Morgan Stanley downgraded Tesla to "Equal Weight" on Sunday, calling the stock fully priced as investor focus shifts to robotics and artificial intelligence. While Elon Musk envisions Tesla as more than just an electric-vehicle maker, the bank believes the current share price already incorporates this future outlook.
This marks the firm's first downgrade of Tesla since June 2023 and comes from Andrew Percoco, in his initial note as head of coverage for the stock.
Tesla is currently trading at approximately 210 times its projected earnings for the next 12 months, making it the second most expensive stock in the S&P 500. Warner Brothers Discovery is trading at 220 times projected earnings, while Palantir Technologies is third at 186 times.
The new price target set by Morgan Stanley is $425, indicating a potential 6.6% drop from Friday's closing price. The stock experienced a decline of as much as 3% on Monday, trading near $441 during the session.
Morgan Stanley Adjusts Price Target and Highlights Earnings Risk
Andrew Percoco anticipates a volatile trading environment over the coming year, with increasing pressure on earnings. He stated, "While it is well understood that Tesla is more than an auto manufacturer, we expect a choppy trading environment."
Percoco further elaborated, "We see downsides to estimates, while the catalysts for its non-auto businesses appear priced at current levels." This new rating replaces the long-standing "Overweight" stance held by Adam Jonas since September 2023. The rating is now officially "Equal Weight."
The average Wall Street price target for Tesla currently stands at $388. Analyst positioning shows 28 buy ratings, 19 holds, and 16 sell ratings.
Percoco acknowledged that the company has a viable path to leadership in humanoid robots, assigning a value of $60 per share to the Optimus program alone. However, he projects a 12% decrease in North American EV sales volume next year, attributing this to a broader slowdown in the automotive industry.
Despite a weakening in the company's profits earlier in the year, Tesla shares have risen approximately 10% so far in 2025. This follows significant gains of 63% in 2024 and 102% in 2023. For comparison, the S&P 500 has increased by over 16% during the same period this year.
Elon Musk has consistently directed market attention toward advancements in self-driving systems, artificial intelligence, and humanoid robots, even as demand for core vehicle sales softens.
EU Fine on X Involves Elon Musk in Political Discourse
In parallel developments, the European Commission has fined X €120 million (approximately $140 million) following a two-year investigation under the Digital Services Act, a regulation adopted in 2022 to govern digital platforms.
The Commission cited breaches including the deceptive design of the blue checkmark feature, a lack of transparency in the advertising repository, and a failure to provide public data access for researchers.
Elon Musk responded to a Commission post on X on the same day with the single word: "Bulls—." On Saturday, he intensified his stance, suggesting that the European Union should be dissolved and sovereignty returned to individual nations to better represent their populations. This commentary garnered swift support from senior U.S. officials within the second Trump Administration.
Marco Rubio, serving as Secretary of State, characterized the fine as "an attack on all American tech platforms and the American people by foreign governments." Andrew Puzder, the U.S. ambassador to the EU, stated that "Today’s excessive €120M fine is the result of EU regulatory overreach targeting American innovation."
Ambassador Puzder also affirmed the administration's opposition to censorship and pledged to challenge regulations that target U.S. companies internationally, emphasizing that Washington expects fair, open, and reciprocal trade practices.
Last week, Henna Virkkunen, the European Commission's executive vice president for tech sovereignty, security, and democracy, remarked, "With the DSA’s first non-compliance decision, we are holding X responsible for undermining users’ rights and evading accountability."
Under the ruling, X is required to inform the Commission within 60 days how it plans to rectify the deceptive checkmark design. Additionally, the platform has 90 days to submit a plan addressing issues with its advertising records and researcher data access.