Morgan Stanley has reinstated Tesla (NASDAQ:TSLA) stock as its ’Top Pick’ in U.S. autos, with its price target of $430 implying more than 50% upside from the company’s current share price.

With Tesla shares down nearly 30% year-to-date, the Wall Street firm sees this as a compelling entry point, emphasizing the company’s evolving role beyond electric vehicles (EVs) and into AI and robotics.

Tesla’s auto deliveries have softened, but Morgan Stanley views the company as transitioning from an automotive “pure play” to “a highly diversified play on AI and robotics.”

The bank expects Tesla’s total addressable market (TAM) to expand significantly as AI moves from the digital world to the physical realm, encompassing broader domains beyond just autonomous vehicles.

One of the key drivers of Tesla’s upside is its potential in humanoid robotics. Morgan Stanley analysts led by Adam Jonas note that "every 1% of US labor force that can be captured by Tesla Optimus is worth approximately $100/TSLA share."

They see growing investor attention in this segment, with the potential for humanoid robots to be a larger opportunity than autonomous vehicles.

Tesla’s energy business is also gaining traction. Analysts believe that Tesla Energy, driven by increasing global energy demand and AI-driven power consumption, could eventually be worth more than the company’s auto business.

They highlight that Tesla’s energy storage margins could be roughly double that of its automotive segment, reinforcing the company’s growing presence in the sector.

Another important factor contributing to Morgan Stanley reinstating Tesla as its Top Pick is the company’s declining exposure to China risks. The company’s China sourced revenues accounted for 21% of total Tesla revenues in 2024, but that figure is projected to decline systematically.

By 2030, the analysts forecast that China will represent approximately 10% of Tesla’s auto unit volume and 6-7% of total group revenue.

In addition, Morgan Stanley’s bullish thesis is supported by Tesla’s growing revenue from recurring services and its strong position in U.S. manufacturing.

While Tesla’s long-term trajectory in AI and robotics presents significant upside, the firm acknowledges near-term risks.

"EV ‘winter’ may be prolonged and could still require further steps to mitigate further potential losses near term,” analysts said. They also raise concerns about Tesla’s governance structure, specifically Elon Musk’s push for a 25% blocking minority stake in the company, and high near-term expectations around FSD/robotaxi solutions. 

Still, while Tesla’s path may be volatile and nonlinear, analysts expect 2025 to be a year when investors will "continue to appreciate and value these existing and nascent industries of embodied AI where we believe Tesla has established a material competitive advantage."

They reiterated their $800 bull case target for Tesla stock.