Shares of Lucid and Rivian fell more than 3% in early Monday trading after Morgan Stanley cut its price targets and ratings on both electric vehicle makers.
The investment bank — which also downgraded Tesla but raised its price target — cited concerns over slowing EV adoption and the loss of federal tax credits.
Morgan Stanley’s auto research coverage is now led by analyst Andrew Percoco, who took over from Adam Jonas.
Jonas said last August he would switch roles within the firm to focus on physical and embodied artificial intelligence (AI), including autonomous vehicles, electric vertical take-off and landing aircraft, space and humanoid robots.
Rivian
Percoco downgraded Rivian from Equalweight to Underweight with a price target of $12.00 — implying a downside of 33.1% based on the Friday’s closing price.
The analyst said the company faces significant challenges as it prepares to launch its mid-sized SUV R2 into a difficult market environment.
The $7,500 federal EV tax credit expired on the last day of September, removing a key purchase incentive for consumers.
“Rivian faces outsized risk heading into 2026 as it launches its lower-priced R2 into a challenging EV market, where slowing adoption, loss of the $7,500 tax credit, and persistent consumer concerns (range anxiety, charging infrastructure, residual values, battery tech, affordability) create headwinds that a mass-market vehicle may struggle to overcome in the near-term,” Percoco wrote.
While the R2 expands the EV maker’s addressable market, the analyst warned of additional pressures on Rivian‘s existing lineup.
“We believe the company will also face residual-value pressure from R1 lease returns and potential demand cannibalization,” he added.
The company founded and led by RJ Scaringe says it will have annual production capacity for more than 150,000 R2 vehicles once ramped up, with an R2 completed on average every two minutes.
Percoco acknowledged Rivian‘s strengths but noted competition from Tesla‘s autonomous driving technology remains a concern.
“Rivian‘s strong design and performance help, but Tesla‘s rapidly advancing FSD will require greater conviction in Rivian‘s AV capabilities,” he wrote, adding that investors should “expect more details at Rivian‘s upcoming AI day on December 11th.”
Over the last few weeks, Tesla has been accelerating the rollout of new FSD (Supervised) versions in the US while starting test rides in several key European markets.
Looking at Rivian‘s financial outlook, Percoco forecasts that auto gross margins excluding credits will remain relatively stable in 2026 as R2 scaling reduces bill-of-materials costs, with software and services contributing incremental high-margin revenue.
The analyst projected a $2.9 billion adjusted EBIT loss for the year.
After approximately $300 million of working capital needs and $1.6 billion of capital expenditures, Percoco expects Rivian to burn $4.2 billion of free cash flow, though he noted the company should receive its next tranche of capital from Volkswagen upon completion of winter testing in the first quarter of 2026.
Rivian ranked first for the third consecutive year in Consumer Reports’ Owner Satisfaction ratings, which evaluates vehicles based on performance, comfort and usability.
According to the survey, 85% of Rivian owners would buy the company’s vehicles again, the highest score among the 26 automakers evaluated.
BMW ranked second with a 71% rate, while Tesla followed closely in fourth place with 69%.
Tesla
Percoco downgraded Tesla from Overweight to Equalweight with a price target of $425.00, up from $410.00.
Tesla shares closed at $455 on Friday and are up 12.7% year to date.
The stock reached its 2025 high at $474 in early November, just $14 below the all-time high of $488.54 registered exactly a year ago.
Following the Morgan Stanley note, shares traded 1.2% lower in Monday’s pre-market session.
Aside from the note, Chief Executive Elon Musk escalated over the weekend political tensions, urging to “Dissolve the EU and return power to the people.”
Morgan Stanley’s analyst said Tesla deserves a premium valuation given its leadership position across multiple sectors but noted the stock has moved closer to fair value.
“Tesla is a clear global leader in electric vehicles, manufacturing, renewable energy, and real world AI and thus deserving of a premium valuation,” Percoco wrote. “However, high expectations on the latter have brought the stock closer to fair valuation.”
The new price target implies 6% downside from current levels.
While acknowledging that Tesla is more than an auto manufacturer, Percoco cautioned investors to expect volatility ahead.
“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, driving our EW rating,” he wrote.
The analyst said Morgan Stanley conducted a comprehensive review of its Tesla model, adding humanoid robot valuation supported by the firm’s Global Humanoid team’s total addressable market analysis, expanding its robotaxi model with proprietary market research, broadening its Network Services model including Full Self-Driving, and moderating its Auto and Energy forecasts.
Lucid
Percoco downgraded Lucid from Equalweight to Underweight with a price target of $10.00, down sharply from $30.00.
The new target is equivalent to $1.00 when adjusted for the 1-for-10 reverse stock split that became effective in September.
Based on Lucid‘s closing price last Friday, the revised target implies downside of 25.5% and would represent a new all-time low for the California-based EV maker.
The analyst said Lucid‘s premium positioning offers some protection against near-term volatility from the expiration of federal EV tax credits compared to mass-market competitors.
“Lucid‘s premium positioning and higher ASPs help buffer near-term volatility from the loss of EV tax credits relative to other mass-market EV OEMs,” Percoco wrote.
He highlighted the company’s industry-leading battery efficiency, which led to a technology-licensing agreement with Aston Martin, but said long-term success depends on executing its expansion into more affordable vehicles.
“Its path to profitability hinges on successfully scaling its more affordable midsize platform,” the analyst wrote, noting start of production is expected in late 2026 with production ramping in 2027.
Percoco does not forecast Lucid reaching gross profitability until 2028. While operating expenses are expected to remain stable and EBIT losses per vehicle should improve from $216,000 in 2025 to $126,000 in 2026, he projects losses will persist until 2031.
The analyst also flagged significant dilution risk for shareholders, estimating the company will need to raise approximately $2 billion in equity by the second half of 2026 relative to its $4.6 billion market cap.
The bearish outlook contrasts with recent comments from Lucid management.
Chief Financial Officer Taoufiq Boussaid said last week in a fireside chat that the company will register a new sales record in the fourth quarter as new orders trend as expected.
Asked about the usual stronger quarter in the final months of each year, Boussaid said: “There is definitely some seasonality. So we tend to compare versus last year, obviously, versus previous quarter. So as it trends now, I mean, we will see quarter-over-quarter growth.”
The CFO did not provide specific sales or production targets for the quarter, nor did he reference the company’s 18,000-unit annual production guidance.
Meeting that target would require approximately 8,034 units in the fourth quarter — more than double the third quarter’s 3,891 units — based on the 9,966 vehicles produced in the first three quarters.
Lucid shares are up 15.6% year to date despite losing nearly 25% of their value in the last four weeks. The stock reached a new all-time low of $11.46 on November 21.
