Morgan Stanley Reiterates Bullish Stance on Tesla Despite Political Turmoil

Morgan Stanley, a prominent Wall Street financial giant, has once again expressed strong bullish sentiment towards Tesla, Inc. (TSLA.US). The firm's analysts, known for their optimistic stance on Tesla, have reiterated their "Overweight" rating and a 12-month price target of 410 dollars per share, despite the recent public feud between Tesla CEO Elon Musk and Donald Trump.

According to Morgan Stanley, Musk's diverse portfolio of ventures, including artificial intelligence (AI), autonomous driving networks, humanoid robots, AI-enhanced manufacturing, military drones, battery energy, and storage, positions Tesla at the forefront of numerous cutting-edge technologies. These areas are not only crucial for the U.S. government's "manufacturing jobs return to America" policy but also lack comparable alternatives on a global scale.

The recent public spat between Musk and Trump, which escalated on Thursday, led to a significant drop in Tesla's stock price, with a single-day decline of over 14%. This event also impacted the broader market, with the S&P 500 and Nasdaq indices experiencing a downturn. However, by Friday, Tesla's stock had recovered slightly, rising nearly 4%. Year-to-date, Tesla's stock has declined by over 25%.

Despite the intense rhetoric, both Musk and Trump appeared to have toned down their public attacks over the weekend. While there were reports that Trump had no plans to engage in direct conversations with Musk, Musk had already stepped down from his role in the White House by the end of May.

The core of the dispute seems to revolve around Trump's administration-led "Big and Beautiful" tax and spending bill, which Musk has criticized multiple times with sharp language.

One of the latest signals suggesting a potential de-escalation of the conflict came from Bill Ackman, a legendary hedge fund manager and prominent Republican donor. Ackman took to social media to urge both parties to focus on the national interest and maintain peace. Musk responded to Ackman, indicating a willingness to de-escalate.

Another signal of potential reconciliation came when Trump commented on the situation in Los Angeles, which he described as being overrun by illegal immigrants and criminals. He appointed several White House officials to address the issue, suggesting that order would be restored. Musk, in response, shared a post with two American flags, indicating his support for Trump's stance.

Morgan Stanley's analysts believe that the long-term fundamentals of Tesla remain strong, despite the recent political turmoil. They argue that the gradual phase-out of electric vehicle tax credits, as proposed in Trump's "Big and Beautiful" bill, will not significantly impact Tesla's stock price or long-term prospects.

The firm's analysts point to Tesla's strong performance in April and May, when the stock surged by over 50%. This rally was driven by Musk's commitment to focus more on Tesla and less on government affairs, as well as investor optimism about Tesla's potential dominance in AI, autonomous driving, AI-enhanced manufacturing, and humanoid robots.

However, Morgan Stanley acknowledges that the increased political attention could temporarily alienate some customers and corporate clients with differing political views. This could put additional pressure on Tesla's product demand. For instance, Tesla's recent global sales decline can be attributed to the political backlash from U.S. Democratic consumers, European consumers, and intensified competition in the China market, where the Model series cars are aging.

Despite these challenges, Morgan Stanley remains optimistic about Tesla's long-term prospects. The firm's analysts believe that the factors driving Tesla's stock price towards 410 dollars, and potentially even 800 dollars, remain unchanged.

Morgan Stanley highlights Tesla's leadership in AI supercomputing, autonomous driving networks, humanoid robots, AI-enhanced manufacturing, supply chain restructuring, renewable energy, and critical energy storage infrastructure. These areas are seen as having significant growth potential and employment opportunities, largely independent of U.S. politics and essential to the long-term interests of the American public.

Musk himself has identified AI, humanoid robots, FSD (Full Self-Driving), and autonomous ride-sharing as the key growth drivers for Tesla's next phase. However, Morgan Stanley warns that Tesla's stock price may continue to experience volatility in the short term.

Morgan Stanley's long-term bullish outlook for Tesla is based on the widespread adoption of FSD, the development of a fully autonomous ride-sharing network, and the potential of the Optimus humanoid robot business. The firm believes that the market for humanoid robots could eventually surpass the current global automotive market.

Morgan Stanley argues that Tesla's high valuation and premium compared to traditional automakers cannot be justified by its current business earnings. Investors generally cap Tesla's automotive business valuation at 50-100 dollars per share. This limitation is akin to valuing Amazon solely as an online retailer or Apple as a hardware manufacturer.

Instead, Morgan Stanley sees Tesla's value in its portfolio of cutting-edge ventures, including AI supermodels, autonomous driving networks, humanoid robots, battery energy, and storage. These areas represent significant future potential.

With the global popularity of ChatGPT and the emergence of new AI models like DeepSeek, which offer low-cost and high-efficiency solutions, AI is becoming increasingly integrated with various industries, including healthcare, finance, education, and consumer electronics. Morgan Stanley believes that Tesla, with its Dojo AI supercomputing system and Optimus humanoid robot, will be a major beneficiary of this AI revolution.

Tesla's AI team is world-class, and Musk's new AI venture, xAI, has developed the Grok series of AI supermodels. These models are expected to integrate deeply with Tesla's AI supercomputing system. Tesla has already developed FSD, the Dojo supercomputer, and custom AI chips. The integration of Grok's advanced models with Tesla's Dojo system is expected to significantly enhance the capabilities of FSD and Optimus.

Morgan Stanley estimates that the global workforce consists of approximately 4 billion people, with an average annual salary of 10,000 dollars, resulting in a 40 trillion dollar labor market. If a humanoid robot can be rented out at a cost of 5 dollars per hour, it could replace two human workers earning 25 dollars per hour, resulting in a net present value (NPV) of approximately 200,000 dollars per robot. In the U.S., with 160 million workers, even a conservative estimate suggests that replacing just 1% of the workforce with humanoid robots could create over 300 billion dollars in value, potentially adding 100 dollars to Tesla's stock price.