Morgan Stanley Maintains "Neutral" on Tesla (TSLA.US) Ahead of Q3 Results: Robotaxi Large-Scale Deployment Remains the Core Catalyst, Opportunities and Risks Coexist with High Capital Expenditure

According to Zhitong Finance APP, Tesla (TSLA.US) will release its earnings report after the market close next Wednesday (October 21). Morgan Stanley has issued its Q3 2026 earnings preview. The bank takes a more constructive stance on Tesla, maintaining an Equal-weight investment rating with a base target price of $400 and the current share price at $362.44. The report notes that large-scale deployment of Robotaxi remains the core share price catalyst for Tesla. The commercialization of the Cybercab autonomous taxi is making visible progress, but significant capital expenditure is consuming cash flow, and valuation pressures persist. The degree of share price appreciation depends on the commercial validation of its physical AI business.

From an operational fundamentals perspective, the traditional vehicle business demonstrates strong resilience. In Q3 2026, Tesla delivered 486,532 vehicles, only a slight YoY decline of 2%, and beat market expectations for two consecutive quarters. High gasoline prices highlight the cost advantages of electric vehicles, and with FSD Full-Self Driving option rates reaching 55% in North America, autonomous driving is becoming an important factor driving car purchasing demand.

However, the overall ownership cost of electric vehicles is still higher than gasoline cars, and industry purchase cost pressure remains unresolved. The report forecasts automotive gross margin (excluding regulatory credits) at 16.4%, slightly below consensus expectations. The regulatory approval progress of FSD in Europe and China will be key to determining both vehicle demand and profitability.

Robotaxi is the most significant share price catalyst for Tesla. Currently, fleet operating density in the Austin region has increased significantly and commercialization is on the horizon, but substantial validation is still needed in terms of vehicle utilization, safety performance, and unit economics. The Cybercab fleet in the region grew eightfold in 30 days, exceeding 300 vehicles, with cumulative autonomous mileage surpassing one million miles, achieving a major breakthrough in urban operating density.

However, the report cautions that simply expanding the fleet size does not equal commercial success. Going forward, the market should closely track vehicle utilization, safety performance, and unit economics. Compared to blindly entering new cities like Dallas, improving operational quality in existing cities is more valuable. In contrast, a cautious approach is maintained for Optimus humanoid robots, as uncertainties in supply chain, dexterity, and general-purpose task capabilities make the commercialization timeline still unclear.

The integrated model of energy storage, solar, and computing power makes the energy business an undervalued second growth curve and supports Tesla's transformation into a comprehensive distributed computing and power services provider. Energy storage, solar, and the modular AI computing system Megapod jointly build an ecosystem for distributed power and computing services, but quarterly shipment fluctuations are significant, so business value should be assessed from a mid- to long-term perspective.

Combining the electric truck Semi with autonomous driving yields significant economic benefits. Estimates show that autonomous driving can boost annual vehicle profit sixfold, making this another potential highlight for the business. For the Optimus humanoid robot business, the market should remain cautious, as there are still significant uncertainties regarding the pace and scalability of commercial rollout.

Meanwhile, Tesla is under substantial capital expenditure pressure. Capital expenditures for 2026 are expected to reach $26.4 billion, higher than the company’s own guidance of $25 billion, and free cash flow for the year is expected to be a net outflow of $11.7 billion. Investments are allocated across Robotaxi, humanoid robots, semiconductors, AI computing power, and energy storage. Given the high levels of capital investment, investment return efficiency is a core market concern. While improved business fundamentals provide somewhat optimistic expectations, ongoing cash burn and valuation constraints will continue to limit short-term share price upside.

The report adopts a segmental SOTP (Sum-of-the-Parts) valuation model. In the base case scenario with a $400 target price, network services, Robotaxi, and humanoid robots—three AI-related segments—jointly contribute $321, making up the vast majority of the valuation. The optimistic scenario target price could reach $835, while in the pessimistic scenario it falls to just $129, highlighting the huge range of uncertainty around the AI business. Options market data shows the chance of the share price climbing above $400 within the next 12 months is only 32.1%, and downside risks should not be ignored.

Overall, Tesla has moved past the Robotaxi concept demonstration phase and is now in the commercial validation period. Resilience in vehicle deliveries underpins the core business, but heavy capital expenditures continue to burn through cash. Looking ahead, the market is no longer satisfied with merely expanding fleet scale. Utilization, safety metrics, and unit profit models will become the touchstones for assessing the value of physical AI. If commercialization falls short of expectations, high valuations will face the risk of revaluation; while if the business model proves successful, Tesla could unlock brand-new growth opportunities. Investors must rationally distinguish between technical progress and commercial realization and maintain an objective view of the company's opportunities and risks.