There have been no dearth of sell signals for

Tesla Inc.

It is facing a potential sales halt in California and an

electric vehicle

slowdown across the United States, and is losing market share in China and Europe.

But all that hasn’t deterred investors excited about its work with

artificial intelligence

and autonomous-driving development efforts. The carmaker’s shares have rallied 25 per cent since a low on Nov. 21, notching a record for the first time this year. The stock has also outpaced the Bloomberg

Magnificent Seven

index, which is up less than six per cent over the same period.

The optimism centers around chief executive officer

Elon Musk

’s aspiration to turn Tesla into a powerhouse in robotics and AI, the booming technology that has driven global stocks to record highs. The company’s push into autonomous vehicles has drawn praise from analysts, with some saying Tesla will be a “game changer” in this field.

“Tesla is showcasing that they are close to monetizing on AI,” said Moritz Kronenberger, a portfolio manager at Union Investment, in part pointing to the company’s ambitions to make robots and self-driving taxis. “With the newly announced narratives, it has become more and more a potential AI winner.”

Musk’s other initiatives include a potential initial public offering of rocket and satellite maker SpaceX, a business he said has been converging with Tesla. Sentiment about autonomous cars also is likely to be boosted by Waymo, Alphabet Inc.’s autonomous self-driving unit, holding discussions to raise more than US$15 billion at a valuation near US$100 billion.

“It’s clearly SpaceX. The beauty of Tesla is that retail investors amalgamate everything,” said Jacques Aurelien Marcireau, co-head of equities at Edmond de Rothschild Asset Management. “Investors tend to leverage Tesla as a proxy for the Musk Galaxy despite the very low real linkage in terms of economic interest.”

Still, Tesla faces several hurdles in its business outlook. The company’s sales in California are poised to be suspended for 30 days if it doesn’t change marketing practices that allegedly mislead consumers about its driver-assistance technology. Meanwhile, the latest quarterly results disappointed investors as rising costs undermined a record quarter for vehicle sales.

  • Tesla’s sky high valuation prompts Morgan Stanley to cut rating
  • How executive pay like Elon Musk’s went galactic

Karen Kharmandarian, senior equity investment manager at Thematics AM, said Tesla’s lofty valuations also reflect any positive news in the short term. The stock trades at 223 times forward earnings, well above a five-year average of 94, according to data compiled by Bloomberg. The broader Bloomberg Magnificent Seven index carries a price-to-earnings valuation of 31.

“I’m definitely not a buyer: the multiples are just crazy with earnings that keep on disappointing,” said Fares Hendi, portfolio manager at Societe de Gestion Prevoir.

With assistance from Farah Elbahrawy, Jordan Fitzgerald and Craig Trudell.

Bloomberg.com