Morgan Stanley reaffirmed its Overweight rating on Tesla and kept its price target at $410, reflecting a keen faith in the electric vehicle giant despite increasing competition and a very differing analyst opinion. Tesla, which is currently trading at $342.09, is one of the most heavily followed stocks on the market, with price forecasts among analysts varying widely from $115 to $465.

According to the data of InvestingPro, 22 analysts have revised earnings estimates downward in the past month, blaming pressure from encroaching competition, especially from Xiaomi, which is making gains in the EV sector with cutting prices and innovative design.

Chinese EV Redefining the Competitive Landscape

According to Morgan Stanley analyst Adam Jonas, the spotlight is on the new YU7 small SUV by Xiaomi, which has undergone design changes from that of luxury vehicles but at a relatively lower price. He highlighted that if it is what they are doing in automotive design, then it is not a small achievement, their innovation could take years for traditional automakers to match.

Jonas also recalled Ford CEO Jim Farley’s remarks in the Q4 2024 earnings call, declaring that Xiaomi’s SU7 sedan is very impressive and is on its way to redefining the competitive landscape. Analysts are keeping a close eye on China’s EV manufacturers not only for their ability to disrupt local competition in China but also for their capability to enter into markets like the U.S and Europe.

Tesla’s Financial Base is Strong

In spite of these potential dangers, Tesla is still in solid financial shape. Based on  InvestingPro data, Tesla has a 2.0 current ratio, which indicates good liquidity, and has more cash than debt, providing some protection against market volatility. Tesla’s revenue for the year is $95.7 billion with a gross profit margin of 17.7%. Some analysts believe the stock is selling at premium valuations, but Morgan Stanley remains a supporter of the company’s strategic shift towards autonomy and believes this to be a long-term determinant.

Xiaomi’s Speedy Rise

Jonas and his colleagues aren’t alone in warning about China’s hypergrowth in the EV sector. Andy Meng of Morgan Stanley estimates that Xiaomi will hit 233 billion RMB ($32 billion) revenue from its EV business by 2027, close to Tesla’s 2020 revenue figures. Such growth could reset expectations throughout the industry. Meng also predicts Chinese automakers will penetrate global trade barriers due to their cutting-edge technology and good product market fit, paving the way for tie-ups with Western brands.

Analyst Remains Bullish but Risks Persevere

Echoing Morgan Stanley’s sentiment, Cantor Fitzgerald also reiterated an Overweight rating with a higher price target of $425. Their bullishness relies on several catalysts like, the roll-out of a Robotaxi service in Texas, the introduction of a cheaper EV in 2025, a revenue advantage from Full Self-Driving (FSD), energy storage, and the Tesla Semi due in 2026. Nevertheless, Cantor pointed out some risks, such as macroeconomic uncertainty, loss of EV tax incentives, and execution risks while expanding into new horizons.

Boardroom Updates & Musk Steps Down

Tesla also captured headlines with the addition of Jack Hartung to its Board of Directors and Audit Committee, as of June 1, 2025. Hartung was previously CFO at Chipotle Mexican Grill, he adds more than 20 years of financial executive experience to Tesla’s board, which is a move viewed as strengthening governance in a rapidly changing market.

At the same time, Elon Musk’s move to step down from active involvement with  Dogecoin in favor of focusing more on Tesla is well-received by analysts. Most think that this has the potential to enhance strategic implementation and restore priority on key initiatives.

Magnificent Seven

Tesla also joined the latest tech stock recovery, following a wider drop in the Magnificent Seven, a collection of tech-heavy behemoths spearheading the Nasdaq. Tesla stock experienced a minor lift, though its activity remains modest relative to sector peers such as Microsoft and Nvidia.

Tesla’s Optimism & China’s Potential

Morgan Stanley’s increased optimism about Tesla is based on a long-term perspective built around innovation and financial strength, but Tesla’s EV playing field is no longer its own. Chinese car manufacturers that were once regional players are becoming global contenders. With the rise of Xiaomi and Western manufacturers struggling to keep up, Tesla’s next chapter needs to demonstrate it can lead, not only in autonomy and margins, but in adaptability. Morgan Stanley’s optimism will do for now, but shareholders must get used to a reality in which Tesla is no longer the sole spectacle in town.