Morgan Stanley has named Tesla as its top pick in the U.S. automotive sector, replacing Ford, which has led to a nearly 6% rise in Tesla shares.

Analysts project a 40% upside for Tesla, setting a target price of $310 based on various factors, including the company's strong market position.

Analysts noted that Tesla's credit sales could support a 100% margin business, a potential that may not be fully recognized by investors.

As legacy automakers scale back their EV plans and EPA standards tighten, Tesla's market position for zero-emission vehicle (ZEV) credits is expected to strengthen.

Tesla leads the ZEV credit market, reporting approximately $2,000 in ZEV credit revenue per unit, more than double the recent run-rate.

Investors are eagerly awaiting Tesla's upcoming robotaxi launch event, which has been delayed to October for vehicle adjustments.

Morgan Stanley analyst Adam Jonas expects Tesla's stock to rise by 40% this year, although he warns that expectations for full self-driving (FSD) may be overly ambitious in the short term.

Both analysts suggest that while Tesla's FSD software may not be fully refined yet, improvements could align with the anticipated launch of the Model 2 by 2030.

A recent report indicates a shift in sentiment regarding Tesla's FSD capabilities, suggesting that the company may have solved significant challenges.

Recurring services revenue and Tesla's strong position in energy storage are expected to bolster the company's future prospects.

Despite the positive outlook, Tesla reported its lowest profit margin in over five years and missed Wall Street earnings targets for the second quarter.