This article first appeared on GuruFocus.
Tesla (NASDAQ:TSLA) is entering a valuation crossroads after Morgan Stanley issued its first rating downgrade since June 2023, shifting Tesla from an overweight call to an equal-weight stance. Analyst Andrew Percoco acknowledged that Tesla could be evolving into a robotics and artificial intelligence platform, yet the current stock price appears to already reflect those ambitions. Tesla now trades at roughly 210 times projected earnings over the next 12 months, making it the second most expensive company in the S&P 500 Index, trailing Warner Brothers Discovery at 220 times and ahead of Palantir Technologies at 186. Percoco introduced a new price target of $425, which implies a possible 6.6% decline from Friday’s close, marking a significant change from long-time Tesla analyst Adam Jonas, who had maintained an overweight call since September 2023.
Percoco believes the next year could be choppy for investors as profit estimates continue to move lower while potential catalysts from non-auto initiatives may already be embedded in the share price. Tesla stock fell as much as 3% on Monday toward $441, and the analyst community now averages a $388 target, supported by 28 buy ratings, 19 holds, and 16 sells. Percoco expects North American EV volume could decline by about 12% next year, aligning with a broader industry slowdown. At the same time, Tesla’s Optimus humanoid robotics program may be worth roughly $60 per share, although the market may already be anticipating much of that upside. CEO Elon Musk has continued to spotlight artificial intelligence and automation from self-driving capabilities to humanoid applications as strategic pillars that could redefine Tesla’s future profile.
Despite falling profit estimates, Tesla’s valuation has expanded meaningfully, creating one of the more intense debates in the market over how much investors are paying for future optionality. Shares remain up about 10% this year after a 63% rally in 2024 and a 102% surge in 2023, while the S&P 500 has risen more than 16% this year. If the coming year reflects slower auto demand and longer development timelines for AI and robotics, the stock may experience increased volatility as the company balances near-term execution with long-dated technological ambitions.