Tesla’s Sky High Valuation Prompts Morgan Stanley to Cut Rating

(Bloomberg) — Elon Musk is eager to transform Tesla Inc. into a robotics and artificial intelligence company, but the electric-vehicle maker’s stock price already reflects those businesses and is at a “full valuation,” according to Morgan Stanley, which lowered its rating on the company to the equivalent of a hold, its first cut since June 2023.

Tesla shares trade at about 210 times projected earnings over the next 12 months, making it the second most expensive company in S&P 500 Index, trailing just Warner Brothers Discovery Inc. at 220 times and well ahead of third place Palantir Technologies Inc.’s multiple of 186.

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“While it is well understood that Tesla is more than an auto manufacturer, we expect a choppy trading environment” over the next year, analyst Andrew Percoco wrote in a note to clients on Sunday, his first as the firm’s new head of Tesla coverage. “We see downsides to estimates, while the catalysts for its non-auto businesses appear priced at current levels.”

Percoco’s new price target on the stock of $425 implies a 6.6% decline from Friday’s close. He’s taking over for Morgan Stanley’s long-time Tesla analyst Adam Jonas, who had an overweight rating on the shares since September 2023, according to data compiled by Bloomberg. Percoco’s current rating is equal-weight. The average price target is $388, and the company now has 28 buy ratings, 19 holds and 16 sells.

The stock fell as much as 3% on Monday to trade around $441.

Percoco wrote that the company is positioned to be a leader in humanoid robots and sees its Optimus initiative as worth $60 per share. But he expects its EV sales volume to fall 12% in North America next year amid an industry-wide slump.

Tesla shares have largely shrugged off a slide in profits this year as Chief Executive Officer Musk has emphasized artificial intelligence efforts such as self-driving cars and humanoid robots. But it’s still been a volatile year for the stock, which is up around 10% this year after rising 63% in 2024 and 102% in 2023. The S&P 500 Index is up over 16% this year.

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