When your most bullish analyst hands off coverage to someone new, it's rarely a great sign. Tesla Inc. (TSLA) shareholders learned this lesson Monday as Morgan Stanley's freshly minted automotive analyst Andrew Percoco took over the sector from the notably Tesla-friendly Adam Jonas. The change brought an immediate rating cut for the EV giant, even as rival General Motors (GM) caught an upgrade.

Tesla stock found itself among the day's worst performers as the news hit. So what's driving this shift in perspective?

The New Sheriff in Town

Percoco wasted no time making his mark on the automotive coverage universe. His first round of ratings and price targets painted a distinctly different picture of the sector than Jonas had maintained. Here's the rundown:

• Tesla: Downgraded to Equal-weight from Overweight, though the price target nudged up slightly to $425 from $410
• General Motors: Upgraded to Overweight from Equal-weight, with a dramatic price target increase to $90 from $54
• Lucid Group (LCID): Downgraded to Underweight from Equal-weight, price target slashed to $10 from $30
• Rivian Automotive (RIVN): Downgraded to Underweight from Equal-weight, maintaining a $12 price target

Why the Tesla Downgrade?

The shift is particularly notable given Jonas's enthusiastic stance on Tesla. He had named it the top automotive stock for 2025 and maintained an Overweight rating since 2023, cheering everything from the company's AI potential to CEO Elon Musk's compensation package.

Percoco sees things differently. While he acknowledges Tesla's leadership position in electric vehicles, renewable energy, manufacturing, and real-world AI applications, he thinks the market has already priced in the good stuff.

"With downside to consensus estimates driven by pressures in the auto business and catalysts for its non-auto business priced in at its current valuation, we assume coverage at Equal-weight with a $424 price target and wait for a better entry point," Percoco explained.

The core issue? Tesla deserves a premium valuation for its technological edge, but "high expectations on the latter (AI) have brought the stock closer to fair valuation." Translation: the AI hype has already done its work on the share price.

Looking ahead, Percoco sees rough roads for the company's core automotive business. "We believe it will be increasingly challenging to support meaningful upside to Tesla shares barring an improvement, or at least stabilization, within its auto business," he noted.

His valuation framework spans a wide range: a base case of $425, a bull case of $860, and a bear case of $145. That's quite the spread.

General Motors Gets Its Moment

While Tesla gets the cold shoulder, General Motors is enjoying warmer treatment from the new analyst. Percoco sees the traditional automaker as better positioned for the current moment.

"Over the course of the last year, GM made strides in realigning their capital allocation strategy with a more tempered EV and AV growth curve," he said.

The analyst thinks GM could benefit from several policy shifts, including reduced uncertainty, the potential end of EV tax credits, and relaxed emissions requirements. The company's strategy of pivoting back toward its traditional strengths plays right into these trends.

"We expect GM to manage through with an appropriately re-aligned capital allocation strategy and refreshed product lineup highlighting strength in GM's core ICE trucks and SUVs," Percoco noted.

He's betting on what he calls a "prolongation of 'ICE is Nice' narrative" for traditional automakers. "As a result of easing compliance requirements, OEMs can leverage consumer preference for higher-value ICE and hybrid vehicles."

The timing could be right. While neither company has abandoned electric vehicles entirely, the analyst thinks focusing on traditional combustion engines and hybrids could pay dividends in the near term.

The Bigger Picture: EVs Hit a Speed Bump

Percoco's broader sector outlook explains much of his Tesla caution and GM enthusiasm. He's forecasting a 20% year-over-year decline in U.S. electric vehicle volumes for 2026. That's a serious headwind for pure-play EV companies like Tesla, Rivian, and Lucid.

Meanwhile, traditional ICE vehicle sales should tick up about 1% year-over-year in 2026, according to his forecasts.

His advice? "Position your portfolio toward best in class operators that can navigate a slower industry outlook by allocating capital effectively with a strong execution track record (General Motors)."

He warned investors to "be wary" of companies facing industry headwinds like EV deceleration, a category that clearly includes the pure-play electric vehicle manufacturers.

How the Market Responded

The market's reaction was mixed but predictable. General Motors shares dipped 0.5% to $75.69 on Monday, trading within its 52-week range of $41.60 to $77.00. Still, GM stock is up an impressive 47.3% year-to-date in 2025.

Tesla took a harder hit, falling 3.6% to $438.84. The stock trades in a 52-week range of $214.25 to $488.54 and remains up 15.6% for the year.

The analyst transition at Morgan Stanley represents more than just a personnel change. It signals a potential shift in how Wall Street thinks about the automotive sector's near-term future, with traditional manufacturers staging something of a comeback while pure EV plays face tougher scrutiny.