Tesla an AI beneficiary, but needs to stabilize core auto business: Morgan Stanley

Tesla (NASDAQ:TSLA)'s status as a potential AI leader is undeniable, yet its immediate focus should be on stabilizing its core automotive business, according to Morgan Stanley analysts.

The analysts note that while Tesla's ambitious AI projects, such as autonomous vehicles and robotics, hold significant promise, the company must first address challenges within its primary sector.

Tesla recently postponed its highly anticipated Robotaxi day from August to October, according to a Bloomberg report. This delay is said to allow Tesla's teams more time to refine vehicle prototypes.

Despite the delay, Morgan Stanley remains cautious about the timeline for fully driverless vehicles, citing that achieving aircraft-level safety could take decades due to "moral, legal, ethical, and regulatory realities."

Tesla's AI ambitions extend far beyond autonomous cars. Morgan Stanley points out, “Robotics is bigger than cars,” emphasizing the potential for humanoid robots to operate in controlled environments.

The bank adds that the postponed Robotaxi day might also showcase Tesla’s broader AI capabilities, including hybrid compute systems and the integration of AI assistants like xAI products into their vehicles.

The analysts foresee the automotive industry evolving into a hub for distributed compute, energy, and thermal management, driven by AI.

Despite Tesla’s AI potential, the core automotive business remains crucial. Morgan Stanley highlights the need for Tesla to stabilize negative earnings revisions in its auto division.

They state, “We believe Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first.” They feel this stabilization is essential for Tesla to gain recognition as an AI company.

Morgan Stanley maintains an Overweight rating on Tesla with a $310 price target. They value the core auto business at $56 per share, representing 18% of the overall target.

The analysts suggest that while Tesla’s developments in AI and energy storage are promising, the primary focus should remain on stabilizing the automotive business to ensure sustained growth and investor confidence.