Morgan Stanley remains optimistic Tesla (TSLA) long-term story, but he doesn’t think investors should ignore the complicated environment.
Tesla released its Q1 2026 earnings report on Wednesday, April 22, 2026, to a mixed response, although the numbers looked good on the surface.
According to Searching Alpha, revenue soared $22.4 billion, beating the consensus of $21.1 billion, while adjusted EPS came in at 41 cents, above the estimate of 30 cents.
On top of that, the free cash flow was astonishing: $1.4 billion.
However, the quality of the rhythm mattered.
Auto gross margins were boosted by a massive $230 million release from the collateral reserve, while energy margins received an even larger $250 million tariff drawback.
As a result, the bank reiterated its equal-weight rating and $415 price target on Tesla. With shares recently trading in the $375 to $380 range, that implies roughly 9% to 11% upside.
To that point, the biggest problem with the company’s near-term positioning is that its future businesses still look a lot more like future businesses.
Robotaxi launches are progressing much more slowly than expected and unattended FSD is unlikely to begin until late 2026.
At the same time, Tesla’s capital spending forecast rose to $25 billion, raising the cost of pursuing that future.
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Tesla stock is back -3.24% more than a week, compared to the S&P 500 1.76% return.
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Tesla stock is back -1.19% more than a month, compared to the S&P 500 8.88% return.
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Tesla stock is back -16.19% for six months, compared to the S&P 500 6.33% return.
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Tesla stock is back -16.33% Year to date, compared to the S&P 500 4.67% return.
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Tesla stock is back 50.08% more than a year, compared to the S&P 500 33.28% return.
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Tesla stock is back 127.95% for three years, compared to the S&P 500 73.34% return.
Source: Seeking Alpha
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Base case: $415 price target. Morgan Stanley’s base case does not treat Tesla as a simple car company. It allocates just $45 per share to its core electric vehicle business, and expects most of its value to come from future businesses including software, Robotaxi, energy and Optimus.
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Box of bulls: $826. This is the version where “everything works”. Tesla can sell many more cars, make stronger margins, and continue to build a huge Robotaxi fleet, along with growing energy and Optimus businesses.
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Bear case: $131. This is what happens if Tesla remains reliant on cars and its newer businesses fail to create value.
Morgan Stanley didn’t completely write off Tesla’s quarter, but warned it would be a complete read for the rest of the year.
Much of this was because Tesla’s car margins increased due to one-off cases. However, to be fair, if we discount auto margin credits, they still beat Morgan Stanley’s estimate of 340 basis points.
More Tesla:
The energy businesses seemed to be another silver lining, but that also came with an asterisk.
Energy gross margins beat the bank’s 1,350 basis point estimate and consensus by 1,150 basis points, helped by $250 million in tariff refunds. However, if we exclude that, the segment still holds for 315 basis points much less than Morgan Stanley’s estimate.
Morgan Stanley’s reasoning falls into three main areas:
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The beat had quality questions. Extraordinary items helped beat margins, while Tesla management talked about competitive pressure and tariffs.
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The spending cycle is increasing. The capital spending forecast increased by $5 billion to more than $25 billion, according to Benzinga, and Morgan Stanley now estimates $26.1 billion in capital spending and $11.6 billion in free cash spending.
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The AI timeline is slower. Robotaxi miles have increased more than 2.5 times since December, but Musk said “rigorous validation” is the limiting factor. At the same time, unattended FSDs may begin in the fourth quarter and 3.5 million HW3 vehicles could be left behind.
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Wedbush has a price target of $600 for Tesla stock, Benzinga indicates.
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Cantor Fitzgerald has a price target of $510 for Tesla stock, according to Barron’s.
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Stifel has a price target of $508 for Tesla stock, Investing.com confirms.
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RBC Capital has a price target of $475 for Tesla stock, TipRanks notes.
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Canaccord Genuity has a price target of $450 for Tesla stock, according to Investing.com.
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UBS has a price target of $364 for Tesla stock, MarketScreener confirms.
Tesla’s biggest risk now is that its future continues to seem increasingly distant.
The bank is still validating its long-term physical AI story, but clearly, the short-term setup is confusing.
The electric vehicle giant is spending a ton, with capital spending by 2026 already expected to top $25 billion, while commercialization of Robotaxi and Optimus is coming much slower than investors expected.
Meanwhile, Tesla’s valuation is already giving the company credit for businesses that are not yet fully scaled.
To put it in context, Tesla stock is trading at 179 times forward earnings, 54% above its 5-year average, according to Seeking Alpha.
Tesla trades at 14.6 times forward sales, a 507% premium to the industry median.
On top of that, Robotaxi’s expansion is tied to “rigorous validation” and it’s a shame their HW3 vehicles don’t support unattended FSD.
Add to that potential margin issues tied to tariffs, competition, and uneven demand for energy storage, along with growing free cash flow consumption, and things get even more complicated.
Related: Fidelity sends a strong message to the S&P 500 after a sudden rebound
This story was originally published by TheStreet on April 25, 2026, where it first appeared in the Investments section. Add TheStreet as a preferred source by clicking here.