Morgan Stanley downgraded its rating on Tesla shares from overweight to equal weight on December 8, 2025, citing valuation concerns and softer electric vehicle demand. Analyst Andrew Percoco raised the price target to $425 from $410 but warned of a choppy trading environment ahead. The move, the first downgrade since June 2023, contributed to a sharp decline in Tesla's stock price.
Tesla's stock fell as much as 4% on Monday, December 8, 2025, following a downgrade by Morgan Stanley, a major Wall Street firm. Analyst Andrew Percoco, who recently took over coverage from Adam Jonas, shifted the rating from overweight/buy to equal weight/hold. Although Percoco increased the price target to $425 per share from $410, this still suggested about 3% downside from late Monday levels around $441.
Percoco acknowledged Tesla's leadership in electric vehicles, manufacturing, renewable energy, and real-world AI, deserving a premium valuation. However, he highlighted risks including lower volume expectations, with a 10.5% reduction in 2026 volumes and an 18.5% cut in cumulative deliveries through 2040. These adjustments reflect a more cautious outlook on U.S. EV adoption and intensifying global competition. "This is a reflection of lower volume expectations, with a 10.5% reduction in 2026 volumes and 18.5% reduction in cumulative deliveries through 2040 due to our more cautious view on the pace of EV adoption in the US coupled with growing competition in global markets," Percoco noted.
The analyst recalibrated Tesla's valuation using a sum-of-the-parts approach, assigning $55 per share to the auto business, $145 to network services including full self-driving (FSD), $125 to mobility like robotaxis, $60 to humanoid robots such as Optimus, and $40 to energy. He described FSD as the "crown jewel" of Tesla's auto business, offering a competitive advantage in autonomous driving. Yet, risks persist, including safety concerns with Tesla's camera-only FSD approach compared to competitors' use of LiDAR, and rising competition in Optimus from China.
Percoco expects volatility over the next 12 months: "While it is well understood that Tesla is more than an auto manufacturer, we expect a choppy trading environment for the TSLA shares over the next 12 months, as we see downside to estimates, while the catalysts for its non-auto businesses appear priced at current levels."
Tesla's shares have been volatile this year, down as much as 45% before rebounding 12% year-to-date, aided by CEO Elon Musk's return to full-time focus on the company. In China, Tesla's sales rose 9.9% in November amid an 8.5% market decline, providing some offset, though European sales dropped over 50% in key markets like France and Sweden.
An incident at Tesla's Miami autonomy event, where an Optimus robot appeared to mime removing a non-existent headset before falling, raised questions about tele-operation versus true AI autonomy, adding to scrutiny on Tesla's non-auto ambitions.
