Morgan Stanley sends a blunt Tesla message to investors

Morgan Stanley has delivered a direct message to Tesla investors, highlighting the company's declining margins, negative free cash flow, and the urgent need for proof of progress in key areas such as Robotaxi and Optimus. Analyst Andrew Percoco, who took over Tesla coverage from longtime analyst Adam Jonas, maintains an Equal Weight rating with a $415 price target, indicating approximately 26% upside from the current $330 stock price.

Percoco emphasizes that while the long-term AI thesis remains intact, Tesla must demonstrate tangible results across Robotaxi and Optimus to move the stock higher. The company's record revenue in Q2 masks concerns over substantial research and development spending, which has increased free cash flow burn. Percoco is particularly focused on measurable progress in Robotaxi, including higher utilization, clearer evidence of scaling, and low dependence on remote support or expensive hardware upgrades.

For Optimus, Percoco seeks evidence beyond announcements, such as commercial orders, public demonstrations, manufacturing cost estimates, and customer contracts. The analyst acknowledges the upside potential in Tesla's AI story but cautions that the risk-reward is not strong enough for a primary buy at this time.