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Analyst on Tesla's entry into the S&P 500: the company is 'now a serious auto player, there's no going back'

Karl Brauer, Executive Analyst at iSeeCars.com, joined Yahoo Finance to discuss Tesla's entry into the S&P 500.

Video Transcript

- All eyes today have been on Tesla as it made its S&P 500 debut, joining that closely-followed stock market benchmark index. Shares of Tesla-- I'm looking at it now-- they're off about 5%. And I'm bringing into the stream Karl Brauer, the Executive Analyst at iSeeCars.com. Karl, thank you so much for joining us.

KARL BRAUER: Hey, happy to be on with you.

- Well, let's just hit it right off the top here. And your reaction to Tesla really having, I guess, this historic day joining this closely-followed benchmark of the S&P 500.

- You're not going to find someone who's got as consistent a history as me questioning and being somewhat skeptical of this company as a viable long-term automaker. And this is a huge, huge threshold for them to be able to pass and to get into the S&P 500. And I think-- 15 years they've been around-- I think for most of those 15 years, it was pretty questionable whether they were really going to be a long-term financial going concern. And I'd say in the last 15 months, it's changed dramatically.

And whether you want to talk about profitable quarters, or constructing a Chinese assembly plant in record time, or improving a lot of their quarterly output in terms of volume and sales. They've got everything rolling in the right direction now. We know where the stock is at this point, even compared to just a year or 18 months ago. And you roll it all together, and it seems obvious now that this is a serious long-term auto company, that there's really no going back. They're a serious player, and they're going to be around for the long term.

But Karl, No going back. And everyone I know who has one of their vehicles loves their vehicles. My older brother's got one. But here's the deal-- you can't see it. I'm sitting next to a Studebaker poster. That was the largest vehicle manufacturer in the United States from, like, 1880 to 1920. Then there's General Motors-- 50% of the US market. They were the world's largest automaker from '31 to 2007. We know what happened there. Tesla has a market cap now that is greater than General Motors, Volkswagen-- add them all up, and Tesla is beating them. And yet, have they delivered 510,000 cars yet? No. So how do they sustain this?

KARL BRAUER: You know, I think you talk about some other companies that I think suffered because they didn't look to the future enough. They did not stay on the cutting edge of where their industry was going. You look at Tesla. They're not only trying to be a cutting-edge automaker. They're really trying to be a cutting-edge company beyond automobiles, right? There into so many other things, and they're breaking barriers there too. And so I think, you know, you think of someone like Studebaker and someone like Tesla, you know, the two couldn't be more diametrically opposed in terms of the image that I think comes to your mind when you think of them.

ADAM SHAPIRO: I would point out to you that the first Studebakers were actually electric cars. That they were Thomas Edison Garfords, and they were rebadged to Studebakers. That's trivia. If people still play Trivial Pursuit, you can use that. Let's talk about your platform, though. Because you get, in real-time-- you get to see what people are buying, what's selling on the used market. What trends are you deriving from this? Teslas, they sell used.

KARL BRAUER: Yeah, Teslas hold their value really as well or better than almost any other car out there. But what we've seen, especially in the last year since the pandemic hit, is just this incredible hunger for trucks, you know. We've also seen, though-- believe it or not-- we've seen a huge increase in sports cars and convertible prices on the used market.

And I compare this somewhat to what happened tragically almost 20 years ago, right? There was a world event that scared a lot of people. And we saw shortly afterwards a lot of values go up on classic cars, and toy cars, and things that people had wanted but maybe hadn't thought were very practical.

I think it's because people suddenly realize, you know what? I'm not sure how long this is going to go on. I'd like to think that I've got it all figured out. But who knows? I've always wanted an old classic car. I've always wanted a new toy car. I'm going to go get one. And I look at the values of convertibles and sports cars plus trucks in the last year, and I feel like there's a lot of people saying, I've always wanted something. And I've decided in the last year. I'm going to go get it now because things aren't quite as stable as I used to think they were. And I'm not waiting any longer.

- Yeah, it's interesting that you bring that up because I'm not looking for a classic, but I am looking for a car these days. Looking into 2021, how long do you think this trend that you're seeing might persist, and what might change it?

KARL BRAUER: You know, we've got to get to a new balance between demand and supply. What happened was we had a whole new constituent of car buyers that didn't exist a year ago. These are the people that were taking public transportation and probably living in a city somewhere. In the last 12 months, they've decided they don't want to take public transportation. And they've very possibly moved out of the city, both of which require a car.

And so there's a whole new demand for cars. And at the same time, we had a crimp in supply because there was a drop in output for new cars. And when people can't get a new car, they don't get rid of their current one, which drops the output for used cars. It drops the used car supply. So new car and used car prices went up while, at the same time, demand went up, you know. And then it all worked together. You had a drop in supply and an increase in demand, same same. I think it'll rebalance in the next 6 to 12 months. But we're going to see an ongoing increase in the price of new and used cars probably for at least another 6 to 12 months.