Have you ever watched a stock you love climb so high, so fast, that even the biggest bulls on Wall Street start getting nervous? That’s exactly where we are with Tesla right now.
Monday morning, shares opened down about one and a half percent after one of the most influential voices in the auto and tech space quietly changed its tune. The bank didn’t slash the price target or scream “sell.” In fact, they actually nudged the target higher. But the message was crystal clear: the easy money has already been made.
In my view, this is one of those moments that separates long-term believers from short-term traders. So let’s unpack what actually happened, why it matters, and whether this is a speed bump or the beginning of something bigger.
A Changing of the Guard and a Reality Check
First, a little context. For years, Tesla coverage at this particular bank was synonymous with one name – the perennial bull who saw possibilities years before most analysts even understood the questions. That era appears to be over. A new team has taken the reins, and with fresh eyes comes a fresh perspective.
The new lead doesn’t hate the story. Far from it. They still see Tesla as the undisputed leader in electric vehicles, real-world AI, and large-scale manufacturing. But leadership alone doesn’t justify infinite valuations. At around $455 before the note, the market had already priced in a huge chunk of the future these analysts still believe in.
That’s the core of the downgrade from Overweight to Equal-Weight: not that Tesla suddenly became a bad company, but that the stock finally caught up to even a very optimistic base case.
The New $425 Price Target – Higher, Yet More Cautious
Yes, you read that right. The official price target actually went up – from $410 to $425. On the surface that looks bullish. But when a stock is trading well above the new target, an increased number can still signal caution.
At recent levels, $425 implies roughly 6-7% downside from Friday’s close. Not a disaster, but hardly the screaming buy some investors have grown accustomed to hearing.
More importantly, the composition of that $425 tells us almost everything we need to know about how Wall Street’s thinking has evolved.
Five Pillars: The New Sum-of-the-Parts Breakdown
The new team completely rebuilt the valuation framework from the ground up. Instead of one giant number, they now split Tesla into five distinct businesses. Think of it as looking under the hood and pricing each engine separately.
Here’s how the $425 per share breaks down:
- Core automotive business: $55 per share
- Energy generation and storage: $40 per share
- Network services (mainly Full Self-Driving subscriptions and features): $145 per share
- Robotaxi platform (Tesla Mobility): $125 per share
- Optimus humanoid robots: $60 per share
Add them up and you get the new target. Notice anything interesting? More than 80% of the value now comes from businesses that are either barely generating revenue today or don’t exist at all yet.
That’s a remarkable shift from earlier models that leaned heavily on car deliveries and energy margins. In many ways, it feels like the market has transformed Tesla from an automaker with software upside into a full-blown AI and robotics company that happens to sell cars.
“The stock price has caught up with our base-case outlook for now.”
– Lead analyst note, December 2025
Why the Auto Business Got Marked Down
Let’s start with the piece most investors still think of as “Tesla” – making and selling cars.
The new team remains impressed with manufacturing scale and vertical integration, but they’ve grown more cautious on global EV adoption speed. Their 2026 delivery forecast now sits noticeably below consensus, and long-term assumptions through 2040 have been trimmed.
Two big reasons stand out. First, competition – especially from well-funded Chinese manufacturers – is intensifying faster than many expected. Second, the U.S. adoption curve appears to be hitting a temporary plateau as early enthusiasts give way to more price-sensitive mainstream buyers.
The result? Only $55 per share of value attributed to the entire automotive operation. That’s a far cry from frameworks that once placed hundreds of dollars on cars alone.
Full Self-Driving: The Crown Jewel
If the car business got downgraded, the software side got upgraded – dramatically.
The analysts call Full Self-Driving the “crown jewel” of the franchise, and it’s hard to argue. At $145 per share, Network Services now represents the single largest chunk of value in the entire model.
Why so much? Because once unsupervised FSD becomes reality, every Tesla on the road turns into a recurring revenue machine. Higher subscription take rates, insurance products, premium connectivity – all of it flowing straight to high-margin profit.
In my experience following this space, the Street consistently underestimates software gross margins in hardware companies. When penetration crosses 50%, the economics change overnight.
Robotaxi: Lower Cost Per Mile Changes Everything
The $125 per share assigned to robotaxis might be the most debated number in the entire note.
The team built a detailed, city-by-city model of U.S. autonomous ride-hailing. Their key assumption: Tesla’s camera-only, vertically integrated approach ultimately delivers a structurally lower cost per mile than lidar-heavy competitors.
They’re upfront about hurdles – regulation, weather, public acceptance – but the base case assumes steady fleet growth and falling costs that eventually undercut traditional rideshare pricing by a wide margin.
Perhaps the most interesting aspect is how conservative some of the inputs actually appear. They don’t assume Tesla captures 80% market share or launches nationwide tomorrow. This feels more like a realistic 2030-2035 outcome than science fiction.
Optimus: $60 Per Share With a 50% Haircut
Yes, you read that correctly – the analysts now explicitly assign $60 per share to humanoid robots. And that’s after cutting their own discounted cash flow number in half to account for execution risk.
Drawing from separate research projecting a multi-trillion-dollar annual market by mid-century, they argue Tesla’s advantages in real-world AI data, custom chips, battery technology, and manufacturing scale create a credible path to leadership.
Will Optimus actually ship millions of units to factories and homes? Nobody knows. But putting a non-zero number on the table – and a substantial one at that – forces investors to confront how asymmetric the risk/reward might be.
Energy: Still Growing, Just Less Explosively
The energy storage business remains a structural growth driver, fueled by AI data center demand and broader electrification. But expectations have been tempered to align more closely with global clean-tech forecasts.
Result: roughly $40 per share of value – solid, but no longer the hockey-stick trajectory some earlier models assumed.
Bull and Bear Cases: From $145 to $860
The team laid out an unusually wide range of outcomes:
- Bull case $860 – Faster EV growth, higher software margins, rapid robotaxi scaling, Optimus success
- Base case $425 – Current trajectory
- Bear case $145 – Intense competition, slow autonomy adoption, zero value for Optimus
That bear case is particularly striking. Strip away the long-dated optionality and you’re left valuing Tesla roughly like a premium automaker with some energy exposure. Not terrible, but a far cry from current levels.
So Is Tesla Finally “Fairly Valued”?
Here’s where personal perspective comes in. I’ve followed Tesla long enough to see multiple cycles of “this time it’s different” followed by “okay, maybe it actually is.”
The new framework feels grounded in a way earlier models sometimes weren’t. Giving meaningful credit to robotaxis and humanoids while simultaneously reducing near-term auto expectations strikes me as intellectually honest.
But fair value is a moving target. If even one of those high-optionality bets starts showing concrete progress – unsupervised FSD approval, Optimus factory pilots, robotaxi demonstrations that actually work in tricky conditions – the multiple expands again almost overnight.
Conversely, another quarter or two of softening deliveries combined with delayed autonomy timelines could pressure the stock toward that $300-350 range pretty quickly.
The downgrade isn’t a declaration that the Tesla story is over. It’s an acknowledgment that much of the story is now priced in. For the first time in years, owning Tesla requires believing not just in execution, but in continued multiple expansion on businesses that remain largely theoretical.
Some investors will see that as the ultimate buy signal – the moment when even Wall Street’s biggest optimists turn cautious is often when the real move begins. Others will take it as a warning that gravity still exists.
