Tesla ‘must see stabilization’ in auto business, but analyst believes other strengths overlooked

Tesla (NASDAQ: TSLA) must see a stabilization in the negative earnings revisions within the auto business first,” but Morgan Stanley analyst Adam Jonas believes other “booming” portions of its business are being overlooked after the Q2 Earnings Call earlier this week.

Jonas reiterated Morgan Stanley’s $310 price target and its ‘Overweight’ rating in a note to investors today.

Tesla shares fell drastically the day after Earnings as the company missed EPS expectations from Wall Street. The automaker beat revenue expectations.

However, even bullish analysts are seeing a need for the automotive business to stabilize as it fights margins and grow vehicle deliveries over the next few years:

“We believe Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first. We do not believe Tesla will get credit as an AI company as long as core auto earnings are being revised down. This process may take a few more quarters to see through.”

Tesla said earlier this year that it expects a “notably lower growth rate” due to the development of the next-gen platform and focus on Robotaxi and Full Self-Driving (FSD).

It also said that it expects to begin production of these next-gen models, including affordable EVs, sometime in the first half of 2025.

However, Jonas believes there should be some hesitancy for Tesla investors as near-term impact will likely be negative:

“Our thesis on Tesla is that it is both an auto stock + an energy, AI/robotics company. In fact, our valuation of the core auto business ($59/share) represents just 19% of our $310 price target. Negative developments in the global EV market very much matter to Tesla and should reasonably have a negative near-term impact on the price of the stock.”

It is no secret that many Tesla investors seem to be in the long-term play, so the short-term issues will not matter much to the “diamond hands” shareholders.

With that being said, Jonas believes auto-related business aspects will help the stock climb back upward toward its $310 price target:

“…we believe investors should not ignore the continued developments of Tesla’s other plays, many of which are auto-related (i.e. the recurring revenue opportunity from the Tesla fleet — embedded in our Tesla Network Services valuation) and other areas that we do not include within our $310 price target but that the market may inclue (i.e. Energy Storage, Optimus).”

Tesla is trading at around $222 today.

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