Morgan Stanley Tesla coverage is pressing for tangible results after a quarter marked by rising costs, sliding margins, and negative free cash flow. In an August 11 note, analyst Andrew Percoco said the long-term artificial intelligence thesis remains intact, but the next quarter must show clearer evidence of progress, according to Investing.com.
What Morgan Stanley just told Tesla TSLA investors to watch
Percoco maintained an Equal Weight rating and a $415 price target on Tesla, with shares trading near $330 at the time, implying about 26 percent potential upside.
He said Tesla’s second quarter call did not alter his long-range view that the company can lead in physical AI. What has changed is the urgency to demonstrate proof. Weaker gross margins, higher research and development spending, and ongoing free cash flow burn have sharpened the focus on measurable advances in Robotaxi and Optimus, he wrote.
Percoco took over Tesla coverage from Adam Jonas after Jonas moved to the automotive side of the firm. The August 11 note outlines the milestones that could lift the stock.
One standout in the quarter was Full Self-Driving adoption, which reached a 55 percent attach rate on North American deliveries versus Morgan Stanley’s prior 25 to 30 percent model. That strength raises expectations for Robotaxi because FSD underpins the autonomous strategy.
Why Tesla Robotaxi needs to prove it can scale in 2026
Percoco said he is looking for clearer evidence that Robotaxi is scaling. He is not focused on adding more cities. He wants more rides per vehicle, higher utilization, and safety performance that holds, all without heavy reliance on remote human support or costly hardware upgrades.
Investors viewed the second quarter Robotaxi disclosures as useful but insufficient. They want density and utilization in current markets before crediting expansion. Eight cities at low utilization is not equivalent to eight cities operating at high utilization, and Percoco is watching the latter.
He wants data on ride volume and revenue per vehicle, operating costs relative to fares, and a network that does not depend on remote operators or hardware swaps. Those metrics are not yet public.
Tesla has been expanding Robotaxi markets through 2026, with Austin first, followed by Dallas, Houston, Miami, and others. Morgan Stanley forecasts the fleet at about 1,500 vehicles by year-end, rising to 30,000 by 2030. For now, productivity matters more than size.
What Tesla Optimus must show investors beyond production talk
On Optimus, Percoco said he is still seeking evidence beyond commentary around start of production. Tesla has discussed when production begins, but he wants to see what follows.
The commercial case turns on whether the robot can operate without constant human oversight, how much it costs to manufacture, and whether there is paying demand. None of these elements have been detailed publicly.
Tesla has said Optimus is already working inside its factories. Operating in a supervised factory is different from running at scale across varied industrial settings. External purchase orders or contracts would signal readiness for broader deployment.
What Morgan Stanley is watching on Optimus:
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A functioning production version shown publicly and not only in controlled demos
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Evidence of operation inside Tesla’s facilities without constant human oversight
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Manufacturing cost estimates that support a viable commercial price
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Customer orders or commercial contracts from outside Tesla
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A credible mass production timeline tied to specific milestones
What Morgan Stanley’s $415 Tesla target means for TSLA stock
Equal Weight is not a bearish stance. Morgan Stanley sees upside in Tesla’s AI narrative, but does not view the risk-reward as strong enough for a top-pick call. The $415 target represents roughly 26 percent upside from $330.
Percoco’s concern centers on the lag between spending and results. Tesla is burning free cash flow as it funds Robotaxi, Optimus, and charging infrastructure. That is acceptable if spending converts into visible businesses. It is a problem if outlays keep rising without proof of progress.
Gross margins are under pressure and R&D costs are up. The market may tolerate this if Robotaxi ride growth materializes, Optimus units operate in the field, and FSD subscriptions expand. The 55 percent FSD attach rate is a positive start. The next quarter needs more data points like it.
Morgan Stanley’s note is not a signal that Tesla’s AI strategy has failed. It is a checklist of milestones the company needs to meet before the market assigns full credit. Investors still see potential upside if Tesla executes. The question is when.
Source: Investing.com