Trouble is brewing for Tesla Inc. (NASDAQ:TSLA), but this time, it is not the market volatility. It is Wall Street itself. A growing list of bearish recommendations, including a stark recommendation by long-term Tesla-bullish investor Trip Chowdhry, and a sharply lower price target by HSBC, are commanding a second look at one of the most popular stocks within ETFs.

The question now being asked by those invested in Tesla through an ETF is this: hold, sell, or double down?

Wall Street Turns Divided On Tesla

Chowdhry, a well-known bull on Tesla, has now flipped decisively bearish, warning that the company's AI-driven investment thesis has "collapsed," reported Investing.com. He went on to recommend a $150 price target for this year, a far cry from current stock prices.

Chowdhry went on to make a rather dramatic comparison to the fall of 3D Systems Corporation (NYSE:DDD) and said investors are at risk of being trapped by "investment thesis inertia." Notably, he claims that his firm, Global Equities Research, had correctly predicted 3D Systems’ collapse.

HSBC also recently came out with a recommendation of "Sell" and a $119 price target, down from $133.

These bearish views stand in stark contrast to bullish calls that still see Tesla reaching as high as $600—highlighting one of the widest valuation gaps on Wall Street today.

A High-Stakes Holding Across ETFs

Tesla’s significance, however, is much broader than just its own stock price performance.

The stock is owned by influential ETFs like Invesco QQQ Trust (NASDAQ:QQQ) and State Street SPDR S&P 500 ETF Trust (NYSE:SPY), due to its index weight, leaving them little room to maneuver. Other actively managed ETFs like ARK Innovation ETF (BATS:ARKK) have taken big bets on Tesla’s future prospects for AI and autonomous driving.

The divide:

  • Passive ETFs are forced to own
  • Active owners need to actively justify their exposure

The Narrative Under Pressure

Tesla's premium valuation has long been tied to its aspirations in AI and autonomous driving. However, several issues are now putting pressure on this narrative:

  • Regulatory concerns about FSD (Full Self-Driving) system
  • Declining electric vehicle demand
  • Growing competition, including from Nvidia Corp in autonomous driving

The risk for ETFs that took big bets on “future mobility + AI” is obvious: What if it takes longer, or is very different, than we thought?

The ETF Dilemma: No Easy Exit

With Tesla at a crossroads, ETFs are facing three difficult paths:

Hold

Passive funds like SPY and QQQ must continue holding, even if downside risks grow. This will potentially amplify losses across portfolios.

Sell

Actively managed funds like ARKK and ARK Autonomous Technology & Robotics ETF (BATS:ARKQ) could trim exposure, but risk signaling a loss of conviction in one of their flagship holdings.

Double Down

Some may choose to buy the dip, betting that bearish calls prove premature. But with analysts like Chowdhry warning of a structural thesis breakdown, that bet carries increasing risk.

Active ETFs can choose, depending on their convictions. The choice depends on answers to the following questions:

  • Is it still an AI + autonomy story, or just an expensive EV maker?
  • Are robotaxis and FSD still realistic drivers of future cash flows?
  • Do new risks (regulation, competition, demand slowdown) break the thesis?

Concentration Risk Comes Into Focus

Tesla's situation is also exposing concentration risk hidden beneath diversification in ETFs.

A single stock facing narrative, regulatory, and competitive pressures can influence multiple funds simultaneously—especially those tilted toward innovation and growth.

If sentiment around Tesla continues to weaken, the impact may extend beyond one company, affecting the broader ETF landscape.

What Comes Next

Upcoming delivery data and earnings commentary will be critical in determining whether Tesla can stabilize sentiment.

For ETF investors, however, the stakes are already high. The question is no longer just whether Tesla can recover, it's how funds built around it will respond if it doesn't.

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