Melius called Tesla stock a "must own". Why are they falling?

A Melius Research analyst initiated coverage on Tesla stock and immediately advised buying it. Tesla is on the cusp of a new technological era in which artificial intelligence will be a key driver of the company's growth, Melius believes. He acknowledges, however, that much of the company's value is based on products that don't yet exist, making its current $1 trillion valuation difficult to justify. Tesla shares were down about 1% in trading on Oct. 14 after rising 5% the day before.

Melius Research analyst Rob Wertheimer gave Tesla securities a Buy rating and set a target price of $520 for the first time, Bloomberg reports. This implies a potential upside of 19% from the closing level on October 13.

Tesla, according to Melius, can quickly improve and scale the production of self-driving cars, which would be the first significant manifestation of artificial intelligence in the real world, Bloomberg writes.

"Our 'buy' rating is based on our belief that interest in fully autonomous driving will grow as investors, including retail investors, realize how revolutionary this experience is," the analyst explained.

"We see Tesla stock as a must-buy. The disruptive power of artificial intelligence will shake up multi-trillion dollar industries, starting with automotive," Wertheimer noted in Barron's outline.

At the same time, estimating Tesla's fair value remains "challenging," Melius said, as the company's autopilot is still not fully autonomous and the timing of when that will happen is unclear, Bloomberg reported. The trajectory of Tesla's Optimus robots is even harder to predict, he added.

Tesla shares rose 5.4% on October 13 - the day the Melius memo was published - in parallel with the broader market. However, in trading on October 14, they were down 4% at one point, although they have since slowed to about 0.5%. The reason for Tuesday's negative performance could be General Motors, Barron's believes. GM announced a $1.6 billion cost write-down in connection with a change in its strategy in the electric car market. This shows how U.S. automakers are adjusting their production plans in line with slowing demand for electric vehicles, Reuters noted.

Tesla shares are up about 7% since the start of 2025 and about 96% over the past 12 months. The company's securities rose 33% in September amid euphoria around artificial intelligence, but growth slowed after weak third-quarter delivery data and the release of "low-cost" models that proved less affordable. That, according to Bloomberg, has raised questions about Tesla's ability to keep investor expectations high amid volatile electric car sales.

According to FactSet, 47% of analysts recommend buying Tesla shares. For comparison, on average for companies in the S&P 500 index, this figure is about 55%. The average target price for Tesla shares, according to analysts' estimates, is $367, which is significantly lower than the forecast of Melius Research, notes Barron's.

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