Elon Musk's goal is to make a car that drives better than a human, but it may take some time to get there.
Last week the Tesla (TSLA) -) CEO told analysts that the carmaker is in early stage talks to license its Full Self-Driving technology to a major automotive rival.
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"I've been wrong in the past. I may be wrong this time (but) I think we'll be better than human by the end of this year," Musk said. "We see a clear path to full self-driving being 10 times safer than the average human driver."
UBS analyst Patrick Hummel downgraded Tesla’s stock to Hold from Buy on July 24, while raising his price target to $270 from $220, telling investors that he continues "to see Tesla globally leading the race to affordable electric and autonomous mobility, but on a one-year view, risk/reward looks balanced."
Tesla Remains 'Undisputed Leader'
"Tesla remains the undisputed truly global technology, scale and cost leader in the EV space, with unparalleled software capabilities," Hummel wrote in a research note.
"However, for the next 12 months, we think upside risk to consensus earnings is very limited with significant volumes from new product (first Cybertruck, then the affordable model) not kicking in before H2/24, and with some initial margin-dilutive impact," the analyst added.
Hummel said he believes that FSD remains the most relevant potential catalyst for margins and valuation.
"Tesla's new Dojo supercomputer could prove to be a game-changer for FSD software iterations," he said, referring to the platform for computer vision video processing and recognition, "but we still tend to think about autonomy as a multi-year process with big financial upside only when full autonomy is reached."
Dojo, which Musk first announced in April 2019, will be used to train Tesla's machine learning models to improve its FSD.
Price Cuts Hit Bottom Line
Tesla posted better-than-expected second quarter earnings on July 19, while holding profit margins higher than Wall Street forecasts, even as the carmaker's price cuts continued to pare its overall bottom line.
Despite recent tweaks to the upside, prices for the Model Y midsize SUV are down around 24% since the start of the year, with prices for the popular Model 3 sedan down 14%.
Earlier this month, in fact, Tesla unveiled a series of rebates for buyers in the U.S., China and Europe as part of its "Refer and Earn" program.
