Tesla Downgraded by Wall Street Amid Robotaxi Uncertainty and Political Risks

Tesla (TSLA.US) has recently been downgraded to a "neutral" rating by two major Wall Street institutions, highlighting the company's near-term uncertainties and the market's inflated expectations surrounding its upcoming autonomous ride-hailing service, Robotaxi. This move underscores the growing concerns about the potential bubble in the Robotaxi sector and the political challenges Tesla is facing.

Analysts from Baird and Argus have withdrawn their bullish ratings on Tesla, citing market instability and the reputational risks associated with the public disputes between CEO Elon Musk and former U.S. President Donald Trump. Ben Kallo, an analyst from Baird, noted that Musk's political activities pose a significant risk to Tesla's future prospects. He expressed concerns about the potential damage to the brand, which could persist until there is concrete evidence of sustained sales growth.

Bill Selesky, an analyst from Argus, pointed out that recent developments indicate that Tesla's stock price is being driven by non-fundamental events. He also highlighted that the expiration of electric vehicle tax credit policies could further weaken market demand for Tesla's new vehicles. While Kallo still considers Tesla a core long-term holding, he acknowledged the presence of numerous short-term uncertainties, including the market's overinflated expectations for Robotaxi and the intensifying competitive landscape.

Kallo emphasized that the progress of the Robotaxi business is likely to be more challenging than anticipated, with profitability potentially falling short of some investors' overly optimistic estimates. Additionally, Kallo revised the expected delivery volume for the second quarter of 2026 from 404,800 units to 377,000 units, reflecting the impact of the cancellation of electric vehicle tax credit policies.

The downgrades reflect a growing sense of caution among investors and analysts regarding Tesla's ability to deliver on its ambitious promises. While the company has made significant strides in the electric vehicle market, its foray into autonomous ride-hailing is seen as a riskier proposition. The market's inflated expectations for Robotaxi, coupled with the political challenges Tesla is facing, have created a challenging environment for the company.

The broader risks facing the autonomous vehicle sector are also highlighted by these downgrades. While the technology holds great promise, it is still in its early stages and faces significant technical and regulatory hurdles. The market's enthusiasm for autonomous vehicles has led to a surge in investment and innovation, but it has also created a bubble that could burst if the technology fails to live up to its hype.

In conclusion, the downgrades of Tesla by two major Wall Street institutions reflect the growing concerns about the potential bubble in the Robotaxi sector and the political challenges facing the company. While Tesla's ambitions in the autonomous vehicle sector are impressive, the market's inflated expectations and the political challenges it faces create a challenging environment for the company. Investors and analysts will be closely watching Tesla's upcoming Robotaxi unveiling to see if it can deliver on its promises and justify the market's enthusiasm.