Tesla needs to prove it’s more than just a car company for stock to keep moving higher – Morgan Stanley

Morgan Stanley analyst Adam Jonas has reiterated an Equal Weight rating and a $250 per share price target on Tesla (NASDAQ:) stock today as the electric vehicle (EV) company prepares to report on its second-quarter performance.

The analysts are “relatively cautious on the earnings revision outlook while prepared for the company to tout its AI chops.” They recently downgraded this EV stock, following a strong year-to-date (YTD) rally (+135%).

“While face value price cuts seem to have stopped for now (though TSLA continues to discount inventory and offer referral rewards), investors seem to be all over the place when considering the forces at play to determine 2Q’s GM – we have heard estimates as low as 16% and as high as 20%,” the analysts said in an earnings preview note sent to clients earlier today.

“The confluence of factors at play include: the exit rate for 1Q margins (full Q was 19.0% but many believe the exit rate was 100bps+ below that), increased utilization of the Berlin and Austin facilities, the easing of commodity costs, and TSLA’s regular cost elimination efforts, to name a few.”

The analysts see the upcoming Q2 earnings call “as a potentially important catalyst to unlock investor appreciation of an expanded TAM/business model.” At the recent event hosted by Morgan Stanley, the AI and stock price movements “were the sole topics discussed for the first 40 minutes,” they added.

So, the question arises – what does Morgan Stanley expect to learn from Tesla on AI this week?

“Likely not much. But that doesn’t mean people won’t be asking about it, especially with Dojo potentially having started production earlier this month.”

Instead, “Tesla needs to prove it’s more than just an auto company” to keep this year’s stock rally intact.

“We’d respect this potential,” the analysts concluded.