Morgan Stanley Sees Big Rally in Tesla After the February Crash

While Tesla (NYSE: TSLA) closed in the green on Friday, it lost almost 30% in February, which turned out to be the second-worst month ever for the stock. The only time Tesla saw an even bigger drawdown was in December 2022, when concerns over CEO Elon Musk’s ownership of Twitter (now X) deepened the sell-off in TSLA shares.

Meanwhile, amid the crash, Morgan Stanley analyst and noted Tesla bull Adam Jones predicted a 50% rally in the stock.

Tesla Stock Has Crashed

Musk’s association with the Trump administration and his time commitments towards DOGE (Department of Government Efficiency) which he heads, has been making a section of the market apprehensive about the billionaire’s ability to devote adequate time at Tesla. Such concerns have been around for quite some time as apart from Tesla Musk also heads several other companies like SpaceX and Neuralink. Of late, he has added X and his artificial intelligence (AI) startup xAI to the ever-growing list of companies that he owns.

To make things worse, there have been concerns over the electric vehicle (EV) market and Tesla’s ability to protect its turf. The company’s US sales fell in January, which came after a YoY fall in 2024 – its first annual decline in its deliveries.

Elon Musk’s Politics Might Be Hurting TSLA Stock

Europe has been another challenging marker for Tesla as Musk’s politics – especially his support for far-right candidates – seems to have worked to the detriment of the company. While the sales decline towards the beginning of the year is seasonal as the company pushes sales towards the end of the year, and some buyers might have held back their purchases to buy the Model Y refresh, Tesla’s sales numbers have disappointed so far this year.

Moreover, Tesla is battling intense competition in China. Notably, there is already a fierce price war in the Chinese EV market as companies have been cutting prices and offering incentives to spur sales. The Chinese auto market is among the most competitive globally, and domestic players are increasingly taking market share from foreign brands like Volkswagen and Ford.

Musk has praised Chinese EV companies several times. During Tesla’s Q4 2023 earnings call last year, he said, “Frankly, I think, if there are not trade barriers established, they will pretty much demolish most other companies in the world,” said Musk during the earnings call.

China’s BYD is already the biggest seller of new energy vehicles globally and is widely believed to become the biggest seller of battery electric vehicles also.

Adam Jonas Predicts Massive Rally in Tesla

Meanwhile, even as Tesla stock has crashed over 40% from its December highs, Morgan Stanley sees it rallying 50% from these levels. In a client note, Jonas said, “TSLA FY25 deliveries could potentially decline YoY, creating an attractive entry point to our preferred embodied AI name.”

He added, “Tesla’s YTD auto deliveries have been mostly below expectations, but not particularly narrative changing. Tesla’s softer auto deliveries are emblematic of a company in the transition from an automotive ‘pure play’ to a highly diversified play on AI and robotics.”

Notably, during the Q3 2024 earnings call last year, Musk said that Tesla’s 2025 deliveries would rise by up to 30% as the company launches its low-cost platform. During the same call, he sounded bullish that Tesla would be able to grow its 2024 deliveries on a YoY basis – which, as we now know, did not happen.

Analysts are not too bullish on Tesla’s 2025 delivery outlook though, especially it rising by as much as Musk predicted. Meanwhile, over the long-term, Jonas is bullish on Tesla’s Optimus humanoid which Musk believes is a trillion-dollar revenue opportunity. Jonas sees it “becoming serious enough to move the stock” and stressed, “While autos still matter, we see embodied AI as the driver for upside to our $800 bull case.”

Optimus Humanoid

At the “We, Robot” event last year, Tesla showcased the abilities of its Optimus humanoid. Musk said that the humanoid is doing some unspecified tasks in Tesla’s factory and that the company should be able to sell it externally by the end of 2025.

“Optimus will be more valuable than everything else combined because if you’ve got a sentient humanoid robot that is able to navigate reality and do tasks at request, there is no meaningful limit to the size of the economy,” said Musk at the event.

Notably, Citi expects humanoids to become a $7 trillion market over the next 25 years. At the shareholder meeting earlier this year, Musk said that Optimus humanoid could make Tesla a $25 trillion company, a milestone no company has come anywhere closer to.

Not All Buy Jonas’ Optimism Towards Tesla

Meanwhile, not all buy Jonas’s optimism towards Tesla. In a note last month, Barclays said, “The 2025 volume narrative has been de-emphasized, with Tesla merely noting a return to growth in ’25, and surprisingly alluding to battery supply challenges.”

Analyst Dan Levy added, “This is a contrast vs. the robust outlook provided on the 3Q24 call, in which Elon Musk said volume would grow by 20-30%.”

That said, Tesla has always been a polarizing stock, among investors as well as sell-side analysts. Even fund managers have had divergent opinion over the stock with some finding it too overvalued and other forecasting it to become the world’s biggest company.

The 13F filings of Bridgewater Associates, the hedge fund founded by Ray Dalio, showed that it built a new position in TSLA last quarter while trimming stakes in other Magnificent 7 peers. Notably, Tesla shares rallied sharply in Q4 following the victory of Donald Trump in the US presidential elections.

Meanwhile, TSLA stock is trading higher in US premarket price action today after Jonas’s bullish note. It however, remains in a bear market territory and has given up most of its post elections gains as markets gauge whether Musk’s associating himself so closely with Trump would actually benefit Tesla.