Morgan Stanley Adjusts Stance on Tesla Amid Valuation and Operational Concerns

Tesla US88160R1014

In a significant shift, analysts at Morgan Stanley have revised their position on Tesla Inc., moving their rating from "Overweight" to "Equal Weight." This change concludes a period of over two years during which the Wall Street firm maintained a bullish outlook. The decision, led by analyst Andrew Percoco, is attributed primarily to the stock's current valuation, which the bank believes now reflects high expectations, altering the risk-reward profile. For Tesla shares, which have notably underperformed the broader market in 2025, this represents another headwind.

The underlying operational data presents a clear challenge. Tesla's operating margin has contracted sharply, falling from 16.8% to below 5%. Revenue growth has stalled, with figures for the past twelve months coming in 2.1% lower than the prior year. The company delivered 1.22 million vehicles in the first nine months of 2025, making a strong final quarter essential to achieve positive annual growth.

Despite a modest increase in the price target to $425, Morgan Stanley's core message focuses on constrained upside. The firm notes Tesla is already trading at approximately 30 times its estimated 2030 EBITDA—a multiple that leaves little room for operational setbacks. Furthermore, the bank's delivery forecast for 2026 sits 13% below the current market consensus, anticipating a "choppy trading environment" over the next twelve months.

Key Takeaways from the Report:
* Rating downgraded from "Overweight" to "Equal Weight"
* Price target set at $425 per share
* 2026 delivery projection significantly below consensus estimates
* Catalysts outside the core auto business seen as already priced in
* Noted execution risks surrounding robotaxi deployment and autonomous driving technology

Regulatory and Technological Scrutiny Intensifies

Additional pressure stems from regulatory scrutiny. The U.S. National Highway Traffic Safety Administration (NHTSA) continues to investigate Tesla's Full Self-Driving (FSD) software, reviewing over 50 reports concerning traffic light violations and improper lane changes into oncoming traffic. Recent comments from CEO Elon Musk, suggesting the latest FSD version allows drivers to write text messages while the car is in motion, have raised further concerns, as this practice is illegal in most U.S. states.

Morgan Stanley also highlighted risks associated with Tesla's camera-based autonomous driving system, which diverges from the LiDAR technology adopted by many competitors. The stock has experienced considerable volatility, plummeting to $214 in April 2025 from a near-record high of approximately $489 in December 2024. Although the share price has recovered somewhat from that low, fundamental questions persist.

Analyst Sentiment Cools

Market sentiment reflects these growing concerns. Of the 47 analysts covering Tesla, ten now rate the stock as "Sell" or "Strong Sell." The average analyst price target of $393 sits below the current trading level. Investors are awaiting the fourth-quarter delivery figures, due on Wednesday, which may provide clarity on whether Tesla can still meet its annual targets.