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Morgan Stanley urges Tesla to show margin and cash flow improvement
The note keeps an Equal Weight rating, with a $415 price target, and says Q2 data left investors focused on faster Robotaxi and Optimus proof.
Morgan Stanley told Tesla investors the company must show progress on margins and free cash flow, arguing that spending has risen while profitability has weakened and that free cash flow remains negative, according to Yahoo Finance. In a note dated August 11, analyst Andrew Percoco said the long-term AI thesis is still intact but that “the numbers need to start showing up.”
Percoco kept an Equal Weight rating and a $415 price target on Tesla, with the stock trading around $330 at the time of publication, putting the target about 26% above that level, according to Yahoo Finance. He said Tesla’s Q2 earnings call did not change his longer-term view, but he emphasized urgency around measurable progress across Robotaxi and Optimus, citing weaker gross margins, higher research and development spending, and extended free cash flow burn.
On specific operating updates, the note pointed to FSD adoption reaching a 55% attach rate on North American deliveries, which Morgan Stanley had been modeling at 25% to 30%, the outlet reported. Percoco said the stronger FSD result raises the stakes for Robotaxi because FSD is the foundation for Tesla’s autonomous strategy.
For Robotaxi, Percoco said investors want clearer evidence that it is scaling, focusing on factors like more rides per vehicle, higher utilization, and safety standards that hold, rather than simply adding more cities. Yahoo Finance also reported that the market is looking for density in existing markets before crediting geographic expansion, arguing that eight cities at low utilization is not the same business as eight cities operating at high utilization.