Tesla's (TSLA.US) stock has taken a significant hit, but Morgan Stanley believes it's the perfect time to "buy the dip".

Tesla's (TSLA.US) stock has been under pressure in recent months amid multiple headwinds, with the shares down nearly 50% from their high on December 1, 2024. Despite this, Morgan Stanley remains bullish on the electric vehicle maker, saying that while the stock has experienced significant volatility recently, it still has long-term growth potential, and the price correction presents a buying opportunity.

The firm noted in a report that Tesla's delivery data this year has been below expectations, mainly due to intensifying competition, an aging product line, and negative sentiment towards the brand. Data showed that Tesla's sales in Europe in January were down 45% year-on-year, while the entire European market grew by 37%. There has also been a noticeable slowdown in China, with Tim Hsiao, an auto analyst in Greater China, noting that estimated orders in the past week were 11,000 to 13,000, down from 15,000 to 17,000 in the previous week.

Morgan Stanley expects Tesla's sales growth to slow, and investors are even starting to worry about the possibility of a year-on-year decline. The firm calculates that a 10% decline in Tesla's sales would result in a loss of about $2 billion in EBIT and a loss of nearly $4 billion in cash flow (including working capital).

Additionally, the firm said that investors' views of Tesla often fluctuate with the stock price. When Tesla's stock was high, investors generally viewed the company as a winner in the AI space, especially in embodied AI areas such as humanoid robots with significant potential. However, as the stock has halved, investors' attention has shifted to management distraction, damaged brand image, and declining car sales.

Nevertheless, Morgan Stanley believes that there is still an opportunity for Tesla's stock to test its bullish target price of $800 within the next 12 months. The report noted that Tesla's stock has high volatility, and potential positive catalysts in the future include the launch of its first autonomous taxi service (Robotaxi) in Austin, Texas (expected between June and August), updates to regulations on autonomous technology from the federal government, and the latest technology demonstration of Tesla's humanoid robot, Optimus.

Morgan Stanley has a target price of $430 for Tesla and considers the stock its top pick in the U.S. auto and ride-hailing sectors. At the same time, the firm highlighted the long-term growth potential in embodied AI and robotics.