Tesla hit with downgrade as Morgan Stanley says AI ambitions are already priced in

Morgan Stanley cut Tesla to Equal Weight on Sunday after calling the stock fully priced as investor focus stays locked on robotics and artificial intelligence. Elon Musk wants the company to become far more than an electric-vehicle maker, but the bank said the current share price already reflects that future. 

This was the firm’s first downgrade of Tesla since June 2023, and it came from Andrew Percoco, in his first note as head of coverage.

Tesla is trading at about 210 times projected earnings for the next 12 months. That makes it the second most expensive stock in the S&P 500. Only Warner Brothers Discovery is higher at 220 times, while Palantir Technologies sits third at 186 times.

The new price target of $425 points to a 6.6% drop from Friday’s close. The stock slid as much as 3% on Monday and traded near $441 during the session.

Morgan Stanley resets price and flags earnings risk

Andrew wrote that he expects uneven trading over the next year as pressure builds on earnings. He said, “While it is well understood that Tesla is more than an auto manufacturer, we expect a choppy trading environment.”

Andrew added, “We see downsides to estimates, while the catalysts for its non-auto businesses appear priced at current levels.” His call replaced the long-running stance of Adam Jonas, who had held an overweight rating on the shares since September 2023. From here on, the rating is Equal Weight.

The average Wall Street price target for Tesla now stands at $388. Current analyst positioning shows 28 buy ratings, 19 holds, and 16 sells.

Andrew said the company still has a path to leadership in humanoid robots and placed a $60 per-share value on the Optimus program alone. At the same time, he expects North American EV sales volume to fall 12% next year as the auto industry moves through a broader slowdown.

So far in 2025, Tesla shares are still up about 10%, even as the company’s profits weakened earlier in the year. That followed major gains of 63% in 2024 and 102% in 2023. Over the same period this year, the S&P 500 has risen more than 16%.

Elon has continued to direct market attention toward self-driving systems, artificial intelligence, and humanoid robots, even as core vehicle demand softens.

EU fine on X pulls Musk into political fight

Meanwhile, the European Commission fined X €120 million, or about $140 million, after a two-year investigation under the Digital Services Act, which was adopted in 2022 to regulate digital platforms.

The Commission said breaches included the deceptive design of the blue checkmark, the lack of transparency in the advertising repository, and the failure to provide public data access for researchers.

Elon responded the same day on X to a Commission post with one word: “Bulls—.” On Saturday, he escalated his position and wrote that the European Union should be abolished and sovereignty returned to individual countries so governments could better represent their people. The response drew rapid backing from senior U.S. officials inside the second Trump Administration.

Marco Rubio, serving as Secretary of State, wrote that the fine was “an attack on all American tech platforms and the American people by foreign governments.” Andrew Puzder, the U.S. ambassador to the EU, posted that “Today’s excessive €120M fine is the result of EU regulatory overreach targeting American innovation.”

Andrew P. also said the administration opposes censorship and will challenge regulations that target U.S. companies abroad, adding that Washington expects fair, open, and reciprocal trade.

Last week, Henna Virkkunen, the European Commission’s executive vice president for tech sovereignty, security, and democracy, said, “With the DSA’s first non-compliance decision, we are holding X responsible for undermining users’ rights and evading accountability.”

Under the ruling, X now has 60 days to inform the Commission how it will fix the deceptive checkmark design, and 90 days to submit a plan to address problems with its advertising records and researcher data access.

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