Morgan Stanley’s Warning to Tesla Investors

The spending is going up, and the margins are going down. Free cash flow is negative, and a Wall Street analyst who covers one of the most closely watched stocks in the market has just published a note saying the next quarter has to be different.

The note comes from Morgan Stanley, and the company it covers is Tesla. Analyst Andrew Percoco has been on the Tesla account since longtime analyst Adam Jonas moved to the automotive side. His message on August 11 is direct: the long-term AI thesis is still intact, but the numbers need to start showing up.

Percoco kept his Equal Weight rating and $415 price target on Tesla. The stock was trading around $330 at the time of publication, which puts the target roughly 26% above where the stock was sitting.

The note says the second-quarter earnings call did not change his long-term view. Tesla is positioned to lead in physical AI, and that part of the thesis is not in question. What has changed is the urgency around proof. Weaker gross margins, higher research and development spending, and extended free cash flow burn have ‘sharpened our and investors’ focus on measurable progress across Robotaxi and Optimus,’ Percoco wrote.

What Morgan Stanley is Watching on Robotaxi

On Robotaxi, Percoco wrote that he wants ‘clearer evidence that Robotaxi is scaling.’ More cities is not what he is asking for. More rides per vehicle, higher utilization, safety standards that hold, and none of it dependent on heavy remote support or expensive hardware upgrades.

Investors viewed the Robotaxi disclosures in Q2 as helpful but not enough. They want density in existing markets before they credit geographic expansion. Eight cities at low utilization is not the same business as eight cities running at high utilization. Percoco is watching the second number.

Percoco wants to see ride volume, not just city count. He wants revenue per vehicle. He wants to see what the operating costs look like relative to what customers pay. And he wants to see a network that does not depend on remote human operators or hardware swaps to function. Those numbers are not public yet.

What Tesla Optimus Must Show Investors Beyond Production Talk

On Optimus, Percoco said he is ‘still looking for evidence beyond commentary around SOP.’ SOP means start of production. Tesla has talked extensively about when Optimus production begins. Percoco wants to see what comes after that announcement.

The commercial case for Optimus is not about whether Tesla can build a robot. It is about whether the robot works without constant human supervision. It is about what it costs to manufacture. It is about whether businesses will pay for it. None of those questions have been answered publicly.

Tesla has said Optimus is already working inside its own factories. But working inside a factory under close supervision is different from operating at scale across multiple industrial environments. Investors want to see the second version. Commercial orders and contracts from outside Tesla would be the clearest signal that the product is ready for the real world.

The commercial case for Optimus is not about whether Tesla can build a robot. It is about whether the robot works without constant human supervision. It is about what it costs to manufacture. It is about whether businesses will pay for it. None of those questions have been answered publicly.

Tesla has said Optimus is already working inside its own factories. But working inside a factory under close supervision is different from operating at scale across multiple industrial environments. Investors want to see the second version. Commercial orders and contracts from outside Tesla would be the clearest signal that the product is ready for the real world.

Morgan Stanley’s note is not a warning that Tesla’s AI strategy has failed. It is a checklist of what the company needs to show before the market will assign full credit for it. Investors still see meaningful upside if Tesla delivers. The question Percoco is asking is when.