Morgan Stanley has reiterated its Overweight rating on Tesla (NASDAQ:TSLA), designating it a “Top Pick,” and maintained a 12-month price target of $380.00 despite the recent recall of over 2 million vehicles to address a faulty autopilot system.

In a note, Morgan Stanley analysts expressed confidence in Tesla’s essential technology, stating, “In our opinion the essential tech is good. The in situ alerts and product marketing were overdue for tweaking. Tesla is still leading on edge AI that ‘moves.'”

With over 4 million vehicles equipped with Full Self-Driving (FSD) capabilities on the roads and approximately 500,000 paying FSD customers, Tesla has a substantial dataset to continuously enhance its machine learning algorithms. However, ongoing investigations by the National Highway Traffic Safety Administration (NHTSA) into several accidents have raised valid concerns about the safety and reliability of Tesla’s autopilot system.

Morgan Stanley’s $380 price target breaks down the valuation, with $86/share attributed to the ‘core’ auto business, representing 23% of the target. The remaining 77% is allocated to Network Services, Mobility, 3rd-party battery/FSD licensing, Energy, and Insurance. The success of these business lines is crucial for Morgan Stanley’s Overweight thesis, contingent on concrete milestones and financial disclosures.

Regarding the recent recall, Tesla plans to release an Over-The-Air software update at no cost to consumers, with notification letters expected by February 10, 2024. Morgan Stanley does not anticipate any substantial cost impact during FY24 related to this recall.

Looking forward, Morgan Stanley forecasts Tesla’s earnings per share (EPS) to grow at an annual rate of 27% until FY30. They anticipate EPS reaching $5/share by late FY25, $10/share by late FY27, and $15/share by mid FY29. The analysts stress the importance of considering both near-term challenges for FY24 and the long-term potential of Tesla’s products and services. Tesla’s shares were up 0.41% in morning trading on Friday.