Quick overview

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Elon Musk is keen to transform Tesla into a robotics and AI company. Morgan Stanley noted that the electric car manufacturer’s stock price already reflects its involvement in these sectors and is currently at a “full valuation.”

The investment bank downgraded Tesla’s rating to “hold” for the first time since June 2023. Tesla is currently the second-most expensive company in the S&P 500 Index, following Warner Bros., with shares trading at approximately 210 times projected earnings over the next 12 months. Discovery, Inc. leads at a valuation of 220 times, while Palantir Technologies Inc. ranks third with a multiple of 186.

In his initial report to clients as the new head of Tesla coverage, analyst Andrew Percoco commented, “While it is well understood that Tesla is more than an auto manufacturer, we expect a choppy trading environment over the next year.” He acknowledged the limitations of estimates and noted that the catalysts for Tesla’s non-auto businesses appear to be priced into the stock at current levels.

Percoco has set a price target of $425 for Tesla, suggesting a potential decline of 6.6% from Friday’s closing price. According to data compiled by Bloomberg, he has taken over from Adam Jonas, a long-time Tesla analyst at Morgan Stanley, who maintained an “overweight” rating on the stock since September 2023. Percoco’s current assessment assigns Tesla an “equal-weight” rating. At present, the company has 28 buy ratings, 19 hold ratings, and 16 sell ratings, with an average price target of $388.

Percoco estimates that Tesla’s Optimus initiative is valued at $60 per share and believes the company is well-positioned to lead in the humanoid robotics market.

However, he anticipates a 12% decline in electric vehicle sales volume in North America over the coming year, citing a general downturn. Despite CEO Musk’s focus on AI initiatives, including self-driving cars and humanoid robots, Tesla shares have largely disregarded a meltdown in profits this year. The stock has risen roughly 10% this year, following significant increases of 63% in 2024 and 102% in 2023. Nonetheless, it has experienced a turbulent year within the S&P 500 Index.