Morgan Stanley analysts

Morgan Stanley analysts believe that Tesla’s stock performance hinges more on artificial intelligence (AI) than its core electric vehicle (EV) business, stating that “AI-adjacent” developments are crucial for the company’s future upside. 

The view comes on the back of speculation around potential ties between Tesla (NASDAQ:TSLA) and Elon Musk’s AI startup, xAI. While Musk has denied reports of licensing and revenue-sharing discussions between Tesla and xAI, Morgan Stanley sees AI as an important factor in the automaker’s growth. 

“AI is more deterministic to Tesla’s share price than EVs by roughly 2 to 1 as per a recent survey,” the analysts said. They also pointed out how AI-related advancements—particularly in autonomy and robotics—could significantly impact Tesla’s valuation over the next 12 months.

“The advancement of large language models (LLMs) and GenAI have made a great leap into the field of robotics, accelerating how physical machines learn — through natural language, imitation, simulation,” the analysts said. 

The investment bank reiterated its stance that Tesla’s EV fundamentals may lead to downside risks, but emphasized that developments around AI are necessary for substantial upside. 

“We made Tesla our ‘top pick’ in U.S. autos six weeks ago,” Morgan Stanley noted, citing the expanding role AI will play in Tesla’s future, especially in areas like autonomous driving and robotics.

“The advancement of large language models and GenAI has made a great leap into the field of robotics, accelerating how physical machines learn,” the analysts said. 

Morgan Stanley urged Tesla investors to take Musk’s non-Tesla ventures into account when analyzing the company’s strategic outlook. 

“We note that the value of Elon Musk’s non-Tesla stakes may be reaching parity or exceeding the value of his Tesla shares,” they said, suggesting that Musk’s growing interests outside of the company could become a factor in Tesla’s future direction.