Morgan Stanley Downgrades Tesla, Reassigns Coverage

Morgan Stanley downgraded Tesla Inc. (TSLA) from Overweight to Equal-weight in a research report dated Dec. 8, 2025, reassigning lead coverage to Andrea “Andy” Percoco. The firm raised its price target but warned that Tesla’s valuation has outpaced fundamentals, making the next 12 months likely to be volatile.

Coverage Shift and Rating Change

Morgan Stanley replaced longtime Tesla analyst Adam Jonas with Andrea Percoco as lead analyst for Tesla and General Motors Co. (GM). The firm lowered Tesla’s rating while raising its 12-month price target, signaling less near-term upside from the current share price. In the same research package, Morgan Stanley upgraded GM, citing a more attractive valuation and risk-reward profile compared with Tesla and peers.

Jonas is shifting his focus toward “embodied AI,” aligning with Morgan Stanley’s broader sector resource reallocation. Percoco now leads the firm’s auto coverage amid a reshuffling of preferences among automakers and technology-linked stocks.

Analyst Rationale and Implications

Morgan Stanley’s research argued that Tesla’s share price already reflects significant optionality in software, autonomous driving, and artificial intelligence, leaving limited near-term upside on a risk-adjusted basis. The firm highlighted slowing electric vehicle (EV) demand growth and intensifying competition as headwinds that could pressure Tesla’s volume and pricing assumptions.

The note also flagged execution risks as Tesla scales new products and technologies, including autonomy, robotics, and AI initiatives, which underpin more bullish long-term scenarios. These factors increase uncertainty about how quickly Tesla can convert optionality into sustainable cash flows.

Morgan Stanley incorporated assumptions that Elon Musk will achieve specified performance milestones tied to his multitranche pay package, using these as inputs to model long-term earnings and valuation outcomes.

Tesla has not filed any Form 8-K, 10-Q, or 10-K nor issued an investor-relations statement addressing the rating change within 72 hours of the report. The downgrade reflects a sell-side research judgment rather than a corporate or regulatory event and does not alter Tesla’s previously issued guidance or SEC filings. The action complies with Regulation AC and Morgan Stanley’s conflict-of-interest policies.

The downgrade and the note’s warning of a “choppy” 12-month outlook were widely cited in market coverage and identified as factors behind investor selling pressure that pushed Tesla shares lower following the report.