Tesla’s Lofty Valuation Draws Scrutiny as Key Bull Turns Cautious

Tesla's stock valuation is once again under the microscope, following a significant shift in stance from a long-time Wall Street supporter. The electric vehicle maker's shares, having rallied strongly to approach recent highs, now face pressing questions about how much future growth is already reflected in its current price.

The catalyst for the renewed valuation debate is a downgrade from Morgan Stanley. The investment bank has shifted its rating on Tesla from "Overweight" to "Equal-Weight," effectively moving to a "Hold" recommendation. Andrew Percoco, the analyst who succeeded well-known Tesla bull Adam Jonas, spearheaded the change. He cited valuation concerns as the primary reason, establishing a new price target of $425 per share.

This move signals a distinct cooling of enthusiasm from a previously bullish voice. Morgan Stanley's analysis points out that Tesla currently trades at approximately 210 times its expected earnings. According to the bank, this premium valuation already largely incorporates hopes for future profits from ventures in artificial intelligence and robotics.

The Pillars of a More Cautious View

Morgan Stanley's reassessment is built on several concrete factors that could limit near-term upside potential:

• Substantial Valuation Premium: The bank notes Tesla trades at the second-highest earnings multiple in the entire S&P 500 index. This lofty level is seen as capping the potential for rapid share price appreciation in the short term.
• Slowing Core Demand: Projections for 2026 indicate a potential decline of around 12% in electric vehicle sales across North America. This trend could dampen expectations for Tesla's primary automotive business.
• Future Ventures Priced In: Initiatives beyond traditional car manufacturing, such as the humanoid "Optimus" robot and autonomous driving technology, are viewed by Morgan Stanley as being largely factored into the current stock price.

In this context, the new $425 price target suggests the bank sees limited room for the stock to run higher in the immediate future.

Should investors sell immediately? Or is it worth buying Tesla?

Diverging Views Among Market Experts

The analyst community, however, is not entirely unified. Deutsche Bank maintains a constructive outlook on Tesla. Analyst Edison Yu reaffirmed a "Buy" rating in late September 2025, with a price target of $435.

Comparing these targets with the current trading level presents an intriguing picture: Morgan Stanley's target sits slightly below the market price, while Deutsche Bank's is just marginally above it. The narrow gap between these assessments indicates a market that is currently pricing Tesla's shares effectively at or above these guidance levels.

Market Performance and Technical Signals

On the German market, Tesla shares recently traded at €382.70. This places them roughly 16% below their 52-week high, yet nearly 90% above the annual low. Technical indicators highlight the stock's extended state: a distance of almost 26% above its 200-day moving average and a Relative Strength Index (RSI) reading of 73.7 both point to overbought conditions and a highly ambitious valuation.

Morgan Stanley's downgrade underscores this precise concern. The central issue is less about Tesla's long-term technological potential and more about whether the current share price has already captured a significant portion of that promise. Consequently, the focus in the coming months will be on whether the company can deliver sufficiently strong financial results to justify its high valuation, even in the face of anticipated headwinds in its core auto sector.