TSLA Shares Drop 3.39% as Morgan Stanley Cuts Rating Over AI Valuation, Execution Risks

Tesla shares fell 3.389% in pre-market trading on December 9, 2025, following a downgrade from Morgan Stanley analyst Andrew Percoco, who shifted the stock’s rating to Equal-weight from Overweight. The move marked a reversal for the firm, which previously championed Tesla under former analyst Adam Jonas. Despite raising the price target to $425 from $410, Percoco cited concerns over high valuations tied to Tesla’s AI and robotics ambitions, which he argued were now largely priced into the stock.

Percoco’s analysis highlighted a cautious outlook for Tesla’s core automotive business, with reduced volume forecasts for 2026 and 2040 due to slower EV adoption in the U.S. and intensifying global competition. He also tempered expectations for non-auto segments, noting that while Full Self-Driving (FSD) and robotaxi initiatives remain competitive advantages, their revenue potential is not yet materializing. The analyst acknowledged Tesla’s leadership in AI and robotics but emphasized execution risks, including regulatory hurdles for camera-only autonomous systems and scaling challenges in adverse weather conditions.

The downgrade reflects a broader recalibration of Tesla’s value drivers, with a reduced emphasis on auto and energy segments and a sharper focus on high-margin AI and software-driven businesses. Percoco’s team also assigned a $60 per share valuation to Tesla’s Optimus humanoid robot program, though this was hedged with a 50% discount to account for early-stage uncertainties. While long-term upside scenarios remain intact—capped at $860 per share—short-term risks, including near-term earnings pressure and execution delays, prompted the Equal-weight recommendation.