Baird recommends being careful with Tesla stock. What's wrong with them?

Investment bank Baird advises investors not to let their guard down after a three-day rally in Tesla shares. Wall Street's consensus forecast for the company's financial performance is overstated, and the current market situation remains challenging, the bank said in a note cited by Barron's. The electric car maker is unlikely to improve its financial results in the coming quarters, and the outlook for profits from unmanned cabs and robots is too dim, according to analyst Baird.

Baird analyst Ben Kallo reiterated a "cautious stance" on Tesla shares, maintaining a Hold recommendation on the stock and a $320 target price, according to Barron's.

Wall Street's consensus forecast for the company's financial performance is overstated and the current stock market environment remains "challenging," the publication quoted an analyst note as saying. "Investors are clearly forward-looking, but Tesla's automotive business is still performing poorly," Kallo wrote.

On Tuesday, August 26, Tesla shares rose for the third consecutive trading session, rising 1.5% to $351.7, their highest since Ma. By comparison, the S&P 500 index added 0.4%. A day earlier, quotes of Elon Musk's company rose by 1.9%, closing at the highest level since June 23 - the day following the test launch of an unmanned cab service Tesla in Austin. And on Friday, securities jumped by 6.2% - amid general optimism after the speech of Fed Chairman Jerome Powell in Jackson Hole, which the market interpreted as a signal in favor of a rate cut.

For several quarters, the market has ignored Tesla's weak fundamentals, betting on long-term projects like the robotaxi and the humanoid robot Optimus, the analyst explains. He believes the company's current estimates for production volumes and financial performance for the second half of 2025 look inflated. Baird's forecast calls for Tesla to post full-year earnings of $1.6 per share versus the Wall Street consensus of $1.7. The divergence in expectations for 2026 is even greater: $2.12 at Kallo and $2.44 according to FactSet, Barron's notes.

Among the risks, the analyst highlighted the elimination of subsidies for purchases of electric cars for $7500 in the U.S. from September 30, as well as the decline in sales of carbon credits amid changes in U.S. environmental policy. Now automakers will not be penalized for violating carbon credits, and the sale of these credits brought Tesla $724 million in the first half of the year and $2.76 billion in 2024, the Washington Post wrote.

The launch of robotaxis in Texas was a major milestone for the company: supporters of Tesla believe that it is the commercial unmanned vehicles trained with AI that will usher in a new era of profit growth for the company. From Tesla's robotaxi presentation in Hollywood on October 10 to launch day, the stock rose nearly 50%. Then a consolidation phase began: investors were waiting for a new momentum.

Such a factor could be the expansion of the service to other cities - so far that hasn't happened, but the market is clearly in anticipation of the next step, Barron's notes.

Joseph Dennison, manager of the Virtus Zevenbergen Innovative Growth fund, believes that the tipping point for Tesla is near. The stock's growth in 2026, according to Dennison, will be fueled by the development of autonomous technology and robotaxis, as well as the release of more affordable Tesla models that will help expand the company's customer base. He believes the automaker is working to make its vehicles more affordable, and the six-seat Model Y L version will attract new buyers. Apart from this, Tesla will get a boost to its recovery thanks to artificial intelligence. "We've always viewed Tesla not just as a car company, but as a unique leader of its generation in AI, robotics and sustainable energy," Dennison said. - The critical factors for AI development are access to proprietary data, capital to invest in software and hardware, and engineering talent. We believe Tesla has all of these ingredients.

The Motley Fool also expects Tesla's stock to rise thanks to the development of the unmanned cab market and the release of the affordable Model Y, scheduled for the fourth quarter. However, the publication warns that if there are any major problems with the production of the affordable model, the stock could plummet.

Tesla stock is still down 13% since the start of 2025, but it's up about 68% over the past year.

This article was AI-translated and verified by a human editor