$Tesla (TSLA.US)$Shortly after the news of the delay of RoboTaxi's release was revealed, it was criticized by the major Wall Street bank UBS Group.

On Friday, July 12, UBS analysts Joseph Spak and others issued a report downgrading Tesla's rating from "neutral" to "sell".

UBS stated in the report that Tesla's stock price "has risen too much, too fast" and its current valuation is becoming increasingly difficult to justify.

The current trading price of the stock is 86 times the forward earnings for the year, lacking visibility and carrying the risk that growth targets may be delayed or otherwise not met.

The institution believes that, driven by the passion for AI, the high valuation of Tesla's non-core business has reached a level that could be worrying. Based on historical experience, once the proportion of auto business falls below 30% of Tesla's stock price, its stock price will enter a downward channel.

UBS also pointed out that Tesla has postponed the originally planned RobotTaxi launch, indicating that the implementation of the project may be more challenging than expected. Under pessimistic assumptions, the robot taxi business will not bring any value-added to Tesla.

Beware of cooling AI enthusiasm.

As one of the 10 most expensive stocks in the S&P 500 index, Tesla has risen 46% in the past three months before plummeting 8.4% on Thursday, with investors betting that Musk can turn the company into an AI giant.

However, UBS pointed out that investors have expanded the premium they have given to Tesla's new business, non-core business, and growth plans due to the enthusiasm for AI. If this enthusiasm wanes, it may affect the stock's valuation.

At current levels, we still think there is over $500 billion in incremental market capitalization potential, and even with five years to realize that growth, it would imply just a $1 trillion market capitalization five years out.

And that's just to justify the current levels; to justify a buy rating we would need to see greater opportunities.

Although Tesla has invested heavily in the field of AI and technology is advancing, the high cost of investment, the possible slowdown in technology iteration, and the longer payback period may all affect Tesla's PE ratio.

UBS's attribution analysis shows that the market has always valued Tesla's core auto business between $60-90 per share. The average value of non-auto business in the past two years is about $140 per share, and with recent increases, it has now reached nearly $175 per share.

The institution believes that the high valuation of Tesla's non-core business has reached a level that could be worrying. Based on historical experience, once the proportion of auto business falls below 30% of Tesla's stock price, its stock price will enter a downward channel.

At the same time, UBS raised Tesla's target price from $147 to $197, which is 18% lower than the current stock price, while raising the PE ratio from 45 times to 55 times.

According to UBS's estimate, the value of Tesla's auto business is about $57 per share (approximately 28.9% of the current target price). The value of the energy business, which has strong recent growth and a higher profit margin, is about $18 per share. Full-automatic driving/robot taxi business is worth about $18 per share.

However, the total value of these businesses is only about $93, which means that approximately 61% of the current stock price is a premium or an estimate of its future opportunities.

Automotive business faces more fierce competition, energy business grows rapidly.

Looking ahead to the next five years, UBS takes a conservative attitude toward Tesla's car deliveries in 2030, expecting deliveries to be about 3.9 million, which is 19% lower than the market's general expectation.

The institution believes that demand for Tesla in the US market may have been saturated, while facing more intense competition in Europe and China. Therefore, Tesla needs to introduce new models or update existing ones to stimulate demand. However, even so, achieving the market's expected delivery target of more than 5 million vehicles will still be a challenge.

Regarding Tesla's energy business, UBS believes that its recent growth has been significant, and this business currently brings the company higher profit margins.

Although there is a possibility of unstable deployment of energy storage, considering the vast opportunities in the stationary storage market, it is possible for Tesla's energy business to achieve a compound annual growth rate of approximately 30% before 2030. However, this requires more investment in production capacity, and as the business expands, growth rates may be affected by the law of large numbers.

However, this requires more investment in production capacity, and as the business expands, growth rates may be affected by the law of large numbers.

What does RoboTaxi's postponement mean?

As for the robot taxi business, UBS pointed out that Tesla's original RobotTaxi launch time was delayed, which implies that the project implementation may be more challenging than expected.

UBS believes that achieving meaningful robot taxi operations in the US is still too early and may not be realized within this decade.

Although the end-to-end (Gen AI) approach adopted by Tesla has already brought significant improvements to the FSD product, achieving a solution for robot taxis requires continuous technological progress and a huge amount of data collection. UBS believes that as technology improves further, the speed of improvement may slow down and costs may increase.

They have adjusted their valuation for the robot taxi business:

Under basic assumptions, the business is valued at approximately $30 billion (with a target price of $9 per share), and under optimistic assumptions, it is valued at approximately $100 billion. However, under pessimistic assumptions, the robot taxi business will not bring any value to Tesla.

Editor/new