TMTPOST --  Morgan Stanley became more bullish on Tesla Inc. despite a nearly 4% pullback of the U.S. electric vehicle (EV) behemoth last week, highlighting analysts’ bullish on autonomous driving business and advancement of embodied artificial intelligence (AI).

Credit：Tesla

Morgan Stanley analysts led by Adam Jonas reiterated Tesla as their top pick and hiked their price target by $30 to $430 per share, an increase of 7.5%. The upgraded price target suggested analysts expected Tesla shares will rise around 8.5% from their Tuesday close. They provided bear case valuation of $200 per share for Tesla and a bull case valuation of $800. Their most optimistic price forecast more than doubled from Tesla shares’ close on Tuesday.

The analysts said their revision of price target was driven by increases in Tesla Mobility and Network Services valuations and partially offset by a decrease in their third Party Battery business valuation.

In their note earlier this week, Morgan Stanley analysts underscored the potential of Tesla Mobility, the company’s autonomous rideshare division which first unveiled a two-passenger full-electric self-driving vehicle dubbed Cybercab, and embodied AI, the integration of machine learning, computer vision, robot learning and language technologies.

“As interest in AVs [anotomou vehicles] continues to rise, we have undertaken the most extensive re-architecture and expansion of our Tesla Mobility (robotaxi) model since initially published in 2015. While autos still matter, we see embodied AI as the driver for upside to revised $800 bull case,” analysts wrote in the report.

The analysts saw embodied AI as the driving force for Tesla as investors increasingly acknowledge the relevance of the tech in a highly competitive and complex geopolitical environment.  “In our view, Tesla's recent share price appreciation has begun to discount the expanding 'surface area' between Tesla and physical AI including the company's natural advantages in terms of data collection, robotics, energy storage, AI/compute, manufacturing and supporting infrastructure - including the benefits of working across Elon Musk's other companies (SpaceX, xAI, etc),” the analysts wrote.

For the year 2025, the analysts anticipated the market's appreciation for Tesla's unique combination of skills can be further reflected in the multiple, offsetting the relatively well-known challenges during the period. Looking forward to the fiscal year 2025 and beyond, they saw Tesla’s Total Addressable Market (TAM) aperture further expand to broader embodied AI domains, many of which they believed are still not factored in buyside or sell-side financial models for the company.

Accordingly, the analysts have revisited and expanded the assumptions in Morgan Stanley Network Services and Tesla Mobility models. Tesla's Network Services, including Full Self-Driving (FSD), supercharging, and software upgrades, is now valued at $168 per share in the revised model, reflecting its growing importance to Tesla’s business model. The segment is projected to make up approximately one-third of Tesla’s total EBITDA, or earnings before interest, taxes, depreciation and amortization, by 2030, rising to nearly 60% by 2040. Tesla Mobility is valued at $90 per share and the mobility fleet is expected to grow to 7.5 million vehicles by 2040, with an estimated revenue of $1.46 per mile and a 29% EBITDA margin.

Bank of America (BofA) analysts last week  raised their price target on Tesla to $490 from $400, while cautioning “execution risk is high and TSLA is trading at a level that captures much of our base case long-term potential from core autos, robotaxi, Optimus, and energy generation & storage.”  The analysts led by John Murphy downgraded Tesla from Buy to Neutral.

BofA analysts believed Tesla Mobility, or robotaxi service, offers the largest opportunity for the automaker, now accounting for roughly 50% of its valuation. In their view, the service could be valued at $420 billion in the U.S. and over $800 billion globally, and the valuation of FSD could reach $480 billion. They noted the FSD technology is still in early stages of monetization but adoption is increasing, particularly among Cybertruck buyers.