Tesla Inc shares witnessed a notable decline on Monday, primarily due to a downgrade by Morgan Stanley from Overweight to Equal-Weight. This downgrade, accompanied by a $425 price target, suggests that Tesla shares are currently fully valued, if not overvalued.
Key Factors Influencing the Downgrade
- Morgan Stanley’s 2026 Auto Industry Outlook: The firm has adopted a more cautious stance heading into the next year, which contributed to the downgrade.
- Tesla’s Valuation: Despite being a global leader in electric vehicles, manufacturing, renewable energy, and real-world AI, the high expectations have brought the stock closer to fair valuation.
- Challenging Catalyst Path: The outlook for the next 12 months indicates a challenging path, with potential downsides to consensus estimates, and positive catalysts for the non-auto business appear priced at current levels.
Morgan Stanley’s Analysis
Morgan Stanley analyst Andrew Percoco emphasized that while Tesla is more than just an automaker, sustaining meaningful upside without stabilization in its auto segment will be challenging. The auto segment remains the primary funding source for ambitious projects like robotaxis, autonomous driving, and humanoid robots.
Forecast for the Electric Vehicle Market
- “EV Winter”: Morgan Stanley predicts this phenomenon will persist through 2026, with U.S. EV volumes expected to decline by approximately 20% year-over-year.
- Factors Contributing to the Decline: The expiration of the $7,500 federal EV tax credit, affordability challenges, and consumer concerns around range anxiety, charging infrastructure, and residual values are key factors.
Predictions for U.S. Auto Sales
- Overall Sales: Expected to be 15.9 million units in 2026, down 1% year-over-year.
- Internal Combustion Engine Vehicles: Predicted to be 14.9 million, up 1%.
- EVs: Expected to be 1 million, down 20%.
Long-Term Opportunities and Challenges
- Bull Case: Values Tesla at $860 per share, representing nearly 90% upside, if the company can navigate the EV downturn while scaling its Robotaxi program and ramping production of its Optimus humanoid robot.
- Bear Case: Values Tesla at $145 per share, indicating about 68% downside, if competition intensifies, margins erode, and regulators push back on Tesla’s autonomy approach.
TSLA Analysis
Current Trading Position
- Tesla is trading approximately 0.6% above its 50-day moving average, indicating a relatively stable short-term trend.
- The 52-week range has been expansive, from $214.25 to $488.53, reflecting the stock’s volatility.
Support and Resistance Levels
- Support levels are forming around $430.
- Resistance is likely near the $447 mark.
Market Outlook
The overall market outlook for Tesla remains cautious, considering the broader economic conditions and potential headwinds in the electric vehicle sector.
TSLA Price Action
Tesla shares were down 4.21% at $435.82, indicating a significant decline in response to the downgrade and market sell-off.