Tesla stock: What will it take to turn Elon Musk's DREAMS into reality or a pipe dream?

Morgan Stanley analyst Jonas coined the acronym DREAMS to describe the so-called Muskonomy. It's short for Data, Robots, Energy, AI, Manufacturing, and Space.

He is a Tesla bull, rating shares at Buy with a price target of USD310.

Tesla's long-term potential as an AI powerhouse might be closer than ever, according to Morgan Stanley.

The investment bank said in a note Tue that it believes the development of Generative AI (Gen AI) and Large Language Models (LLMs) could be the "great unlock" for Tesla's value, particularly in monetizing its AI capabilities.

When assessing the question regarding what it will take to make Elon Musk's ambitious dreams a reality, Morgan Stanley highlighted Tesla's "We, Robot" event on Oct 10th, which it sees as a possible catalyst for shifting the narrative around Tesla shares, currently trading nearly 40% below their all-time highs.

According to Morgan Stanley, Tesla's stock performance has been largely tied to its automotive business, which still accounts for over 80% of its forecasted FY24 revenues.

"Easily 90% of incoming client questions are focused on short-term auto-related data (such as 3Q deliveries)," the analysts note.

However, the bank says that as Musk continues to build Tesla's AI and compute infrastructure - especially with the integration of xAI, his new AI venture - investors may begin to see the broader "surface area" between Tesla and other parts of Musk's broader ecosystem, or "Muskonomy."

This includes cars, robots, and other AI-driven technologies.

Morgan Stanley, which has an Overweight rating on Tesla, breaks down its USD310 price target for the stock into 6 components. The core Tesla Auto business is valued at USD59 per share, based on an expectation of 5.4 million units sold in 2030.

Tesla's mobility business, including autonomous driving, is estimated at USD62 per share. The energy business contributes USD49 per share, while Tesla's third-party supplier business and insurance add USD40 and USD5 per share, respectively.

The largest growth potential, however, comes from Tesla's network services, which Morgan Stanley estimates could reach USD96 per share by 2030, driven by 14.3 million monthly active users and USD180 average revenue per user (ARPU).

With valuations skyrocketing in 2024, many investors are uneasy putting more money into stocks. Sure, there are always opportunities in the stock market – but finding them feels more difficult now than a year ago.

The USD310 target price is based on the potential value of its businesses in 2030. Other stocks only factor in 1 year ahead. Why should Tesla stock price in 6 years ahead now?

The assumptions made are that Tesla would be the market leaders and command a large market share in the various fields. The reality is that Tesla may not be the market leaders and the contribution may be far smaller.

There is likely to be no revenue or profit from humanoid robots or robotaxis in 1 year's time. So Tesla's fair value is much smaller than its target price.

Will the Tesla DREAMS be a reality or just be a pipe dream?