Tesla's Auto Rebound Boosts Near-Term Outlook, But AI Remains Key for Valuation, Analysts Say

A significant rebound in Tesla's automotive performance is expected to bolster near-term earnings and help fund its costly artificial intelligence ambitions. However, analysts at Morgan Stanley and Barclays maintain that the electric vehicle maker's long-term valuation hinges on the success of its ventures in Robotaxi, Full Self-Driving (FSD), and the Optimus robot, not its core car business.

Automotive Business Gains Momentum

Tesla reported 480,126 vehicle deliveries in the second quarter, a figure that surpassed sell-side expectations by 18% and marked the company's most robust growth rate since the third quarter of 2023. This stronger performance has put Tesla on a path for its first annual increase in deliveries since 2023.

In response to the delivery beat, Morgan Stanley raised its vehicle forecasts for 2026 and 2027 to 1.67 million and 1.86 million, respectively. The automotive division, which still accounts for approximately 70% of Tesla's total revenue, provides a critical financial foundation as the company ramps up spending on AI infrastructure.

Analyst Upgrades and Projections

Both investment banks have adjusted their earnings estimates and price targets, though they remain cautious on the stock's overall rating. Both firms maintained their Equal Weight ratings on Tesla shares.

Key analyst projections include:

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• Morgan Stanley: Forecasts second-quarter adjusted earnings of $0.69 per share, significantly above the consensus estimate of $0.49. The firm raised its price target to $417 from $415, but noted that only $47 of this valuation is attributed to the automotive business.
• Barclays: Projects adjusted earnings of $0.55 per share, also above the $0.47 consensus. The firm lifted its price target to $370 from $360.

Morgan Stanley expects automotive gross margin, excluding regulatory credits, to be 18.1%, in line with market expectations. Barclays anticipates a sequential decline in margins but believes they will remain at healthy levels.

AI Investments Remain the Core Thesis

While a healthier car business provides a valuable source of cash, it is not seen as the primary driver for a major re-rating of the stock. The capital is instead being used to fund massive investments in projects like Robotaxi and Optimus.

Morgan Stanley estimates Tesla's 2026 capital spending will reach $26.8 billion, leading to a free-cash-flow burn of $11.4 billion. This significant outlay increases the pressure on Tesla to demonstrate a clear path to generating returns from its AI ventures. According to Barclays, the Robotaxi rollout remains limited, with an estimated 30 to 50 vehicles operating in Austin and smaller fleets in other cities, many still with safety monitors.