Tesla Downgraded: Morgan Stanley Claims AI Hype Already Baked Into Stock Price

Wall Street just threw cold water on the electric vehicle giant's latest narrative. Morgan Stanley analysts cut their rating on Tesla, arguing the market's already pricing in its artificial intelligence dreams—and then some.

The AI Premium Question

It's the classic growth stock dilemma. Investors pile into a story—autonomous driving, robotaxis, Optimus robots—pushing valuations into the stratosphere. Then the number-crunchers step in, pointing out that future miracles need to eventually become current profits. The downgrade suggests Tesla's share price has sprinted ahead of its tangible AI deliverables, a familiar tune in tech where promise often trades at a premium to reality.

A Reality Check for Narrative Trading

The move highlights the tightening leash on pure speculation. When a firm like Morgan Stanley shifts its stance, it signals a pivot from betting on potential to scrutinizing execution. For Tesla, the AI narrative isn't enough anymore; the street wants timelines, commercialization paths, and hard numbers. It's a reminder that in the long run, markets are weighing machines, not just voting machines on cool tech.

One cynical take? This is finance's version of 'sell the news'—except the 'news' is still just ambitious PowerPoint slides and demo videos. The downgrade isn't about the technology's potential; it's a bet that the stock market got overexcited, again. For crypto natives, this feels familiar: it's the traditional finance echo of 'buy the rumor, sell the news,' just with cleaner balance sheets and more regulatory paperwork.

Morgan Stanley resets price and flags earnings risk

Andrew wrote that he expects uneven trading over the next year as pressure builds on earnings. He said, “While it is well understood that Tesla is more than an auto manufacturer, we expect a choppy trading environment.”

Andrew added, “We see downsides to estimates, while the catalysts for its non-auto businesses appear priced at current levels.” His call replaced the long-running stance of Adam Jonas, who had held an overweight rating on the shares since September 2023. From here on, the rating is Equal Weight.

The average Wall Street price target for Tesla now stands at $388. Current analyst positioning shows 28 buy ratings, 19 holds, and 16 sells.

Andrew said the company still has a path to leadership in humanoid robots and placed a $60 per-share value on the Optimus program alone. At the same time, he expects North American EV sales volume to fall 12% next year as the auto industry moves through a broader slowdown.

So far in 2025, Tesla shares are still up about 10%, even as the company’s profits weakened earlier in the year. That followed major gains of 63% in 2024 and 102% in 2023. Over the same period this year, the S&P 500 has risen more than 16%.

Elon has continued to direct market attention toward self-driving systems, artificial intelligence, and humanoid robots, even as Core vehicle demand softens.

EU fine on X pulls Musk into political fight

Meanwhile, the European Commission fined X €120 million, or about $140 million, after a two-year investigation under the Digital Services Act, which was adopted in 2022 to regulate digital platforms.

The Commission said breaches included the deceptive design of the blue checkmark, the lack of transparency in the advertising repository, and the failure to provide public data access for researchers.

Elon responded the same day on X to a Commission post with one word: “Bulls—.” On Saturday, he escalated his position and wrote that the European Union should be abolished and sovereignty returned to individual countries so governments could better represent their people. The response drew rapid backing from senior U.S. officials inside the second TRUMP Administration.

Marco Rubio, serving as Secretary of State, wrote that the fine was “an attack on all American tech platforms and the American people by foreign governments.” Andrew Puzder, the U.S. ambassador to the EU, posted that “Today’s excessive €120M fine is the result of EU regulatory overreach targeting American innovation.”

Andrew P. also said the administration opposes censorship and will challenge regulations that target U.S. companies abroad, adding that Washington expects fair, open, and reciprocal trade.

Last week, Henna Virkkunen, the European Commission’s executive vice president for tech sovereignty, security, and democracy, said, “With the DSA’s first non-compliance decision, we are holding X responsible for undermining users’ rights and evading accountability.”

Under the ruling, X now has 60 days to inform the Commission how it will fix the deceptive checkmark design, and 90 days to submit a plan to address problems with its advertising records and researcher data access.

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