Tesla Shares Plunge 3.39% on Morgan Stanley Downgrade Amid AI Valuation and Competition Concerns

Tesla shares plunged 3.389% in pre-market trading on Dec. 9, 2025, as investor sentiment shifted following a strategic downgrade from Morgan Stanley. The move marked a reversal for the firm, which previously held a bullish stance on the electric vehicle maker under analyst Adam Jonas.

The downgrade was led by new analyst Andrew Percoco, who cut Tesla’s rating to Equal-weight from Overweight upon resuming coverage. While raising the price target to $425 from $410, Percoco cited concerns over the stock’s premium valuation relative to its non-auto AI ambitions. He highlighted risks including slower EV adoption in the U.S., heightened global competition, and regulatory hurdles for Tesla’s vision-only autonomous driving system.

Despite acknowledging Tesla’s leadership in FSD technology and robotics, Percoco projected a “choppy trading environment” through 2026. The analyst cited reduced volume expectations, with 2026 auto deliveries seen declining 10.5% from prior forecasts and cumulative deliveries through 2040 falling 18.5%. However, he noted the humanoid robotics business added $60/share in equity value via a sum-of-the-parts analysis, balancing cautious views on core auto and energy segments.

Investors reacted swiftly to the downgrade, which contrasted with prior enthusiasm driven by Jonas’ emphasis on Tesla’s AI-driven future. Percoco’s bear case ($145) and bull case ($860) price targets underscored the volatility, with long-term investors advised to evaluate risks tied to scaling Robotaxi, FSD expansion, and Optimus production challenges. The pre-market selloff reflected market skepticism about whether Tesla can navigate these hurdles amid intensifying competition.