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China is the 'heart and lungs' of Tesla's story: Dan Ives

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Yahoo Finance’s Brian Sozzi breaks down the market action for Tesla with Wedbush Securities Managing Director Dan Ives.

Video Transcript

BRIAN SOZZI: Welcome back to "The First Trade." The market remains on Tesla's stock, bubble watch. Will it burst or won't it?

Joining me now to discuss and dissect is Dan Ives, managing director of equity research at Wedbush. Dan, always good to see you here.

So earnings are on tap for Tesla. Now, I'm looking at consensus here. They're looking for Tesla to report a $0.58 per share loss. Let's say Tesla does come out with that. What does the stock do?

DAN IVES: Yeah, I mean, look, obviously that would be important relative to S&P 500 inclusion where they need profitability. Look, I think whisper numbers is about for a $0.50 profit. So right now, you know, I think the P word, profitability, to me looks very likely, and that's going to be key going forward because that's a win for not just the S&P 500 inclusion but with the back against the wall, Musk and Fremont deliver-- not just on delivery, on profitability. And I view this as, you know, just another sort of step forward in this stock, what I believe is going to reach $2,000.

JARED BLIKRE: Hi, Dan. Just wanted to ask you about their business mix in terms of geographic location. They've kind of been underemphasizing the US and overemphasizing China. How big a part-- how necessary is that growth story there, and could there be any hiccups? What are the potential roadblocks?

DAN IVES: Yeah, China's the hearts and lungs of the story here, I think worth at least $400 a share. Of course, US you've seen demand soften in light of the tax credits as well as just a very tough backdrop. Europe and China are front and center going forward, and I think China, it could be 150,000 units first year out in terms of the trajectory, and that's the key.

Fundamentally, you look at Giga 3 and everything happening there. That is really the fundamental driver here to what I believe is the Tesla story going forward.

BRIAN SOZZI: Dan, I'm still hung up on earnings estimates. So this year the Street's looking for Tesla about $4.53 per share for this year. Earnings next year are going to climb, the Street says, close to $12, and after that, close to $20 per share.

You know, I look at these estimates, and to me, analysts and the market are starting to think Tesla will be dominant, not just within cars but SUVs. I mean, is that the read here that Tesla will just dominate the entire auto industry within three years?

DAN IVES: Well, I think that continues to sort of be what I'll say the battleground in the stock between the bulls and the bears because you'll compare to what other automakers are trading at. Tesla is not an automaker in terms of the way the Street views it. It's a technology player.

And right now if you look at what's starting to get baked into the stock, it's a dominant 80%, 90% of the EV share going forward for what I believe could be a million deliveries by 2022. That's what's getting baked in here. And remember, right now it's a Teflon-like model if you're seeing everything that Musk and Fremont have done.

BRIAN SOZZI: Dan, overnight Nissan came out with a pretty slick-looking electric SUV called the Ariya. It has 300-mile range on a full charge, about $40,000. Looks pretty cool. You have Fisker saying this week it's going to-- going to IPO.

Is the market discounting this competition finally? We've been talking about competition for Tesla for many years, but now it's starting to finally happen. Why doesn't the market care about it?

DAN IVES: Well, I think the market cares about it, and you're seeing in terms of some of the valuations-- Nikola and some others, obviously Fisker. And that's a very interesting announcement, going after the SUV, really going after Model Y, that 60,000 to 90,000 number.

But it comes down to the competitive out-- Supercharger, Fremont, Giga 3, as well as the Musk brand, the Tesla brand. And that's something that until proven otherwise, right now the Street's going to really give Tesla credit for that because I continue to think they're miles ahead of competitors.

And this is all the drum roll to what I believe is going to be a ground breaker is the million-mile battery that they announce at battery day September 22. That's just another further sort of competitive advantage that they continue to-- what I believe is front and center.

JARED BLIKRE: So just following up on that competitive advantage, what could the competitors really do to catch up at this point? It seems like most of them are playing catch up. You've got some smaller companies like Nio, maybe just kind of a fringe. What can they do to catch up?

DAN IVES: Yeah, I mean, a lot of it is just going to be resources put in. Look at what GM's putting in, billions into battery technology. You know, you look at all this investment. Right now, it is an arms race in the EV market. And right now in terms of-- you know, Tesla has a target on their back.

But it comes down to battery technology, distribution, and really being able to build these cars at a point where you compete with Tesla. But right now, they are on the trajectory to continue to own the market, and that's what's baked into the stock. And that's why if they're able to do it profitably, that's the one-two punch that sends the stock north of $2,000.

BRIAN SOZZI: I'm going to resist myself, Dan, to not ask you about the million-mile battery right now because I do want to get one question on Apple. Earnings are around the bend. What do you expect from the company? Certainly that's a stock that has been rallying hard off the lows, just like the rest of the FAANG stocks.

DAN IVES: Yeah, I think by the time we get to year end, it could be $2 trillion when I look at Apple.

BRIAN SOZZI: $2 trillion, that market cap?

DAN IVES: $2 trillion market cap by year end. When the ball drops Times Square, you know, to me, you could be looking at a $2 trillion market cap because this is the two phase. First phase you're seeing in terms of COVID holding up services business where it's $600, $650 billion. Now is the drum roll to the iPhone 12 supercycle which will get launched in September, hits the shelves, website in October.

350 million of 950 users worldwide have not upgraded their phone in 3 and 1/2 years of Apple users. That's the key, and that's why I think, you know, bull case, $525. I think this is a stock, you know, inching on $400. It continues to be one-- it's a rerating story in process in Apple.

BRIAN SOZZI: OK, Daniel, I have a little bit of time here. In 30 seconds, the million-mile battery from Tesla, what does that mean? What does that do for range?

DAN IVES: I mean, range right now if you look at the average battery, it's 500,000 for-- it's going to double it, and it's key for price parity in terms of with traditional automobiles. And this is something where you talk about competitive advantage. In terms of everything they've been doing in the lab not just in Giga out in Nevada but in China, this is the linchpin and, I think, the next step in the story.

BRIAN SOZZI: All right, Dan Ives dropping a lot of drum rolls here. A million-mile battery from Tesla later this year. Apple potentially a $2 trillion market cap. That's why we have you on, Dan. You always bring us the good stuff.

DAN IVES: Thanks for having me.

BRIAN SOZZI: All right, appreciate it. So, Jared, quite the analysis from our very own Dan-- well, not our very own but frequent friend of the show Dan Ives. Good stuff.