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Elon Musk-led Tesla (TSLA) is the most valuable car company in the world with a market cap near $1.1 trillion. However, analysts at Morgan Stanley believe that even Musk’s charisma and optimism about the company’s automotive business will not save it from the immense and inevitable competitive pressure from Chinese players like BYD (BYDDY) and Xiaomi.
The firm commented, “China EVs are coming to US shores – we think it’s just a matter of time,” and suggested, “you can’t keep the best product away from the best consumer for very long.” This comes as bad news for the Tesla stock, which is already down 15.3% on a YTD basis.
However, the firm is not writing off Tesla at all - in fact, far from it. While skeptical about the company’s core automotive business, Morgan Stanley said its wider strategy extends "far beyond four wheels,” and is upbeat about the prospects for Tesla in autonomy.
So, is the positive outlook warranted? Let’s find out.
Q1 Earnings Miss, While Cash Flow Climbs
Tesla missed Wall Street's expectations on both revenue and earnings in its latest quarterly report.
Total sales dropped 9% year-over-year to $19.3 billion, with its primary business segment — automotive — suffering a substantial 20% decline to $13.9 billion. Meanwhile, other parts of the company maintained healthy momentum: the energy generation unit posted a 67% increase in revenue, and the services segment advanced 15% from the same period last year, reaching $2.7 billion and $2.6 billion, respectively.
The pressure on profitability was more intense. Earnings per share fell markedly by 40% to $0.27, coming in well below the average analyst estimate of $0.41. This shortfall reflected rising cost pressures and a slowdown in unit sales.
Vehicle deliveries fell in tandem, declining 13% year-over-year to 336,681 units for the quarter.
Nevertheless, Tesla showed renewed strength in its ability to generate cash. Operating cash flow climbed sharply to $2.2 billion, a significant improvement over the $242 million posted in the year-ago quarter. Moreover, the company swung back into positive free cash flow territory, recording $664 million compared to a substantial $2.5 billion outflow in the same quarter last year. Tesla closed the period with a strong liquidity cushion of $37 billion in cash, while its short-term debt remained contained at $2.2 billion.
Future Powered By AI (and More)
Tesla’s scope has expanded rather dramatically over the last few years. Alongside EVs, Elon Musk’s operation now encompasses energy generation, storage, AI training technology, robotics, and autonomous mobility software.
Specifically, the Dojo Supercomputer and the Optimus humanoid robots are expected to be key pillars of the company’s AI strategy.
Notably, Morgan Stanley had predicted in 2023 that Dojo would lead to a value-add of about $500 billion for Tesla. Further, in this piece, I highlighted how Tesla is looking to leverage Dojo to interpret and learn from vast amounts of real-world driving footage to bolster its full-self driving (FSD) software while reducing dependence on Nvidia’s (NVDA) GPUs.
Meanwhile, in this more recent piece, I delved into the enormous market opportunity for Optimus. According to Elon Musk, the commercial opportunity attached to this initiative could eclipse $10 trillion as the company aims to have several thousand of these robots integrated into its manufacturing ecosystem before the close of 2025. Its long-term plans are targeting around a million operational units by the turn of the next decade.
Separately, Tesla’s energy storage arm continues to gather significant traction, propelled by a growing appreciation among utility providers for its role in fortifying grid resilience. The technology enables efficient capture of surplus energy during off-peak hours and its deployment when demand surges, making it increasingly valuable in modern power management. At the same time, Tesla is advancing plans to localize the production of lithium iron phosphate (LFP) battery cells within the United States, with equipment now being commissioned for domestic manufacturing. The company has also initiated efforts to diversify its procurement network away from China, although it acknowledges that establishing alternative supply chains will be a gradual process.
Together, these moves — scaling up storage capabilities and investing in U.S.-based LFP cell production — highlight Tesla’s broader strategy to strengthen energy independence while minimizing exposure to international supply chain vulnerabilities.
Analyst Opinions on TSLA Stock
Overall, the analyst community has an average rating of “Hold” for Tesla stock, with a mean target price of $287.86 - which has already been surpassed. However, the high target price of $465 denotes upside potential of about 36% from current levels. Out of 41 analysts covering the stock, 16 have a “Strong Buy” rating, two have a “Moderate Buy” rating, 13 have a “Hold” rating, and 10 have a “Strong Sell” rating.
