Tesla (TSLA) received a price-target hike and a rating change from Morgan Stanley on Sunday as the bank's analyst sees the automaker hitting several of the targets laid out in CEO Elon Musk's new pay package, valued at around $1 trillion. TSLA shares fell in Monday's stock market.

Morgan Stanley analyst Andrew Percoco took over from Adam Jonas on Sunday and assumed coverage of Tesla stock with an equal weight rating, giving TSLA a 425 price target. Jonas previously assigned a TSLA price target of 410 with an overweight rating.

"Tesla is a clear global leader in electric vehicles, manufacturing, renewable energy and real world AI and is thus deserving of a premium valuation," Percoco wrote Sunday.

"However, high expectations on the latter have brought the stock closer to fair valuation. While it is well understood that Tesla is more than an auto manufacturer, we expect a choppy trading environment for the TSLA shares over the next 12 months, as we see downside to estimates, while the catalysts for its non-auto businesses appear priced at current levels," the analyst added.

The Morgan Stanley analyst's base case for TSLA assumes the EV giant and CEO Elon Musk achieve seven of the 12 operational milestones by 2035 in Musk's massive $1 trillion pay package.

"Including potential dilution from these milestones, if market cap hurdles are achieved, would reduce our price target by 7%," Percoco noted.

The Bull And The Bear Case

Under Percoco's new model, Tesla's Optimus humanoid robot is worth $6o per share of equity value. Percoco also increased the firm's per-vehicle value for Tesla's full self-driving, or FSD, technology.

"Full Self Driving (FSD) is the crown jewel of Tesla's auto business; we believe that its leading edge personal autonomous driving offering is a real game changer, and will remain a significant competitive advantage over its EV and non-EV peers. As Tesla continues to improve its platform with increased levels of autonomy (i.e. hands-off, eyes-off) it will revolutionize the personal driving experience. It remains to be seen if others will be able to keep pace," Percoco wrote Sunday.

Morgan Stanley's bull case outlines an 860 per share TSLA valuation "which could be in play in the next 12 months if Tesla manages through the EV-downturn while demonstrating progress in scaling robotaxi into more geographies without the safety driver (and in winter weather-prone areas), rolling out unsupervised FSD to passenger vehicles, and scaling production of Optimus."

Meanwhile, Percoco said the bear case valuation is 145 per share, representing around 70% downside from current levels, and "assumes greater competition and margin pressure across all business lines, embedding zero value for humanoids, slowing the growth curve for Tesla's robotaxi fleet to reflect regulatory challenges in scaling a vision-only perception stack, and lowering market share and margin profile for the autos and energy businesses."

Tesla Stock Performance

TSLA dropped 3.4% to 439.58 in Monday's stock market, closing just above its 50-day moving average. Last week, Tesla stock jumped 5.8% to 455, making a strong move above the 50-day line.

Investors could have used that as an early entry in an emerging consolidation. Musk boosted TSLA stock after he said FSD owners with the latest V14.2.1 variant could text while driving. However, Tesla's FSD is still labeled as "supervised."

Cathie Wood and Ark Invest shaved their TSLA holdings last week. Wood sold 37,878 shares of Tesla on Friday after reducing its TSLA holdings by 7,478 shares on Thursday. Tesla remains a top stock for Wood and Ark Invest ETFs.

So far in 2025, TSLA has gained around 9%. Shares hit a record high of 488.54 in December 2024.

Since hitting a recent high of 474.07 on Nov. 3, briefly topping a 470.75 buy point, TSLA has declined about 7%, falling 5.8% in November, but battling back in the first week of December.

Analysts broadly see Musk's self-imposed deadline to remove "safety monitors" in its Austin, Texas, robotaxi service, by the end of 2025 as the potential next catalyst for TSLA stock.

Meanwhile, 2026 may be the year of the robotaxi wars. Tesla, Google-owned Waymo and Amazon.com (AMZN)-owned Zoox are all ramping up activity.

What Nvidia Earnings Mean For Tesla As 2026 Could Be The Year Of The Robotaxi Wars

Investors can also keep tabs on the Leaderboard, the IBD 50 list of top growth stocks and IBD SwingTrader along with the IBD Sector Leaders list.

Tesla stock has a 74 Composite Rating out of a best-possible 99. TSLA also has a 91 Relative Strength Rating and a 46 EPS Rating.

Please follow Kit Norton on X @KitNorton for more coverage.

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