Morgan Stanley believes Chinese automakers have likely secured victory in the electric vehicle segment, with Tesla (TSLA) now pivoting toward autonomy as its next competitive frontier. The investment bank still maintains an “Overweight” rating on TSLA stock with a $410 price target.

The analysis highlights Xiaomi’s (XIACY) SU7 and upcoming YU7 as watershed moments. They say Xiaomi is a company that offers Ferrari (RACE)-like design at Volkswagen (VWAGY) prices. 

This combination of premium aesthetics with affordable pricing fundamentally raises competitive standards for automakers targeting the $30,000-$40,000 segment. Morgan Stanley projects Xiaomi’s EV business could generate $32 billion in revenue by 2027, matching Tesla’s 2020 automotive sales in just three model generations.

Moreover, Tesla faces mounting challenges in China, the world’s largest EV market. Chinese competitors like BYD (BYDDY), NIO (NIO), and Xpeng (XPEV) offer aggressive pricing with some smart EVs priced below $10,000. 

Moreover, government subsidies, charging infrastructure investment, and policies favoring domestic brands further advantage local manufacturers. Chinese automakers have also gained a competitive advantage in verticals such as battery technology, autonomous driving, and smart features while better tailoring products to local preferences.

Meanwhile, Tesla’s market share in China has plummeted to just 5% of the all-electric vehicle market as of April 2025, with year-over-year sales declining. The EV maker also faces regulatory delays on its Full Self-Driving technology rollout and brand challenges stemming from political controversies.

Morgan Stanley argues Tesla’s strategic shift toward autonomy, spanning robotaxis, logistics, and mobility platforms, indicates that the next defensible margin pool lies in software and data rather than hardware manufacturing.

How Did Tesla Perform in Q1 2025?

Tesla reported mixed Q1 results, with total revenue declining to $19.34 billion, down 9% year-over-year, as the electric vehicle pioneer navigates intensifying competition and operational challenges while positioning for long-term growth.

Tesla delivered approximately 337,000 consumer vehicles in Q1, down from production disruptions caused by simultaneous factory changeovers to the new Model Y across all facilities. Automotive sales revenue fell 20% to $13.9 billion, pressured by lower average selling prices, higher customer incentives, and reduced deliveries of Models 3 and Y.

Net income in Q1 dropped to $409 million from $1.39 billion in the prior year period, due to margin compression amid pricing pressures and production adjustments. The company’s automotive gross margins contracted from 18.5% to 16.2%, driven by competitive pricing strategies and unfavorable sales mix.

However, Tesla demonstrated operational resilience with strong cash generation. Operating cash flow surged to $2.16 billion from just $242 million year-over-year, while it maintained a robust balance sheet with $37 billion in cash and investments.

Energy storage emerged as a bright spot, with revenue jumping 67% to $2.70 billion, driven by increased Megapack and Powerwall deployments. Tesla deployed 10.4 GWh of energy storage products, highlighting diversification beyond automotive.

Tesla expects capital expenditures to exceed $10 billion in 2025 as it invests in autonomy, AI capabilities, and manufacturing expansion. It remains focused on introducing more affordable vehicle options and advancing its Full Self-Driving technology while managing trade policy uncertainties that could impact global supply chains and cost structure.

What Is the Target Price for Tesla Stock?

Analysts expect Tesla’s sales to increase by less than 1% year over year while earnings are forecast to narrow by more than 20% in 2025. However, revenue and earnings are poised to reaccelerate for Tesla as the Big Tech giant is expected to gain traction in verticals such as autonomous driving and robotics. 

In fact, Tesla is forecast to end 2029 with adjusted earnings per share of $8.50, up from $2.42 in 2024. If TSLA stock is priced at 90 times forward earnings, it will almost double over the next four years. 

Of the 41 analysts covering Tesla stock, 16 recommend “Strong Buy,” two recommend “Moderate Buy,” 13 recommend “Hold,” and 10 recommend “Strong Sell.” The average target price for TSLA stock is $288, below the current trading price near $340.