Morgan Stanley Downgrades Tesla Stock, Cites ‘Full Valuation’

Morgan Stanley cut Tesla to hold for the first time since June 2023, warning the stock fully prices in AI and robotics ambitions.

Why it matters: The downgrade from Wall Street’s most influential Tesla analyst signals growing unease with the stock trading at 210x forward earnings.

The Details

• Morgan Stanley analyst Andrew Percoco issued his first note as new head of Tesla coverage Sunday, lowering the rating to equal-weight, reports Bloomberg.
• Percoco replaces Adam Jonas, who maintained an overweight rating since September 2023.
• Tesla stock fell as much as 3% Monday to trade around $441.
• Percoco expects Tesla’s North American EV sales to decline 12% in 2026 amid an industry-wide slump.
• The analyst values Tesla’s Optimus humanoid robot initiative at $60 per share.

By The Numbers

• New Price Target: $425 (6.6% downside from Friday’s close)
• Average Analyst Target: $388
• Forward P/E Ratio: 210x projected earnings
• S&P 500 Valuation Rank: 2nd most expensive (behind Warner Bros. Discovery at 220x)
• Analyst Ratings: 28 buy, 19 hold, 16 sell
• 2025 Stock Performance: Up approximately 10% (vs. S&P 500 up 16%)

EVXL’s Take

Morgan Stanley’s downgrade lands just days after legendary investor Michael Burry called Tesla “ridiculously overvalued” in a scathing analysis. Burry identified the pattern perfectly: Tesla bulls pivoted from EVs to autonomy to robots each time competition arrived, keeping valuations elevated while the core car business struggled.

Percoco’s 12% North American sales decline forecast for 2026 reinforces what EVXL has documented throughout 2025: Tesla’s automotive fundamentals face unprecedented pressure. The stock trades at nearly ten times the S&P 500’s multiple, yet the underlying business is losing ground in China, Europe, and now its home market. When Morgan Stanley’s new lead analyst opens with a downgrade, it signals even the bulls are running out of narrative pivots.

Frequently Asked Questions

• Why did Morgan Stanley downgrade Tesla? Analyst Andrew Percoco believes Tesla’s stock already reflects full value for its AI, robotaxi, and robotics businesses, with limited upside catalysts at current levels.
• What is Tesla’s current price-to-earnings ratio? Tesla trades at approximately 210 times projected 12-month earnings, making it the second most expensive stock in the S&P 500.
• Is this Morgan Stanley’s first Tesla downgrade? Yes, it marks the firm’s first rating cut since June 2023.