Morgan Stanley recently caused ripples in the stock market by announcing a significant downgrade of Tesla (TSLA). In a report outlined by the firm’s new Tesla lead analyst, Andrew Percoco, Tesla’s rating was reduced from Overweight to Equal Weight, with an updated $425 price target that suggests a 6.5% downside from current levels. This comprehensive valuation adjustment raises critical questions about Tesla’s future prospects as it maintains its foothold in the EV, energy, and AI-driven industries.
Why Did Morgan Stanley Downgrade Tesla?
The central reason behind the downgrade appears to be valuation concerns. While Tesla remains a leader in the EV and clean energy markets, Morgan Stanley analysts believe that its stock price already fully reflects the company’s current and future AI potential. “We wait for a better entry,” Percoco stated in his analysis, signaling that market realities may not justify the current valuation.
The most notable hit came from the vehicle segment, as delivery expectations were slashed through 2040, putting vehicle valuation at just $55 per share. The slowdown in EV adoption and intensifying competition in the electric vehicle market seem to be key contributors to this adjustment. Analysts now project 1.6 million deliveries in 2026, a revision that underscores the importance of strategic pivots to maintain market leadership.
The Crown Jewel: Full Self-Driving and Network Services
Despite the downgrade, Tesla’s Full Self-Driving (FSD) technology continues to be hailed as the “crown jewel” of the company’s car lineup. Morgan Stanley values Tesla’s network and software services at $145 per share, higher than previous estimates. With an increasing number of customers adopting FSD and enhanced revenue per user expected, the long-term outlook for Tesla’s software offerings remains optimistic.
This improvement in assumptions also benefits Tesla’s long-anticipated Robotaxi program, which now carries increased near-term opportunities. However, regulatory challenges and scalability concerns remain hurdles that could impede rapid adoption.
Betting on AI-Driven Robotics: Optimus Program
Morgan Stanley assigns a $60 per share valuation to Tesla’s Optimus humanoid robot program. However, the report highlights significant uncertainties associated with this ambitious project. While Tesla’s scale and advancements in AI provide a solid foundation for the program, execution risk led the firm to apply a 50% probability discount in its valuation analysis. Transforming this groundbreaking vision into tangible results remains a key challenge.
Investment Takeaway: To Buy or Wait?
Morgan Stanley’s analysis reflects a balanced stance. While Tesla is positioned to dominate major future markets—including EVs, energy storage, and AI-powered applications—its current stock price likely factors in all favorable prospects. The firm advises investors to await better entry points, suggesting potential short-term volatility in Tesla’s trading value as real-world performance aligns with lofty market expectations.
For investors eyeing opportunities in similar disruptive industries such as AI or electric mobility, diversification could be key. Explore products like “Investing in AI: A Guide to Future Markets” to gain deeper insights into high-growth sectors.
Final Thoughts
Tesla’s downgrade by Morgan Stanley serves as a reminder of the complexities involved in balancing stock market expectations with realistic long-term valuation. While short-term trading may face challenges, Tesla’s innovation-driven approach ensures its relevance in shaping the future of technology, transportation, and energy industries.
