Tesla Shares Surge on Morgan Stanley’s Bullish AI and Robotics Outlook

Tesla’s stock experienced a 2% increase on Monday following Morgan Stanley’s decision to reinstate the electric-vehicle maker as its top U.S. auto pick. The investment firm’s bullish stance is predicated not so much on Tesla’s core automotive business, which faces growing headwinds, but rather on the company’s ambitious forays into artificial intelligence (AI) and robotics. According to Morgan Stanley, these initiatives have the potential to be significant growth drivers for Tesla in the long term, even if its traditional car sales falter.

The endorsement came in a note authored by analyst Adam Jonas, a known Tesla enthusiast who has long championed the company’s strategic diversification beyond the automotive sector. Jonas recognizes that Tesla’s car sales are under pressure due to a combination of factors, including high borrowing costs in the United States and intense competition from Chinese manufacturers like BYD.

Indeed, recent industry data paints a concerning picture for Tesla’s automotive business in key markets. In Europe, for example, Tesla’s sales plummeted by a staggering 45% in January, while overall electric vehicle sales in the region surged by 37%. This stark contrast highlights the increasing competition Tesla faces from established automakers and emerging EV brands, particularly in markets outside the United States.

Despite these challenges in the automotive realm, Jonas believes that Tesla’s future lies in its ability to transform itself from a pure-play automotive company into a diversified technology powerhouse focused on AI and robotics. He points to recent setbacks, including Tesla’s first annual deliveries drop in 2024, as evidence of this ongoing shift. Jonas maintains his $430 price target for Tesla shares, one of the highest on Wall Street, which suggests a potential upside of 44% from the stock’s latest trading price.

Jonas’s perspective aligns with the vision articulated by Tesla CEO Elon Musk, who has increasingly emphasized the company’s ambitions in robotaxis and AI over the past year. This pivot reflects a recognition that the automotive market is becoming increasingly crowded and competitive, while the potential for AI and robotics remains largely untapped.

However, the transition to robotaxis and AI is not without its challenges. Experts caution that large-scale adoption of robotaxis could be years away due to regulatory hurdles and technological limitations. The development of fully autonomous driving systems is proving to be more complex and time-consuming than initially anticipated, and regulatory frameworks for autonomous vehicles are still evolving.

Jonas is no stranger to making bold predictions about Tesla’s future. In September 2023, he suggested that Tesla’s Dojo supercomputer could boost its market value by nearly $600 billion through advancements in robotaxis. While Tesla’s market value has increased by approximately $150 billion since then, reaching nearly $950 billion, the company’s stock performance has lagged behind the broader U.S. market this year, declining 27%.

This underperformance can be attributed to a combination of factors, including waning enthusiasm following Donald Trump’s election win and growing concerns about weakening sales and Elon Musk’s involvement in White House matters. Musk’s increasingly public political engagements have drawn criticism from some investors who believe that they distract him from his core responsibilities at Tesla.

While Musk has promised sales growth this year with the launch of cheaper models, Jonas anticipates that deliveries could decline in 2025, potentially creating an attractive entry point for investors. This suggests that Jonas believes Tesla’s long-term prospects remain bright, even if the company experiences short-term setbacks.

Tesla has been actively showcasing its progress in areas beyond electric vehicles. In October, the company unveiled its robotaxi, and Musk has touted advancements in its humanoid robot, Optimus, which could eventually be priced at $20,000 to $30,000. Musk has also stated that Tesla will roll out driverless ride-hailing services in California and Texas this year, although he has provided limited details on the specifics of these plans.

The development of Optimus represents a significant long-term opportunity for Tesla. A commercially viable humanoid robot could revolutionize various industries, from manufacturing and logistics to healthcare and elder care. However, the technological challenges associated with developing a highly functional and affordable humanoid robot are substantial.

In conclusion, Tesla’s recent stock surge reflects investor optimism about the company’s potential in AI and robotics. While the automotive business faces challenges, Morgan Stanley believes that Tesla’s strategic diversification into these emerging fields could drive significant growth in the future. However, the transition to robotaxis and AI is not without its risks, and the success of these ventures will depend on overcoming technological and regulatory hurdles. The coming years will be crucial in determining whether Tesla can successfully transform itself into a diversified technology powerhouse and realize the full potential of its AI and robotics initiatives.