the high valuation of these projects, which they believe are difficult to value and may not pay off in the near future. Musk himself has acknowledged the importance of autonomy in Tesla’s future, but uncertainties remain about the timeline and probability of success for projects like the robotaxi initiative, which has faced delays and regulatory hurdles.
Tesla is set to unveil robotaxi prototypes on October 10th, a move that analysts believe will kickstart the company’s AI story and potentially drive further growth in the stock price. Wedbush analysts estimate that Tesla’s AI initiatives could be worth $1 trillion in the coming years. Musk has committed to investing around $10 billion in training AI systems by 2024, emphasizing the need for companies to invest heavily in AI to remain competitive in the market.
As Elon Musk continues to lead Tesla and other ventures like SpaceX, The Boring Co., and xAI, his net worth has soared to $248.7 billion, making him the richest person in the world by a significant margin. While Musk’s bold predictions and ambitious projects have captured the imagination of investors, concerns about the sustainability and profitability of these ventures linger. As Tesla’s stock price remains volatile, investors will be closely watching the company’s progress in AI and other long-term initiatives to determine its future growth potential.
