Morgan Stanley analyst Adam Jonas knows some investors were caught off guard by his bullish Tesla upgrade earlier this week. “Investor feedback to our Tesla upgrade has skewed towards push-back,” he said in a note to clients Tuesday. “If limiting the scope to only making and selling cars, Tesla is a significantly overvalued equity. We think there is far more going on below the surface.” Jonas upgraded the electric vehicle maker to overweight from equal weight Sunday while yanking up his price target by $150 to $400. His new target for the stock, which he also named a top pick, implies shares can rally 49.5% from Tuesday’s close. The stock slipped 2.2% Tuesday, giving up some gains after jumping 10.1% in Monday’s session following the upgrade. TSLA 5D mountain Tesla’s last five days Jonas said there wasn’t any significance to the timing of the upgrade. Tesla’s work on the Dojo supercomputer that can help power autonomous driving, which the firm had watched for a while, catalyzed the new call. Softer expectations in the market for Tesla’s core business also played a role, he said. That explains why the call came just a few months after the firm downgraded Tesla to equal weight. Jonas noted the call came as a product of collaboration across the firm, rather than just from automotive analysts attempting to comment on artificial intelligence-related themes. He also said that waiting until there’s more clarity on Dojo to make the call would mean a different risk/reward opportunity. Following the call, Jonas said the onus is now on the firm to market their assumptions as the story around Dojo unfolds. Dojo’s success could lower growth or profitability more than currently expected for competing autonomous driving systems, Jonas said. The analyst added that investors can begin measuring the path to autonomous driving and what companies could likely play a major role despite a fully formed product likely being far away. The call comes as Tesla’s near-term margins and share performance are currently facing challenges, he said. Jonas forecast lower auto gross margins in the second half of this year than the first, while saying auto profits won’t outpace sales in the longer term. But revenue tied to services and other areas should significantly expand to match what comes from Tesla’s automotive business by 2030, Jonas said. Tough conditions in the second half of the year can make it the right time, in his eyes, to add exposure to the stock. — CNBC’s Michael Bloom contributed to this report.