Tesla 'needs communication' on margins and pricing: Analyst

Thu, Jan 25, 2024, 7:31 AM

SEANA SMITH: All right, let's get to one of our biggest trending tickers of the day, and that is Tesla shares selling off ahead of the open on worries about lackluster demand and also the weak results that we got out after the bell yesterday. While on the earnings call last night, CEO Elon Musk blaming higher rates for those sluggish sales. Let's take a listen.

ELON MUSK: It's not that people don't want-- we have tons of-- we have lots of people who want to buy a car but simply cannot afford it. As interest rates drop, and that monthly payment drops, then they're able to afford it, and they buy the car. It's pretty straightforward.

SEANA SMITH: So we're looking at shares under pressure here ahead of the open. Year to date, this is a stock that's already been under pressure, off just about 16%. So what's ahead? Let's talk about it. We've got a couple of-- two analysts, I should say, to break all this down for you. We want to bring in Tasha Keeney, ARK Invest Director of Investment Analysis and Institutional Strategies. We've also got Dan Ives, Wedbush Managing Director, also Senior Equity Research Analyst.

Great to have both of you. Dan, let me start with you, because your reaction-- the note that you sent out here this morning caught our attention in terms of some of the issues that you are raising on the heels of these results. And you were talking about the fact that you wrongly expected that adults were going to be in the room on the call. You took issue with some of the things that were said during the call. How was maybe what you've heard over the last 12 hours changed your short-term outlook here on Tesla?

DAN IVES: Look, you need communication. What the margin guidance is ultimately going to be, how many more price cuts, and I think that's the frustration. At a time that investors need adults in the room, it felt more like preschool. And I think that was a conference call-- you're going to see pressure on the stock. The long-term story doesn't change. And Tasha, I'm sure, you agree. But in the near term, the bears win.

BRAD SMITH: I'll put this question to both of you, Dan, just because you brought this up a moment ago and we mentioned this in the intro. Is it as simple as interest rates not being in Tesla's favor? Or is there something else at play within the broader EV demand landscape? I'll go to you, Dan, first, and then I'll get your thoughts, Tasha.

DAN IVES: Look, demand overall has actually been pretty strong relative to-- if you think about how bad it could have been, 35%-plus growth. Call it 18%, 20% this year for '24. The reason the stock's down, it's because of margins. And I think 80% of the reason the stock's down is communication. 20% results.

BRAD SMITH: Tasha, I want to get your thoughts on that as well. And I'll layer on, perhaps this additive-- a new model. Is that really going to spur demand the way that some investors were hoping for or might have anticipated?

TASHA KEENEY: Yeah, well, I think Dan said it, right? I think that the focus should be on the long term here. And a lot of investors currently right now are focused on the short term. Hey, look, you know, Tesla's not immune to changes in interest rates, right? But when you look at the auto industry as a whole, they are one of the only electric vehicle manufacturers that has this profitability.

And we heard on the call that they're able to reduce costs at really an unprecedented rate, when analyst thinks it's over 10% a year. And they said they see further opportunity for cost reduction. So I mean, they've cemented their lead in electric vehicles.

I think if you want to talk about the next year or so, I mean, we should be talking about robotaxis, right? We heard that full self-driving version 12, their latest version of autonomous driving software, is going to roll out to more customers in North America soon. I think that shows confidence in their autonomous capability. And as you know, we think that's a multi-trillion dollar opportunity.

We also heard that Optimus might ship next year. I mean, general purpose robots for manufacturing alone, we think could be a $10 trillion market as a whole. So we're really excited for those AI opportunities. This is one of the greatest AI stories of our time.

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Tesla 'needs communication' on margins and pricing: Analyst

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