Morgan Stanley discusses Tesla's "new story": a military-industrial company dressed in consumer goods?

Against the backdrop of Ukraine's recent large-scale drone attacks on Russia, Morgan Stanley analysts pointed out that Tesla has the potential and technological foundation to transform into a defense technology company.

According to news from the Wind Trading Desk, Morgan Stanley's report predicts that the drone and electric vertical takeoff and landing (eVTOL) market will far exceed the automotive market size, expected to reach $1 trillion by 2040 and expand to $9 trillion by 2050.

Morgan Stanley believes that Tesla is not just an electric vehicle company; its technology and industrial layout give it the potential to become a core player in the low-altitude economy and defense sector. Tesla's core capabilities in manufacturing, materials science, navigation autonomous systems, motor research and development, and robotics technology give it a competitive advantage in the low-altitude economy—whether in commercial or military fields.

For investors, this means a need to reassess Tesla's long-term value proposition and growth potential, rather than merely viewing it as an automotive manufacturer.

Morgan Stanley analysts set a target price of $410 for Tesla, while noting that the company's entry into the aviation market could add $100 to $1,000 per share in value, which is not yet included in the current valuation.

Ukraine's Drone Attacks Reveal a New Paradigm of War

Last weekend, Ukraine launched a drone attack codenamed "Operation Spider Web," firing 117 drones at least four Russian air force bases, reportedly destroying dozens of high-value Russian strategic aircraft. This attack was over 3,000 miles from the front lines, highlighting the strategic value of AI drones in modern warfare.

Morgan Stanley's report pointed out that current AI and automation technologies are changing the rules of war: Traditional technology requires five people to operate a $30 million drone, while with AI technology, one person can operate 100 drones simultaneously, a form of asymmetric capability that could lead to a reallocation of global traditional defense budgets.

According to Pitchbook data, U.S. venture capital-backed aerospace and defense companies have raised nearly $6.5 billion in new capital this year.

Major deals include Saronic ($600 million, valuation of $4 billion), Shield AI ($240 million, valuation of $5.3 billion), and True Anomaly ($260 million, valuation of $944 million). Other notable drone private companies include Skydio (valued at $2.5 billion in November 2024) and Zipline (valued at $4.2 billion in April 2023).

Morgan Stanley predicts that the Urban Air Mobility market will reach a size of $1 trillion by 2040 and expand to $9 trillion by 2050. Morgan Stanley analysts believe that a single electric vertical takeoff and landing (eVTOL) aircraft can generate revenue equivalent to about 15 shared cars, indicating that the economic potential of this market far exceeds that of the traditional automotive industry.

Tesla's Core Competitive Advantage

On the same day that Ukraine launched drone attacks on Russia, Musk commented on social media platform X, stating that drones are becoming a key tool in modern warfare

"Drones are the masters of the future battlefield, not manned aircraft."

According to Morgan Stanley, Musk stated during Tesla's Q1 2025 earnings call: "Any country that cannot independently manufacture drones is destined to become a vassal state of those that can. And we cannot—America currently cannot independently manufacture drones. Think about that."

Morgan Stanley's report provides a detailed analysis of Tesla's competitive advantages in the aviation and drone sectors:

Technology Transfer Capability: Manufacturing, materials science, navigation/autonomous systems, motor development, battery storage, supporting infrastructure, and robotics—Tesla possesses a range of relevant skills applicable to the low-altitude economy.

Starlink as the "Connecting Organization" of the Low-Altitude Economy: The situation in Ukraine/Russia over the past three years has demonstrated the decisive role of low-latency, reliable, resilient/redundant satellite communications in conducting operations from basic to complex on the battlefield.

Autonomous Driving Technology Conversion: If companies can achieve vehicle automation on public roads, they can achieve automation in all areas. Any advancements in the science of autonomous vehicles will accelerate the development of autonomous aerial drones (and vice versa).

Morgan Stanley ran various scenarios based on its global eVTOL/urban air mobility model to analyze Tesla's potential market share and EBITDA margins.

Based on discounted present value per share, analysts concluded that the potential value of Tesla's entry into the aviation market ranges from approximately $100 per share on the low end to about $1,000 per share on the high end (or even more).

However, Morgan Stanley's current target price of $410 does not include any valuation for Tesla's participation in the aviation market. This target price consists of five components:

Tesla's core automotive business at $75 per share (based on a production volume of 4.7 million vehicles by 2030)

Network services at $160 per share (based on a 65% penetration rate and $200 ARPU per user by 2040)

Tesla Mobility at $90 per share

Energy business at $67 per share

Tesla as a third-party supplier at $17 per share