• Morgan Stanley (MS) analyst Andrew Percoco is increasingly constructive on Tesla (TSLA), citing better execution in Robotaxi and the core auto business, but the bank reiterated Equal Weight with a $400 price target.
  • The Roadster reveal, developed with SpaceX (SPCX), showcased engineering prowess but isn't a near-term sales driver; production is targeted for 2028.
  • Investors are focused on Tesla's October 21 earnings, where margins and cash flow will matter more than theatrics.

A Cautious Thumbs-Up

Morgan Stanley is turning more positive on Tesla ($TSLA), but don't call it a full-throated bull call just yet. Analyst Andrew Percoco, who has been among the more measured voices on the stock, is becoming incrementally constructive on the electric-vehicle maker, pointing to improving execution in both its Robotaxi efforts and the core automotive business. The bank reiterated its Equal Weight rating and $400 price target, according to people familiar with the matter — a stance that suggests Morgan Stanley sees better days ahead but isn't ready to chase the stock.

The shift in tone comes as Tesla prepares to report third-quarter results on October 21, a print that will be scrutinized for evidence that stronger delivery volumes are finally flowing through to the bottom line. The company delivered 486,532 vehicles in Q3, roughly 5.3% above the consensus of 461,974, according to CNBC. But that beat comes with an asterisk: deliveries were still about 2.1% below the same period a year ago. Beating a lowered bar, in other words, is not the same as restoring growth.

What has Morgan Stanley warming up is less about the cars and more about the broader ecosystem. Percoco highlighted Tesla's energy business as underappreciated, noting the potential combination of storage, solar and computing infrastructure. Tesla deployed 13.7 GWh of energy storage in the quarter. That may not be the headline number investors fixate on, but it's the kind of recurring, high-margin revenue stream that can help offset the cyclicality of vehicle sales.

Then there's the Roadster. Tesla unveiled a redesigned version of its halo car on October 15, developed in collaboration with SpaceX, at the rocket company's McGregor, Texas test site. The vehicle drove upside down on a ramp using suction, turned in the air and landed using thrusters — a demonstration that Percoco described as a showcase of engineering prowess, highlighting the technological crossover between Tesla and SpaceX. An invitation-only "Rocket" version with a "full flight system" was also teased. But final prices weren't announced, and production is now targeted for 2028, making the Roadster more of an engineering and branding exercise than a near-term earnings contributor. As Percoco put it, the key takeaway is that the Roadster is primarily a demonstration of Tesla's capabilities, not a sales driver.

Earnings Loom Large

The more immediate catalyst is the October 21 earnings report. Tesla's Q2 results, the most recent completed quarter, revealed a company growing revenue but struggling to convert it into profit. Revenue rose roughly 26% year over year to $28.24 billion, yet GAAP net income fell 5% to $1.11 billion. Adjusted earnings per share came in at $0.33, missing the $0.51 expected in a CNBC-cited LSEG (LSEG.L) poll. Operating margin compressed to 1.4% from 4.1% a year earlier, and free cash flow was approximately negative $1.1 billion as capital expenditure surged 142% to $5.79 billion.

Those figures explain why the upcoming print matters more than any Roadster theatrics. Tesla is spending heavily on autonomy, AI infrastructure, robotics and energy — businesses that could diversify future earnings but whose costs are already weighing on current results. The question investors will be asking is whether the Q3 delivery beat came with better margins or required pricing concessions. Competition from Chinese rivals like BYD (1211.HK), Nio (NIO) and Xiaomi (1810.HK) continues to pressure vehicle pricing outside the U.S., and while higher gasoline prices helped drive Q3 demand, according to Reuters (TRI), they haven't erased Tesla's broader sales challenges.

Regulatory friction adds another layer of uncertainty. Tesla introduced paid Cybercab rides in Austin in September, but the National Highway Traffic Safety Administration opened an audit covering approximately 1,000 Cybercabs, questioning how a vehicle without a steering wheel, pedals or mirrors complies with federal standards designed around human-operated cars. Reuters also reported that the existing exemption route caps deployment at 2,500 vehicles annually, though Tesla's engineering chief has said Cybercab wouldn't be subject to that cap — a claim whose legal basis remains contested. More recently, reporting published October 14 said NHTSA opened a defect-petition review concerning alleged robotaxi speeding in active school zones. No crashes, injuries or deaths were associated with the report, and the review is not a finding of a defect.

The Roadster as Halo Car

The Roadster carries unusual symbolic weight. The original model, sold from 2008 to 2012, helped prove that an EV could be a desirable performance car. A second-generation prototype appeared in 2017 with deliveries initially promised for 2020; the latest target is 2028. That history makes execution credibility as important as specifications. As Morningstar (MORN) analyst Seth Goldstein described it, the Roadster fits the classic "halo car" model — a low-volume flagship intended to showcase engineering and strengthen the brand. Tesla investor Gene Munster likewise characterized the reveal as an engineering demonstration with little direct commercial value.

The collaboration with SpaceX has also prompted speculation about a potential merger between the two companies, though Reuters reports that is speculation, not an announced transaction. Elon Musk remains CEO, with Vaibhav Taneja as CFO. The company stopped selling Model S and Model X this year and is repurposing factory capacity for Optimus humanoid robots while expanding Cybercab production.

For now, Morgan Stanley's more constructive stance reflects a recognition that Tesla's story is evolving beyond vehicle sales. But without a rating upgrade, it's a nudge rather than a shove. The bank declined to comment beyond its published research. Tesla did not immediately respond to a request for comment.

Correction: An earlier version of this article said production of the Roadster was targeted for 2028. That remains the company's stated target.