Morgan Stanley has downgraded Tesla to equal weight from overweight, citing the stock's valuation already incorporating high expectations for AI and robotics amid slowing EV adoption. The firm slashed delivery forecasts, projecting a 10.5% decline in 2026 volumes. Shares fell around 3% following the announcement on December 8, 2025.
Morgan Stanley's downgrade of Tesla (NASDAQ:TSLA) marks its first such move in over two years, shifting the rating to equal weight with a price target of $425. Analyst Andrew Percoco highlighted that the stock's current valuation at around $440 fully prices in ambitious prospects for artificial intelligence, robotics, and Full Self-Driving technology, despite challenges in the electric vehicle sector. The bank anticipates a 10.5% drop in Tesla's delivery volumes for 2026 and an 18.5% reduction in cumulative deliveries through 2040, driven by eroding market share.
Tesla's dominance in the U.S. EV market stood at 41% in the third quarter of 2025, but competition intensified, particularly in China where local rivals like BYD and Xiaomi captured more ground. Globally, EV sales rose 35% year-over-year in Q3 2025, with legacy automakers such as General Motors and Volkswagen reporting over 100% growth in their EV sales. However, Morgan Stanley warns of an impending 'EV winter,' forecasting U.S. light-vehicle sales at 15.9 million units in 2026, with EV volumes declining 20% and market penetration slipping to 6.5%.
Tesla's third-quarter 2025 results showed revenue of $28.1 billion, up 12% year-over-year, with automotive revenue at $21.2 billion (up 6%) and energy storage at $3.4 billion (up 44%). Yet, gross margins fell to 18% from 19.8%, and adjusted EPS dropped 31% to $0.50. CEO Elon Musk has emphasized a pivot toward AI and robotics, including the Optimus humanoid robot, stating the company's future value will stem from these initiatives rather than EVs.
Analysts remain divided, with a consensus 'Hold' rating and average price target of $385.15. Piper Sandler maintains an overweight rating with a $500 target, citing FSD improvements, while the downgrade underscores risks from softer EV demand and priced-in future growth.