What does Tesla think? JP Morgan: We knew it was bad, but didn't expect it to be this bad, target price 115! Morgan Stanley: There are some challenges, but Musk is back, target price 410!

Tesla's Q1 performance "falls short," but analysts have vastly different opinions—who has the final say?

On Wednesday, Tesla's Q1 2025 financial report revealed that due to poor performance in its main business of automobiles, the company's Q1 profits and revenues significantly missed Wall Street expectations, which was termed a "disaster" by well-known Tesla bull analyst Dan Ives.

This financial report has raised serious concerns at JPMorgan about its growth prospects and high valuation. JPMorgan pointed out that the signs presented in the report are no longer characteristic of a growth company, and the deterioration of its fundamentals will bring significant downside risks, lowering its target price to $115 and reiterating a "underweight" rating.

Morgan Stanley also lowered its recent profit forecasts but maintained an "overweight" rating, significantly raising the company's target price to $410, still optimistic about Tesla's advantages as the "king of electric vehicles," and hopeful for Musk's return as well as the long-term vision for autonomous driving and robotics.

JPMorgan: The speed of fundamental collapse exceeds expectations

According to JPMorgan analyst Ryan Brinkman's analysis, Tesla's Q1 financial report proves that its business fundamentals are deteriorating at a faster pace than the bank or the market generally expected, indicating that its growth story has ended.

Specifically, Tesla's total revenue in Q1 fell 9% year-on-year to $19.3 billion, which is not only 3% lower than JPMorgan's forecast of $19.8 billion but also a full 10% lower than Bloomberg's general expectation of $21.4 billion.

Even more concerning is that the report indicates that this marks the second consecutive Q1 for Tesla to experience a year-on-year decline (down 9% in the same period last year), meaning that Q1 2025 sales are actually 17% lower than two years ago (Q1 2023).

The situation for the core automotive business is even more severe. Tesla's automotive business revenue in Q1 was $14 billion, plummeting 20% year-on-year, and down 30% compared to two years ago, marking the lowest quarterly revenue in nearly four years since Q3 2021.

JPMorgan bluntly pointed out that Q1 automotive sales fell 13% year-on-year, total revenue declined 9% (down 17% over two years), automotive revenue dropped 20% (down 30% over two years), and EBIT fell 66% (down 85% over two years, down 89% over three years), "none of these are signs of a growth company."

JPMorgan also added that Tesla's free cash flow in Q1 was $700 million, below its expectation of $900 million and Bloomberg's general expectation of $1.1 billion, partly due to higher-than-expected inventory backlog, which suggests that future sales prices may continue to be under pressure.

The report lowered Tesla's revenue expectations for 2025 from $102 billion to $97 billion, EBIT expectations from $8.7 billion to $6.6 billion, EPS expectations from $2.30 to $2.07, and the target price from $120 to $115

Morgan Stanley: Expecting Musk's Return, Long-term Outlook Remains Optimistic

Morgan Stanley analyst Adam Jonas has focused on Tesla's profitability. The report points out that Tesla's core automotive business gross margin, excluding ZEV credits, was only 12.5% in the first quarter, the lowest level in 12 years, and "seems to be below almost all other major OEMs in the automotive industry."

Morgan Stanley believes that given Tesla's massive scale, low-cost design, and efficient manufacturing applications, such a low profit margin "does indicate some issues," and has accordingly revised its adjusted EPS for fiscal year 2025 from $2.11 down to $1.59, and lowered its free cash flow expectation from a profit of $1.6 billion to a loss of about $300 million.

However, Morgan Stanley still maintains an "overweight" rating on Tesla and has set a target price of up to $410.

Adam Jonas's team believes that despite concerns over core automotive margins and tariff-driven supply risks, Musk's attention seems to have refocused on Tesla itself, with milestones set for autonomous driving and robotics that are enough to "satisfy loyal supporters."

Considering Tesla's leading position in the electric vehicle sector, the report states:

"If Tesla cannot be profitable in the electric vehicle space, what basis do other car companies have to believe they can?"

The report further emphasizes that its target price of $410 includes five components: core automotive business ($75/share), network services ($160/share), mobility ($90/share), energy business ($67/share), and as a third-party supplier ($17/share).

The firm believes that investors need to remain patient, "waiting for the dream of autonomous driving to translate into revenue and cash flow."