Tesla Inc (NASDAQ:TSLA) shares slipped on Monday following Morgan Stanley’s downgrade of the stock from Overweight to Equal-Weight.
What Happened: Morgan Stanley analyst Andrew Percoco downgraded Tesla to Equal-weight with a $425 price target, suggesting shares are fully valued, if not overvalued, at current levels. The downgrade is part of the firm’s 2026 auto industry outlook, which strikes a more cautious tone heading into next year.
“Tesla is a clear global leader in electric vehicles, manufacturing, renewable energy, and real world AI and thus deserving of a premium valuation,” Percoco wrote. “However, high expectations on the latter have brought the stock closer to fair valuation. Looking out over the next 12 months we see a challenging catalyst path, with downside to consensus estimates, while positive catalysts for its non-auto business appear priced at current levels.”
Percoco stressed that while Tesla is more than just an automaker, meaningful upside will be hard to sustain without stabilization in its auto segment, which is still the main funding source for ambitious projects like robotaxis, autonomous driving and humanoid robots.
Morgan Stanley’s downgrade comes amid a broader forecast calling for an “EV Winter” that will persist through 2026. The firm expects U.S. EV volumes to decline approximately 20% year-over-year, driven by the expiration of the $7,500 federal EV tax credit, continued affordability challenges and consumer concerns around range anxiety, charging infrastructure and residual values.
“We expect a ~20% contraction in EV sales in 2026 as the reduction of subsidy adversely affects unit economics,” Percoco stated.
Morgan Stanley predicts overall U.S. auto sales (SAAR) of 15.9 million units in 2026, down 1% year-over-year, with 14.9 million internal combustion engine vehicles, up 1%, and 1 million EVs — down 20%.
Still, the analyst sees long-term opportunity. Morgan Stanley’s bull case values Tesla at $860 per share — nearly 90% upside — if the company can weather the EV downturn while scaling its Robotaxi program, rolling out unsupervised Full Self-Driving and ramping production of its Optimus humanoid robot.
On the flip side, the bear case values Tesla at $145 per share, representing about 68% downside, presuming that competition intensifies, margins erode and regulators push back on Tesla’s vision-only autonomy approach, and its auto and energy businesses lose share.
TSLA Analysis
Tesla is trading approximately 0.6% above its 50-day moving average, indicating a relatively stable short-term trend.
The 52-week range for Tesla has been quite expansive, from a low of $214.25 to a high of $488.53, reflecting the stock’s inherent volatility. The current price is closer to the higher end of this range, which may act as a psychological resistance level for traders.
Volume on Monday was substantial, with 49.1 million shares traded, indicating heightened interest and activity around the stock. Support levels appear to be forming around $430, while resistance is likely to be encountered near the $447 mark, where the stock opened. If Tesla can break through this resistance, it may signal a short-term recovery. However, failure to hold above the support level could lead to further declines.
The overall market outlook for Tesla remains cautious, especially given the broader economic conditions and potential headwinds in the electric vehicle sector, as flagged by Morgan Stanley on Monday.
TSLA Price Action: Tesla shares were down 4.21% at $435.82 at the time of publication on Monday, according to Benzinga Pro.
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