Morgan Stanley: The market underestimates the significance of xAI for Tesla, FSD 14.3 may become the "steam engine moment" for autonomous driving

As the entire market's attention focuses on Musk's exorbitant salary, Morgan Stanley points out that the market has overlooked the strategic key points of Tesla's shareholder meeting.

According to the Wind Trading Desk, Morgan Stanley analyst Adam Jonas stated in a recent report that shareholders approving Musk's astonishing compensation plan was already expected, but this is just noise. The real value of the report lies in its revelation of several key signals that the market has ignored, which will profoundly impact the stock price in the next 6-12 months.

Morgan Stanley believes that Tesla's relationship with xAI, breakthroughs in Full Self-Driving (FSD), the chip vertical integration strategy, distributed reasoning cloud networks, space AI satellites, and the revolutionary production methods of Cybercab will all reshape Tesla's long-term value. These strategic layouts far exceed the scope of traditional automakers, pointing to an AI-driven "Muskonomy."

Morgan Stanley maintains an "overweight" rating on Tesla and sets a target price of $410, while Tesla's stock closed at $445.23 overnight, with a bullish scenario target price as high as $800.

The Cornerstone of the "Muskonomy": xAI and Chip Autonomy

The report points out that the market seems not to truly understand the symbiotic relationship between Tesla and xAI, which is crucial for Tesla's long-term success.

Morgan Stanley's report emphasizes:

The relationship between Tesla and xAI (financially and strategically) is decisive for Tesla's long-term success... We believe that as Tesla enters the next phase of physical AI/autonomous driving in the coming year, this co-decisiveness will become even more apparent.

Morgan Stanley believes that the two companies form a recursive loop in data, hardware and software, and manufacturing, with their value systems stemming from the same creator. This deep binding plays a decisive role in the future success or failure of Tesla's physical AI and autonomous driving.

At the same time, to support the grand plan of billions of robots (cars, humanoid robots, etc.), Musk hinted that Tesla might personally build a "gigantic chip factory" to ensure the supply and innovation of this "robot brain's" most valuable resources. The most important part of the robot is the reasoning brain, and Tesla hopes to achieve a certain degree of vertical integration in reasoning chip manufacturing.

At the shareholder meeting, Musk's confidence that FSD V14.3 will enable "texting while driving" received applause comparable to that when the compensation plan was approved. Morgan Stanley believes that the market has underestimated the significance of this moment.

Shifting driving responsibility from humans to pure visual algorithms is the "steam engine moment" in the transportation sector, a historic technological breakthrough. This is not only a technological advancement but also a fundamental transformation in the way we travel.

Additionally, Musk proposed a surprising idea—a "massive" distributed reasoning cloud.

If you allow Tesla to perform AI reasoning calculations while you are not using your car, we are willing to pay you $100 or $200 a month. There are over 300 million cars in the U.S. alone, and over 1.2 billion globally If they all possess computing power equivalent to NVIDIA's Blackwell GPU, it will form an unprecedented edge computing network, alleviating the burden on data centers. In the United States alone, this is equivalent to over 300 million Blackwell units. Globally, it reaches 1.2 billion, and it is expected to increase to 2 billion in the next 15 years.

Ultimate Blueprint: Space Computing and Disruptive Manufacturing

The report also captures two "Easter eggs" pointing to the future. One is the "solar-powered AI satellites" mentioned by Musk, which hints at the strategic synergy between Tesla and SpaceX in the field of space computing.

The "solar-powered AI satellites" have garnered significant attention from Morgan Stanley's embodied AI and space team. Analysts point out:

They have long discussed the natural overlap between advanced computing in space and secure communication. Space data centers are far from science fiction; they are an inevitable technology to meet humanity's demand for computing power and electricity. Computers require cooling environments, and the baseline temperature in outer space is 2.7 Kelvin (-270.45 degrees Celsius, -454.8 degrees Fahrenheit), which has a clear heat dissipation advantage.

The second is the production target for Cybercab—"one every 10 seconds," which far exceeds the traditional automotive manufacturing cycle of 60-90 seconds. Behind this is disruptive innovation such as "boxless" production lines, minimalist design, and paint-free processes. This signifies another great leap in mass automobile production methods since Henry Ford. Specifically, Tesla hopes to:

Achieve this by adopting a completely new "non-box" production line, a minimalist approach, and almost zero customization/differentiation between models. No steering wheel, no rearview mirrors, using pre-coated plastic composite "snap-on" body panels (potentially eliminating the need for a paint shop)