Analysts turns heads with surprise Tesla rating ahead of Robotaxi launch

Tesla has faced a series of challenges, including declining sales in key markets, the departure of a VP from its Optimus program, and Elon Musk's public dispute with Donald Trump, leading to some investment firms adjusting their ratings. Argus downgraded Tesla to hold, citing concerns over the Trump-Musk conflict and expiring EV tax credits, while Baird downgraded to neutral, noting over-optimism priced into the stock regarding the upcoming robotaxi launch and Musk's political ties. Despite these headwinds, Morgan Stanley reiterated an overweight rating, emphasizing Tesla's long-term value drivers like AI leadership and renewable power infrastructure.

Analysis

Tesla is currently navigating a confluence of significant challenges that have prompted cautious sentiment and recent analyst downgrades, despite the imminent launch of its robotaxi service on June 12. CEO Elon Musk's public and acrimonious dispute with Donald Trump, stemming from Musk's criticism of a proposed budget bill and allegations concerning Jeffrey Epstein files, has introduced considerable uncertainty. Trump has publicly contemplated terminating Musk's government contracts and subsidies, and warned of unspecified "serious consequences" if Musk financially supports Democratic candidates opposing the bill. This political entanglement, described by Argus as a "war of words," is a key factor in their downgrade of Tesla to 'hold' from 'buy', as it's perceived as a nonfundamental event that, along with the potential expiration of EV tax credits under the bill, could weaken Tesla demand. Compounding these issues, Tesla's sales have been declining in key markets such as Europe and California; notably, China's BYD surpassed Tesla in European EV sales in April and in UK sales last month, despite BYD facing higher tax rates. Furthermore, the departure of Milan Kovac, VP of engineering for Tesla’s Optimus humanoid robot program, adds to operational concerns. Baird also downgraded Tesla to 'neutral' from 'outperform' (retaining a $320 price target), citing that the stock’s strong performance after a "fundamentally poor quarter" has priced in overly optimistic expectations for the robotaxi and a more affordable vehicle launch, particularly Musk's comments on the robotaxi ramp rate. Baird also highlighted Musk's ties to Trump as adding "considerable uncertainty." In contrast, Morgan Stanley analyst Adam Jonas maintained an 'overweight' rating and a $410 price target, arguing that Tesla's long-term value drivers—including AI leadership, robotics, manufacturing, and renewable power infrastructure—remain largely apolitical and intact, and that the phasing out of EV tax credits is not material to the long-term outlook. Tesla shares are reported to be down 27% this year, though the article also states they have climbed 67.1% since 2024, reflecting a period of volatility ahead of the robotaxi unveiling.

Key Decisions for Investors

• Investors should acknowledge the heightened near-term volatility and increased risk profile for Tesla, driven by CEO Elon Musk's political controversies, their potential repercussions on government contracts and subsidies, observed sales declines in key markets, and recent executive departures.
• Closely monitor the June 12 robotaxi launch for tangible progress, market reception, and updated ramp rate commentary, as well as ongoing sales figures and any developments regarding Musk's political entanglements or changes to EV tax credit policies.
• While Morgan Stanley emphasizes long-term innovation, the downgrades by Argus and Baird suggest a prudent approach; consider a neutral stance or carefully reassess risk-reward, as current valuations may not fully discount the prevailing fundamental weaknesses and non-fundamental uncertainties.
• Factor in the intensifying competitive landscape, particularly BYD's demonstrated ability to gain market share against Tesla in key European territories, when evaluating Tesla's growth projections and market positioning.