Tesla (TSLA) Stock Drops as New Morgan Stanley Analyst Cuts Rating on Valuation Concerns

TLDR

• Morgan Stanley downgraded Tesla stock from Overweight to Equal Weight with a $425 price target, representing 6.5% downside from current levels
• Andrew Percoco replaces Adam Jonas as Morgan Stanley’s lead Tesla analyst, marking a changing of the guard at the firm
• Auto segment valuation cut to $55 per share as Morgan Stanley lowered delivery forecasts through 2040, expecting 1.6 million deliveries in 2026
• Full Self Driving and network services valued at $145 per share, with higher expected attach rates and revenue per user
• Optimus humanoid program valued at $60 per share but carries a 50% probability discount due to execution uncertainty

Andrew Percoco just made his first major call as Morgan Stanley’s new lead Tesla analyst. He downgraded the electric vehicle maker to Equal Weight from Overweight.

Tesla, Inc., TSLA

The move comes with a $425 price target. That suggests about 6.5% downside from current trading levels.

Percoco replaces Adam Jonas, one of Wall Street’s most closely watched Tesla analysts. Jonas shifts his focus to physical and embodied AI research at the firm.

The downgrade centers on valuation concerns. Morgan Stanley believes Tesla’s AI-driven business potential is already priced into the stock.

Vehicle Deliveries Face Headwinds

Morgan Stanley slashed its auto segment valuation to $55 per share. The firm lowered delivery forecasts stretching all the way through 2040.

The new model projects 1.6 million vehicle deliveries in 2026. That reflects slower EV adoption rates and fiercer competition.

Tesla should still capture more U.S. market share according to the analysts. This happens even as the overall auto industry contracts.

But the growth won’t justify higher valuations for the core vehicle business. The math just doesn’t work at current prices.

Morgan Stanley sees downside risk to Wall Street’s consensus estimates. The road ahead looks bumpier than many expect.

Software Revenue Drives Value

Full Self Driving technology remains a bright spot. Morgan Stanley calls FSD “the crown jewel of Tesla’s auto business.”

The network services segment carries a $145 per share valuation. That’s actually up from previous models.

Higher FSD attachment rates play into the updated forecast. Average revenue per user should climb across all network services.

Near-term robotaxi adoption assumptions increased in the new model. But regulatory challenges and scaling issues persist.

Morgan Stanley maintains measured optimism about autonomous mobility. The technology works but widespread deployment timelines remain unclear.

The Optimus humanoid program gets a $60 per share valuation. But Morgan Stanley applies a 50% probability discount to that figure.

Tesla’s AI infrastructure and manufacturing capabilities support the robotics opportunity. Execution risk stays elevated though.

Tesla leads the pack in EVs, energy storage and real-world AI applications. The company positions itself to dominate autonomous mobility, renewable energy and robotics markets.

Leadership doesn’t always mean cheap stock prices though. Morgan Stanley sees the catalysts for non-automotive segments already reflected in today’s valuation.

The bull case reaches $860 per share, offering 89% upside potential. The bear case drops to $145, presenting 70% downside risk.

Morgan Stanley actually raised its price target from $410 to $425 despite the downgrade. Updates across autos, robotaxi services, network offerings and humanoid robots influenced the new target.

The analysts note Tesla remains a global leader across its main business segments. But trading close to fair value means waiting for a pullback makes sense.

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