01:53 PM EDT, 07/24/2024 (MT Newswires) -- Tesla (TSLA) is grappling with slowing automotive sales and declining profit margins with stock optimism underpinned by bullish artificial intelligence and robotaxi speculation, UBS Securities said Wednesday in a report.

The stock, trading at over 100 times its run-rate EPS of $2.25, reflects inflated expectations for AI projects, UBS said.

"Tesla is being priced on future optionality" for developing self-driving cars and humanoid robots, UBS said, "It's not being priced on auto or even energy."

If confidence in AI initiatives wanes, especially around robotaxi day on Oct. 10, the stock faces more downside risk, UBS said.

UBS reiterated its sell rating for Tesla with a 12-month price target of $197.

On Tuesday, Tesla's Q2 earnings missed market expectations amid lower vehicle prices and restructuring charges. On Wednesday, Chief Executive Officer Elon Musk posted a poll on X on whether the company should invest $5 billion in his artificial intelligence startup xAI, assuming "several credible outside investors" set the valuation.

Tesla shares fell 10% in recent Wednesday trading, heading for the second-biggest decline on the S&P 500.

Price: 220.96, Change: -25.43, Percent Change: -10.32