Shares of electric vehicle (EV) makers Lucid (LCID) and Rivian Automotive (RIVN) were down 6.1% and 2.5%, respectively, after top Morgan Stanley analyst Andrew Percoco downgraded his ratings for these stocks from Hold to Sell. The analyst also downgraded Tesla (TSLA) stock from Buy to Hold. Overall, Percoco has a cautious stance heading into 2026, as he expects the EV “winter” to continue.
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Here’s Why Morgan Stanley Analyst Downgraded LCID Stock
Percoco lowered the price target for Lucid stock to $10 from $30. The 5-star analyst expects Lucid’s premium positioning and higher average selling prices (ASPs) to mitigate near-term pressures from the end of EV tax credits, putting it in a better position than mass-market EV makers. He added that Lucid’s EVs offer industry-leading performance (in terms of battery efficiency and other aspects), which helped the company secure a technology-licensing agreement with Aston Martin.
That said, Percoco contends that Lucid’s path to profitability depends on the successful expansion of its more affordable midsize platform (SOP expected in late 2026, with ramping production in 2027).
Despite the anticipated rise in auto gross margins with the increase in Gravity SUV’s production, Percoco does not expect Lucid to achieve gross profitability until 2028. That said, assuming steady expenses, he projects EBIT (earnings before interest and taxes) losses per vehicle to improve from $216,000/vehicle in 2025 to $126,000 in 2026. He expects EBIT losses to continue until 2031. Meanwhile, Percoco warned of notable shareholder dilution risk as he expects Lucid to raise about $2 billion of equity by the second half of 2026.
Currently, Wall Street is sidelined on Lucid Group stock based on eight Holds, three Sells, and one Buy recommendation. The average LCID stock price target of $17 implies 35% upside potential.
Morgan Stanley Is Bearish on RIVN Stock
Percoco downgraded Rivian stock to Sell from Hold with a price target of $12. Heading into 2026, the analyst expects RIVN to face “outsized” risk as it introduces its lower-priced R2 in a tough EV market, which is under pressure due to slowing adoption, loss of the $7,500 tax credit, and continued consumer concerns about various issues, including charging infrastructure.
While the R2 will expand Rivian’s addressable market, Percoco contends that the EV maker will also face residual-value pressure from R1 lease returns and a possible cannibalization of demand. “Rivian’s strong design and performance help, but Tesla’s rapidly advancing FSD (full self-driving) will require greater conviction in Rivian’s AV capabilities – expect more details at Rivian’s upcoming AI day on December 11th,” said Percoco.
Furthermore, Percoco expects Rivian’s auto gross margins (excluding credits) to remain relatively steady, helped by lower bill-of-material (BoM) costs as R2 ramps up. He also expects software and services to contribute to incremental high-margin revenue. Overall, Percoco expects Rivian to post an adjusted EBIT loss of $2.9 billion. Considering nearly $300 million of working capital needs and $1.6 billion of capital expenditures, the analyst expects RIVN to burn $4.2 billion of free cash flow. Percoco expects the next tranche of capital from Volkswagen (VWAGY) upon completion of winter testing in the first quarter of 2026.
Overall, Wall Street has a Hold consensus rating on Rivian Automotive stock based on five Buys, eight Holds, and six Sell recommendations. The average RIVN stock price target of $13.87 indicates 20.5% downside risk.
