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Tesla taking part in ‘$5 trillion green tidal wave,’ analyst says

Dan Ives, Wedbush Securities managing director, joins Yahoo Finance to comment on Tesla earnings and the outlook for the electric vehicle industry.

Video Transcript

ADAM SHAPIRO: All right. When we talk about Tesla earnings, sometimes you got to know when to hold 'em, know when to fold 'em. When is a bluff a bluff? The reason I set that up is our next guest Dan Ives understands Tesla much better than the rest of us. And Dan, you've pointed out that Tesla, in fact, the EV market by 2030 is a $5 trillion market, two of a half trillion of which is going to be Tesla. And yet we're watching it sell off right now. So help us understand what some people may miss with this earnings report.

DAN IVES: I think these are just knee jerk reactions just like I saw last night with Microsoft. I mean, if you look at underlying growth for this year, I think they're up probably closer to 60%, 70% in terms of units. Supply continues to be constrained. They'll be a little conservative on that, which I think we fully expected. We're only in the second inning of what's going to be a $5 trillion green tidal wave. So any-- the stock's selling off here we just view it as an opportunity to own this more.

EMILY MCCORMICK: Dan, great to see you. I'm pulling a quote here from this fourth quarter earnings release, Tesla saying, quote, "in Q4, we saw a continuation of global supply chain, transportation, labor, and other manufacturing challenges limiting our ability to run our factories at full capacity." Now you alluded to this. But how big of a concern are supply chain snarls, chip shortages, going to be for Tesla relative to other automakers throughout the course of 2022?

DAN IVES: Yeah, I mean, so let's just put it in perspective. They had about 309,000 in terms of vehicles sold in the quarter. That would have been about 35,000 higher if not for chip shortage. So if you look right now, it's about a 10% to 15% headwind in terms of where numbers could truly be. Right now, you have five or six month reservations, you got China ramping capacity, Austin we think pre-production has already started. That'll be a big focus in the call.

They don't have a demand issue. They got a supply issue. And again, I view that as a high class problem. And that's something that Musk would talk about in the call.

ADAM SHAPIRO: What do you want to hear him say? I'm looking at the deck where they talk about the Model Y's being built at the Gigafactory in Texas. And then they talk about Fremont with the capacity for more than 600,000 per year. So what does he have to say to make sure that they're not going to lose control of this, even with the supply constraints?

DAN IVES: Yeah, so let's walk through three things you need to hear that are key. One, given a timetable in Austin, pre-production started, what does the ramp look like in Austin? That's going to be key. Two, in terms of how they're going to be increasing capacity, both in Shanghai as well as Fremont. And then the third is giving some sort of sense of a timetable into what we could see from a unit demand what they're seeing out of China in particular. I think that continues to be a big source of strength. And overall, it's giving investors confidence that we could be at two million in terms of capacity by the end of the year, whereas today that's one million.

Double capacity, that happens. This is a stock in the greens tomorrow.

EMILY MCCORMICK: Dan, we saw in this earnings release as well that there has been an increase in the number of Tesla owners who are participating in this full self-driving beta software test with nearly 60,000 vehicles in the US currently enrolled. How big of a growth driver do you think this software and other roll outs from Tesla are going to be to this overall story?

DAN IVES: I mean FSD ultimately over time is worth 300, 400 hours a share to the story. So as they continue to sort of execute there, but you need more data points, more and more drivers to participate in the FSD program. And that's going to be a focus of the street over the coming years. I think near term, a big focus is the 4680. Battery technology is a big part of their moat, a big part of the cost of an average EV. And I think any sort of timetable in 4680 what's happening there.

But FSD, I mean that's sort of the cherry on top of the sundae. That's really from a bull perspective, a big part of the Tesla story. And that's why for any core bull in Tesla that's been through all the battles over the last few years, you know they're just in a position of strength here, especially when it comes to distribution that moat.

ADAM SHAPIRO: As we were talking, we saw this as you pointed out with Microsoft yesterday despite the strong cloud performance. And then of course, it turned around. But it hasn't turned around yet for Tesla. Is this just a case of perhaps less experienced investors just see the stock price and they're not looking at what we're talking about? I mean, as you just said, positioned for growth. And the pace of production ramps in Austin and Berlin influenced by the successful introduction of new product and manufacturing technologies in new locations. I mean, their whole story is one of future growth.

DAN IVES: Look, it is a nerve wracking environment. And I view it as the biggest overall tech disruptive tech earnings season the last decade. So you're going to see a lot of knee jerk reactions, a lot of volatility, fed here, fed there, valuation scrutiny. But that's why you look at core fundamentals. And if you look at the fundamentals, and the profitability, and the story at Tesla, I think the golden goose for them continues to be going after the EV market and gaining more and more of that advantage. And that's what's happened. But you're going to see a lot of the volatility, the hand holding period.

That's why Musk is going to be on the call laying it out.

EMILY MCCORMICK: Dan, I'm wondering as we look at these fourth quarter automotive gross margins, those coming in at 30.6%, the street had 29.9% at consensus according to Bloomberg. Where do you think the next incremental improvement is going to come in terms of profitability? Is it going to be from cost cutting, operational efficiencies, or really just letting these supply chain challenges run their course?

DAN IVES: Yeah I mean, it's really-- you made a great point in the last point. Because supply chain right now, that probably is 200 to 300-bid headwind from a cost perspective. To have auto gross margins above 30 continues to almost be defying gravity. But that's what Tesla is ultimately doing. It's more software driven. An average car is sold in China versus the US. Manufacturing sold in China is 25% to 30% more profitable. You're seeing more of the cars come out of China.

Once they got Giga Berlin, that's going to be key to what we're seeing in terms of European scale. And then of course, Austin. And right now, Tesla's flexing their muscles. The stock will be [INAUDIBLE], but we continue to think this ultimately is a name that continues to go toward four digits. We have a $1,400 base target. And there's nothing we see here in any way changed our bull thesis.

ADAM SHAPIRO: Dan Ives, you had us at $5 trillion. $5 trillion by 2030 the EV market. Thank you so much. And Dan is Wedbush Securities managing director. When we come back--