Morgan Stanley's new Tesla analyst cuts stock rating on rich valuation

Investing.com -- Morgan Stanley downgraded Tesla (NASDAQ: TSLA) stock to Equal Weight, down from its previous Overweight rating as the bank “waits for a better entry” amid elevated expectations for the company’s AI-driven businesses.

The Wall Street firm set a $425 price target, implying 6.5% downside from current levels, and said that while Tesla remains a global leader in EVs, energy and real-world AI, the stock is now trading close to fair value.

The analysts, led by Andrew Percoco, wrote that Tesla “is poised to be a market leader across autonomous mobility, renewable energy, and robotics,” but argued that catalysts tied to its non-auto segments appear largely priced in.

Percoco is now Morgan Stanley’s lead analyst for Tesla, replacing renowned sell-side analyst Adam Jonas, who will shift to overseeing the firm’s research on physical and embodied AI.

Morgan Stanley’s refreshed analysis sees the price target move from $410 to $425, supported by updates across autos, robotaxi, network services, and humanoids. That includes $60 a share of value attributed to the Optimus humanoid program, based on their global humanoid market work.

Percoco expects a “choppy trading environment” over the next 12 months as they see downside risk to Street estimates.

The team cut its auto valuation to $55 a share after lowering volume forecasts through 2040, reflecting a slower EV adoption curve and intensifying competition. Its model assumes 1.6 million vehicle deliveries in 2026, with Tesla still gaining U.S. market share even as the industry contracts.

Morgan Stanley underscores the strategic role of Full Self Driving (FSD) and broader network services, calling FSD “the crown jewel of Tesla’s auto business” as recurring software revenue grows.

The refreshed model now assumes higher long-term FSD attach rates and higher average revenue per user (ARPU) across network services, contributing to the $145-a-share valuation for this segment.

The analysts also increased near-term robotaxi adoption assumptions but maintained that scaling and regulatory challenges remain.

Longer term, the bank highlights robotics as a major potential value driver, supported by Tesla’s AI stack, data advantage and manufacturing scale. Still, it applies a 50% probability discount to the humanoid valuation given the uncertainty around execution and timelines.

Morgan Stanley notes that the long-term skew remains wide, with 89% upside to its $860 bull case and 70% downside to its $145 bear case.

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