Wall Street is divided on Tesla (TSLA.US) outlook: bulls see up to $600, bears warn of cash flow risk

On Thursday, Tesla (TSLA.US) shares fell as investors focused on evaluating its first-quarter earnings report and latest annual plan—of which the key adjustment is a significant increase in capital expenditure target to $25 billion. Analysts are clearly divided over Tesla's future prospects.

Roth Capital analyst Craig Irwin pointed out that Tesla performed well in the first quarter, thanks to a positive demand backdrop, average selling price management, and moderate gains from one-time items. He wrote: “In the near term, we believe the upcoming IPO of SpaceX will dominate the discussion around Tesla, with direct and indirect impacts covering everything from how many Cybertrucks SpaceX may receive to the possibility of a Tesla-SpaceX merger.” The firm maintains a “Buy” rating and a $505 price target for Tesla.

Wedbush Securities analyst Dan Ives reiterated his “Outperform” rating on Tesla and a $600 price target. Summarizing his bullish view, he said: “Tesla is transforming into a leader in the field of physical artificial intelligence… The path is now clear, but this will require more capital investment.”

Morgan Stanley analyst Adam Jonas believed Tesla's first-quarter report laid the foundation for future development. “Tesla is making significant investments to achieve its long-term vision of autonomous driving and physical AI, and we remain confident in this. However, as the commercialization process for key physical AI projects (robotaxis and Optimus) is slower than expected, we think there is limited upside for Tesla's stock in the short term,” he added. Morgan Stanley maintains an “Equal-Weight” rating and a $415 price target for Tesla.

Hargreaves Lansdown analyst Matt Britzman emphasized that the significant increase in capital expenditure means free cash flow will disappear for at least the next year or two—as Tesla moves into a multi-year building phase. Britzman said current valuation is still heavily reliant on Musk’s ability to deliver breakthrough products and create new markets. Although Tesla is making progress, the comments on this call were seen as yet another example of shifting targets.

Wells Fargo analyst Colin Langan regarded the report as carrying plenty of bad news. "Capital expenditure is now up to $25 billion, putting pressure on free cash flow. Operating expenses were up $1 billion year-on-year, and spending on artificial intelligence and new products is expected to keep rising, but both may bring limited returns in the near future,” he cautioned.

In addition, Langan highlighted that Musk expects the AI5 chip will not be profitable in the short term, the ramp-up for Optimus and Semi will likely be slow, and that Hardware 3 vehicles will require retrofitting to achieve Full Self-Driving (FSD) capability—which will involve building microfactories. Wells Fargo maintains an “Underweight” rating on Tesla with a $125 price target.

Seeking Alpha analyst Jack Bowman wrote that investors were right to initially cheer when Tesla’s earnings per share and revenue beat estimates—despite deliveries and sales coming in below expectations. He pointed out that when a company delivers above-expectation profits despite missing on sales, it signals internal improvements, which is crucial.

“But I think investors were also right to give up all the gains after learning Tesla would spend $25 billion on building robotics facilities and data centers—which could result in negative free cash flow by year-end,” he added.

Bowman emphasized that the real uncertainty is about the timing of payoff from this new capital spending. “Unlike large hyperscale data center companies, Tesla does not have enough free cash flow to fund this type of expenditure. The payoff must arrive quickly or the stock price will continue to fall,” he warned.