Morgan Stanley is still bullish on Tesla’s (TSLA) long-term story, but it doesn’t think investors should ignore the messy middle.

Tesla released its Q1 2026 earnings report on Wednesday, April 22, 2026, to a mixed response, though the numbers looked good on the surface.

According to Seeking Alpha, revenues shot up $22.4 billion, blowing past the $21.1 billion consensus, while adjusted EPS came in at 41 cents, above the 30-cent estimate.

On top of that, free cash flow was surprising at $1.4 billion.

However, the quality of the beat mattered.

Auto gross margins were boosted by a massive $230 million release of the warranty reserve, while energy margins received an even larger $250 million tariff rebate.

Consequently, the bank reiterated its equal-weight rating and $415 price target on Tesla. With shares recently trading in the $375 to $380 range, that implies roughly 9% to 11% upside.

To that point, the bigger issue with the company’s near-term positioning is that its future businesses still look a lot more like future businesses.

Robotaxi rollouts are moving much more slowly than expected, and unsupervised FSD is unlikely to begin until late 2026.

At the same time, Tesla’s capex guidance surged to $25 billion, which raises the cost of chasing that future.

• Tesla stock returned -3.24% over one week, compared with the S&P 500’s 1.76% return.

• Tesla stock returned -1.19% over one month, compared with the S&P 500’s 8.88% return.

• Tesla stock returned -16.19% over six months, compared with the S&P 500’s 6.33% return.

• Tesla stock returned -16.33% year to date, compared with the S&P 500’s 4.67% return.

• Tesla stock returned 50.08% over one year, compared with the S&P 500’s 33.28% return.

• Tesla stock returned 127.95% over three years, compared with the S&P 500’s 73.34% return.
  Source: Seeking Alpha

• Base case: $415 price target. Morgan Stanley’s base case doesn’t treat Tesla as a simple car company. It assigns only $45 a share for its core EV business, forecasting that most of its value comes from future businesses including software, Robotaxi, energy, and Optimus.

• Bull case: $826. This is the version where “everything works.” Tesla is able to sell far more cars, post stronger margins, and continue building an enormous Robotaxi fleet, along with growing energy and Optimus businesses.

• Bear case: $131. This is what happens if Tesla remains dependent on autos and its newer businesses fail to create value.

Morgan Stanley didn’t dismiss Tesla’s quarter outright, but warned about it being a read-through for the rest of the year.

A big part of it was Tesla’s auto margins getting a bump from one-offs. However, to be fair, if we discount the credits from auto margins, they still nudged ahead of Morgan Stanley’s 340-basis-point estimate.

More Tesla:

The energy businesses appeared to be another silver lining, but that, too, came with an asterisk.

Energy gross margins beat the bank’s 1,350 basis point estimate and consensus by 1,150 basis points, helped by $250 million in tariff rebates. If we exclude that, though, the segment still stands by a far smaller 315 basis points versus the Morgan Stanley estimate.

Morgan Stanley’s rationale breaks down into three core areas:

• The beat had quality questions. One-time items helped beat margins, while Tesla’s management talked about pressure from competition and tariffs.

• The spending cycle is getting bigger. Capex guidance surged by $5 billion to more than $25 billion, according to Benzinga, and Morgan Stanley now models $26.1 billion in capex and $11.6 billion in free cash flow burn.

• The AI timeline is slower. Robotaxi miles are up more than 2.5 times since December, but Musk said “rigorous validation” is the limiting factor. At the same time, unsupervised FSD may start in Q4, and 3.5 million HW3 vehicles may be left behind.

• Wedbush has a price target of $600 for Tesla stock, Benzinga indicates.

• Cantor Fitzgerald has a price target of $510 for Tesla stock, according to Barron’s.

• Stifel has a price target of $508 for Tesla stock, Investing.com confirms.

• RBC Capital has a price target of $475 for Tesla stock, TipRanks notes.

• Canaccord Genuity has a price target of $450 for Tesla stock, according to Investing.com.

• UBS has a price target of $364 for Tesla stock, MarketScreener confirms.

Tesla’s biggest risk now is that its future keeps feeling farther away.

The bank still validates its long-term physical AI story, but clearly, the near-term setup is messy.

The EV giant is spending a ton, with 2026 capex already expected to top $25 billion, while Robotaxi and Optimus commercialization are arriving much slower than investors had hoped.

Meanwhile, Tesla’s valuation is already giving the company credit for businesses that aren’t fully scaled yet.

For context, Tesla stock is trading at an eye-watering 179 times forward earnings, 54% above its 5-year average, according to Seeking Alpha.

Tesla trades at 14.6 times forward sales, a 507% premium to the sector median.

On top of that, Robotaxi expansion is linked to “rigorous validation,” and it’s a massive bummer that its HW3 vehicles don’t support unsupervised FSD.

Throw in the potential margin issues linked to tariffs, competition, and uneven energy storage demand, along with growing free cash flow burn, and things get even more complicated.

Related: Fidelity sends blunt message on S&P 500 after sudden rebound

This story was originally published by TheStreet on Apr 25, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.