The Zhitong Finance App learned that Morgan Stanley released two research reports after Tesla (TSLA.US) announced the financial report for the third quarter of 2026. It believes that the company's autonomous taxi (Robotaxi) business is entering an important turning point in large-scale expansion. The fully automated driving (FSD) paid subscription rate continues to exceed expectations, while the improved profitability of the automobile and energy storage business also provides a more stable foundation for future investment. Based on the progress of the autonomous driving business and the improvement in profit expectations for the core business, Morgan Stanley raised Tesla's target price from $400 to $410, maintaining the “hold” rating.
Morgan Stanley analyst Andrew Percoco notes that Tesla's third-quarter results provide more evidence that the company is moving towards commercializing autonomous driving and robotics technology. Among them, the rapid increase in Robotaxi's operating mileage, the increase in FSD paying users, and the improvement in the profit margin of the energy storage business are the top three highlights of this financial report.
According to financial data, Tesla's third-quarter revenue was US$28.046 billion, slightly lower than market expectations of US$28.131 billion; non-GAAP earnings per share were US$0.48, higher than market expectations of US$0.45. The company's operating profit reached US$718 million, exceeding market expectations of US$687 million, and operating margin of 2.6%.
In the automotive business, gross margin after excluding regulatory credit revenue reached 18.1%, higher than market expectations of 16.7%, mainly benefiting from improvements in vehicle sales regions and product portfolios, as well as increased FSD subscription revenue. The gross margin of the energy storage business reached 33.1%, significantly exceeding market expectations of 25.7%.
Cash flow performance also surpassed expectations. Tesla achieved free cash flow of US$1,531 million in the third quarter, compared to the market's previous forecast of negative US$4.385 billion. According to Morgan Stanley, this was mainly due to improved working capital and lower capital expenditure than expected.
However, Morgan Stanley believes that Tesla's most significant long-term change is not a short-term financial indicator, but rather that the autonomous driving business is beginning to show more clear signs of large-scale expansion.
According to Morgan Stanley's estimates, Tesla Robotaxi's weekly autonomous driving mileage has increased from about 44,000 miles in early July to about 558,000 miles. The weekly growth rate for the past three weeks is close to 30%, which is significantly higher than the average growth rate of about 15% to 20% in the previous eight weeks.
Meanwhile, Tesla's Cybercab fleet in Austin has grown 10 times larger since it started a month ago. According to Morgan Stanley, this indicates that the company is gradually moving from an early stage of software verification to larger commercial operations.
Tesla management expects to launch the Cybercab service in Dallas next month, and plans to further expand the Robotaxi business in cities such as Las Vegas, Jacksonville, Phoenix, and San Antonio.
In addition, the company also plans to increase vehicle density and gradually expand service hours in existing operating regions. The goal is to move towards all-weather operation, higher-speed roads, highways, and services in more weather conditions by the end of the year.
However, management also acknowledged that currently software capabilities are still the main factor limiting Robotaxi's expansion, and as the technology gradually matures, regulatory approval may become a more important constraint in the future. Morgan Stanley believes that continued growth in unsupervised autonomous driving mileage, fleet size, and safety performance will be key indicators for judging whether Robotaxi can actually achieve commercial operation.
The FSD business is also showing strong growth momentum. In the third quarter, more than 75% of Tesla's new car deliveries in North America were equipped with paid FSD subscription services, an increase of more than 20 percentage points compared to 55% in the second quarter. Meanwhile, the number of global FSD paying users has increased from around 1.5 million in the second quarter to over 1.7 million.
Morgan Stanley notes that FSD is increasingly becoming an important factor influencing consumers' car buying decisions. As software capabilities continue to improve, FSD is expected to generate more recurring revenue with high profit margins for Tesla.
Tesla also anticipates that some private car owners may be allowed to connect their vehicles to the unsupervised Robotaxi network as early as the second quarter of 2027, but this plan still depends on the maturity of the software and the progress of the integration of the fleet management system. The company also anticipates that Europe's broader FSD regulatory approval may progress in the first quarter of 2027, but the exact timing is still uncertain.
In addition to autonomous driving, the energy storage business has also become an important reason for Morgan Stanley to raise Tesla's valuation. Tesla management said that due to growing demand for data centers and the trend of electrification, the company's production capacity for Megapack energy storage products in 2027 is close to being sold out. Strong order demand is expected to enhance the company's pricing capabilities and support further improvements in profit margins in the future.
In the third quarter, the gross margin of Tesla's energy storage business rose to 33.1% from 20.4% in the second quarter. However, Morgan Stanley cautioned that this month-on-month improvement was mainly driven by tariff refunds and favorable warranty fee adjustments, so it is inappropriate to directly view the current season's gross margin level as a long-term sustainable level.
In terms of capital expenditure, Tesla has lowered its 2026 capital expenditure guidelines from over 25 billion US dollars to about 20 billion US dollars, which is conducive to improving free cash flow performance in the short term.
However, Morgan Stanley emphasized that this does not mean that the scale of the company's long-term investment will decline significantly. As Robotaxi, Optimus humanoid robots, AI computing power, solar manufacturing, and semiconductor production capacity construction advance, capital expenditure is likely to remain at a high level in the next few years.
Among them, Tesla's planned TeraFab semiconductor manufacturing project is expected to reach tens of billions of dollars in capital equipment alone by the beginning of 2028, and the total long-term investment may even exceed 100 billion US dollars. However, how the relevant investment will be distributed between Tesla and SpaceX is still yet to be determined.
In terms of the humanoid robot business, Tesla has begun early Optimus production at the Fremont plant, and the production line with a planned annual production capacity of about 1 million units has already installed most of the equipment.
However, Musk said that it may take at least a year, or even longer, to achieve an annualized production rate of about 20,000 units per week. The company expects to gradually resolve remaining issues in hardware, AI capabilities and supply chain by the end of 2027, and aims to begin delivering Optimus to external customers at that time.
As a result, Morgan Stanley believes that Optimus's long-term commercialization prospects are still worth looking forward to, but it may take longer for it to actually be deployed on a large scale.
Based on the latest financial reports and business developments, Morgan Stanley raised Tesla's 2026 and 2027 adjusted EBITDA forecasts by about 1% and 3%, respectively, while increasing the 2026 gross margin forecast from 18.6% to 19.2%.
The bank also lowered its 2026 capital expenditure forecast from about 26 billion US dollars to 20 billion US dollars, and the 2027 forecast from about 29 billion US dollars to 27.5 billion US dollars. Accordingly, the free cash flow gap is expected to narrow to $2.9 billion from the previous forecast of 11.7 billion US dollars in 2026, and from 14.2 billion US dollars to 9.7 billion US dollars in 2027.
In terms of valuation, Morgan Stanley raised Tesla's price target to $410. Among them, the core automobile business is valued at 45 US dollars per share, the energy business is 40 US dollars, the Robotaxi business is 123 US dollars, the FSD-related network service business is 147 US dollars, and the humanoid robot business is 55 US dollars.
Morgan Stanley believes that Tesla is gradually transforming from a business model with electric vehicle sales as the core to a platform-based enterprise integrating autonomous driving services, energy business, and robotics technology. However, considering future R&D expenses, capital expenses, and uncertainty about commercializing new businesses, the bank still maintains a “hold” rating.
Overall, Morgan Stanley's attitude towards Tesla is more positive than before. In particular, it is optimistic about the long-term value brought by the increase in the penetration rate of FSD payments and the expansion of RoboTaxi's operations. However, whether technological progress can be turned into continuous profits while controlling the huge investment requirements of the AI and robotics business will still be an important factor in determining Tesla's future valuation.