Tesla stock got caught up in theartificial intelligence selloffon Monday. It wasn’t hit like some stocks though. The Chinese upstart DeepSeek, after all, isn’t using AI for what Tesla does.
That might not be the right conclusion to draw, according to one Wall Street analyst.
Tesla stock dropped 2.3% on Monday while the Nasdaq Composite fell 3% and Nvidia shares fell almost 17%. Tesla shares fell 0.5% ahead of the open Tuesday.
The problem was the Chinese AI app DeepSeek. It rose to the top of Apple app downloads over the weekend and appeared to function as well as other AI chatbots such as OpenAI’s ChatGPT despite—allegedly—being developed at a fraction of the cost.
Tesla, these days, is seen as an AI investment, but it’s spending billions to have its AI computers train cars to drive and humanoid robots to complete tasks typically done by human laborers.
What DeepSeek shows is that “bigger is no longer better, putting the business model of the pure-play AI foundation model developers in question,” wrote Deutsche Bank analyst Adrian Cox in a Monday report.
The biggest beneficiaries of the AI trade so far have been the companies “hoovering up” Nvidia GPUs—including Tesla. “Elon Musk made waves last year when his artificial intelligence company, xAI, built the Colossus supercomputer in Memphis, Tennessee, in just four months, using more than 100,000 Nvidia H100 GPUs, which typically retail in the region of
$30,000 each,” added Cox.
XAI is Musk’s AI company. Tesla is spending billions as well on AI computing.
The risk for Tesla—or others investing in AI computing—is that the AI models developed are becoming commodities.
“You don’t need a Tesla Model X to drive round the corner to pick up a pint of milk. A Chinese BYD may do the job just as well,” is how Cox put it. In other words, Telsa will have more competition with self-driving cars running lower-priced AI models.
That is a relatively glass-half-empty view of AI development in the wake of the DeepSeek shock. AI chatbots don’t operate dangerous machines.
Still, it’s something for Tesla investors to think about as the DeepSeek story unfolds.
Cox doesn’t cover Tesla shares. Analyst Edison Yu covers Tesla stock for Deutsche Bank. He rates share Buy and has a $420 price target for the stock.
Tesla stock was rising 0.5% in premarket trading. S&P 500 and Dow Jones Industrial Average futures were flat and 0.2% higher, respectively.
Coming into Tuesday trading, Tesla stock fell for five consecutive days. The company is due to report fourth-quarter numbers on Wednesday evening, adding another wrinkle to recent trading.