We recently published 10 Stocks to Watch as Investors Scramble to Pour Money into AI Trade. Tesla Inc (NASDAQ:TSLA) is one of the stocks that caught analysts’ attention.
Garrett Nelson from CFRA recently said in a latest program on Schwab Network that he downgraded Tesla Inc (NASDAQ:TSLA) stock to Sell due to Wall Street’s earnings expectations from the company and stock valuation:
“It’s a mix of expectations being too high and then valuation. The stock is now trading well north of 200 times our EPS estimate for next year following this rally of over 100% since the stock bottomed in early April. I think what other analysts are missing are the impact of the one big beautiful bill, specifically some of the measures in there related to EVs. The big one for Tesla Inc (NASDAQ:TSLA) though is the emissions tax credit. They have auto regulatory credit revenue which has been a very high margin fast growing revenue stream. It was about 2.8 billion in revenue for Tesla Inc (NASDAQ:TSLA). But with the signing of that bill in early July basically that revenue went away overnight, most of which dropped right down to the bottom line. So we think the earnings impact of that isn’t fully understood by analysts and for that reason we think the Q3 estimates are too high and then looking out over the next four to six quarters estimates appear too high as well.”
Pixabay/Public Domain
Tesla is expected to post strong delivery numbers for Q3 as customers scrambled to buy more EVs amid tariffs and the expiration of EV tax credits. However, the company’s auto sales could continue to weaken in the long term. Tesla’s EV sales are falling all over the world as the company faces challenges from competitors. Tesla’s global sales in the second quarter fell 14% year over year. Even if Elon Musk increases his focus to fix the company’s problems, it would take a lot of effort to come out of the demand crisis. For example, in California, the largest U.S. market for electric vehicle adoption and sales, Tesla sales fell about 12% year over year in 2024, causing its market share to drop from 60.1% in 2023 to 52.5% in 2024. Was it because Californians are buying fewer EVs? No. Californians purchased more than 2 million electric cars during the year, almost double when compared to the past two years.
Baron Focused Growth Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its second quarter 2025 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) designs, manufactures, and sells electric vehicles (EVs), solar products, and energy storage solutions, while also developing advanced real-world AI technologies. Despite ongoing macroeconomic challenges and regulatory complexities, shares climbed after Tesla completed a limited commercial rollout of its highly anticipated robotaxi business in Austin—following more than a decade of development and billions of dollars in investment. This milestone signals a potentially transformative shift in the automotive industry and opens up a sizable new market beyond the company’s core operations. Investor sentiment also improved after Elon Musk stepped back from government-related engagements, boosting confidence in Tesla’s near-term execution. Tesla introduced a refreshed Model Y globally, featuring design and performance upgrades, and outlined plans to unveil new mass-market models starting next quarter. Meanwhile, the company is progressing toward scaling production of its humanoid robot, adding another dimension to its long-term growth story.”
While we acknowledge the risk and potential of TSLA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSLA and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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