Tesla (NASDAQ:TSLA) has seen its stock price continue to slide in 2024, following a 28% drop in February and further losses in March. With shares now trading 44% below their all-time highs, Tesla’s market capitalization sits at $875 billion. Despite these setbacks, CEO Elon Musk remains optimistic, recently stating that a “1000% gain for Tesla in five years is possible” with strong execution.

Even as Tesla stock decline concerns investors, Morgan Stanley remains bullish on its long-term potential. The firm recently reaffirmed Tesla as its top U.S. auto pick, citing its AI and robotics ambitions as key growth drivers.

Tesla Faces Headwinds Amid Declining Sales

Tesla’s Q4 2023 earnings report raised red flags, showing an 8% year-over-year drop in automotive revenue and a 23% decline in operating income. The company attributed these declines to price cuts meant to boost sales, but competition in the electric vehicle (EV) market remains fierce.

Adding to Tesla’s challenges, former President Donald Trump’s tariffs on goods from Canada and Mexico threaten the company’s supply chain. Furthermore, Musk’s growing political presence has stirred controversy, which may be affecting Tesla’s brand reputation.

In Europe, Tesla is also struggling. Vehicle registrations in Germany dropped approximately 60% in January 2024 compared to the previous year, reflecting a sharp decline in consumer demand.

Meanwhile, competitors such as Alphabet’s (NASDAQ:GOOGL) Waymo have pulled ahead in self-driving technology. Waymo now provides 200,000 autonomous rides per week across major U.S. cities, highlighting Tesla’s slower progress in this area.

Morgan Stanley Remains Bullish on Tesla Stock

Despite the ongoing Tesla stock decline, Morgan Stanley analyst Adam Jonas maintains a $430 price target on the stock, suggesting a potential upside of more than 40%. Jonas believes Tesla’s pivot from a pure automotive company to a diversified AI and robotics firm could unlock future value.

Tesla’s annual vehicle deliveries fell in 2024 for the first time, signaling a shift in strategy. Musk has increasingly emphasized AI-driven products such as autonomous taxis and humanoid robots, though these ventures still face significant regulatory and technological hurdles.

Jonas predicts that vehicle deliveries may decline again in 2025 but views this as an attractive entry point for long-term investors who believe in Tesla’s broader AI ambitions.

Tesla Bets Big on AI and Robotics

While Tesla achieved record deliveries in Q4 2023, with nearly 2 million vehicles sold, Musk has made it clear that AI and robotics will be the company’s primary focus moving forward.

Tesla plans to roll out unsupervised Full Self-Driving (FSD) capabilities in Austin by mid-2025. Currently, thousands of Tesla vehicles operate autonomously at its Fremont factory, with Musk touting improved safety metrics for supervised FSD.

Another ambitious initiative is Optimus, Tesla’s humanoid robot project. Musk has claimed that Optimus could generate over $10 trillion in long-term revenue, though many analysts remain skeptical. The company aims to produce several thousand units in 2025.

Additionally, Tesla’s energy storage business is experiencing rapid growth, with deployments reaching record levels. The upcoming Shanghai Megafactory is expected to drive at least 50% year-over-year growth in this segment by 2025.

Despite Tesla’s significant investments in AI, robotics, and energy storage, automotive margins continue to shrink due to aggressive price cuts. However, Tesla remains cash flow positive, generating $2 billion in free cash flow in Q4 and $3.6 billion for the full year.

Is Tesla Stock Undervalued or Overpriced?

Despite the ongoing Tesla stock decline, analysts project sales to rise from $97.7 billion in 2024 to $134 billion in 2026. Earnings per share are expected to grow from $2.42 in 2024 to $3.78 in 2026, with free cash flow improving from $3.58 billion to $8.29 billion over the same period.

Tesla currently trades at 6.5x forward sales, 72x forward earnings, and 105x forward free cash flow—valuation multiples that suggest a premium price. Among 40 analysts covering Tesla stock, 13 rate it a “Strong Buy,” three a “Moderate Buy,” 14 a “Hold,” and 10 a “Strong Sell.” The consensus price target is $351.67, about 30% higher than the current trading price.

While Tesla’s AI and robotics investments could drive long-term growth, investors must weigh these ambitions against declining EV sales, rising competition, and macroeconomic challenges. For now, Tesla stock remains a volatile bet, with significant risks and potential rewards.

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