Tesla Motors Inc (NASDAQ:TSLA)’s stock has bounced back nicely from the broad disappointment in the wake of its last earnings report. Shares were up more than 1% in early trading this morning, as they edged closer and closer to the $200 level. Morgan Stanley analysts Adam Jonas, Ravi Shanker and Paresh Jain have reiterated their Overweight rating and $320 per share price target on Tesla.

Tesla Motors TSLA

Tesla failed to positively surprise

The Morgan Stanley team noted that Tesla Motors Inc (NASDAQ:TSLA) has largely survived the recent sell-off in technology stocks. Shares were affected for a brief period, but they’re reviving nicely. They also noted that Tesla has suddenly ramped up operating expenditures and that there are still many unknowns regarding the gigafactory, especially its location.

Nonetheless, they still rank Tesla Motors Inc (NASDAQ:TSLA) as their top pick in original equipment manufacturers and say they are “impressed with how well Tesla’s stock is holding up” in light of these issues. Their price target of $320 a share represents 70% upside, and they say it’s “more commensurate with the risks and mission-critical catalysts imminently ahead.”

Tesla’s variable gross margins were healthy

The Morgan Stanley team said Tesla Motors Inc (NASDAQ:TSLA) generated an impressive 100% variable gross margin year over year in the first quarter. Under U.S. generally accepted accounting principles, gross profits rose $59 million year over year on $59 million in sales growth.

Excluding zero-emissions credits, which declined down to zero from $68 million last year, the automaker’s total gross margin rose from 6% to 25%. In addition, they say Tesla’s got many areas in which to improve efficiencies going forward.

Tesla’s North American revenue declined

They do note, however, that Tesla Motors Inc (NASDAQ:TSLA)’s North American revenues declined by almost 50% year over year, which is a concern for investors. They estimate that it suggests a 35% decline in Model S deliveries in the region, bringing the number to fewer than 3,200 units. That’s also almost a 20% sequential decline in volumes in North America. Tesla Motors Inc (NASDAQ:TSLA) continued to highlight constraints in supply and its efforts to prioritize exports during the quarter. The Morgan Stanley analysts say Tesla had difficult comparisons to last year as well.

“Anybody who has been to L.A. or the Bay Area recently can’t help but notice the saturation of Model S volume on the street,” they wrote. “They’re everywhere.”

The analysts say Tesla Motors Inc (NASDAQ:TSLA) is focusing on creating a premium brand, so it doesn’t want to push out its cars to consumers. Instead, the automaker wants to protect the price of its vehicles, the value of its brand and the scarcity—even though this sacrifices volume in the near term. They believe that when the Model X and an all-wheel drive Model S are launched, concerns will be “significantly” fixed.

Concerns about the gigafactory remain

The Morgan Stanley team also says investors are probably concerned about the gigafactory plans. They don’t know of any precedent in which construction on a $5 billion capital expenditures project began without any sort of formal confirmation of partners in the project. They said the non-binding letter of intent with Panasonic Corporation (ADR) (OTCMKTS:PCRFY) (TYO:6752) only sends the message that Tesla Motors Inc (NASDAQ:TSLA) is talking with its current battery supplier. Of course conversations between the two companies make sense since they’re been partnering for several years.

The analysts say they “can only imagine the intense debate” between Tesla Motors Inc (NASDAQ:TSLA) and any prospective partners on the gigafactory. They’ll be discussing big issues concerning the economics of the project, as well as strategic and technical issues. They believe the longer Tesla remains silent on these topics, the more its stock could be pressured. However, they see this as a “unique” buying opportunity rather than a real problem for the automaker.