Garrett Nelson, CFRA senior equity analyst, joins Yahoo Finance's The First Trade with Alexis Christoforous and Brian Sozzi to discuss Tesla's quarterly earnings report.
BRIAN SOZZI: Tesla's riding high this morning after posting its fifth straight quarter of profits. Garrett Nelson who covers Tesla at CFRA joins us now. Garrett, good to see you. What's your take on the quarter?
GARRETT NELSON: Sure. So thanks for having me. It was a better than expected quarter. The earnings per share came in $0.16 above consensus. This was the fifth straight quarter they've posted earnings that were ahead of consensus. Also, as you mentioned, it's the fifth straight quarter of GAAP profitability, which is really important, because we think at this point the S&P 500 Index Committee is hard-pressed to not add this stock to the index, which is the near-term catalyst and one of the main reasons why we've reiterated our buy rating and raised our price target by $50 to $550.
ALEXIS CHRISTOFOROUS: Garrett, Elon Musk on the call cautioned investors it could take a year, maybe even two years to hit full capacity at some of the new factories that they're opening up in Austin, Texas, and the one in Germany. That definitely pushes the timeline back. What does that do in terms of revenue and growth for Tesla in terms of your projections?
GARRETT NELSON: Sure. So that's the nature of these factories. They're very, very large factories. And the reality is it takes several months to ramp them up to full capacity, the new factory in Germany and also outside of Austin, Texas. So you know, these are extremely large facilities. It's just going to take some time.
I think what wasn't appreciated the way it should be in the release is that Tesla, very quietly, increased their annual production capacity from 500 and not-- I'm sorry, 690,000 vehicles a year to 840,000 vehicles a year versus three months earlier. So that's a 22% increase in their production capacity between the Fremont factory in California and the China factory. So it's a big increase, and I don't think there was enough focus on that aspect of their earnings release.
BRIAN SOZZI: I would argue too, Garrett, not a lot of focus coming off the earnings call last night on the Cybertruck. Tesla gave us some more clues. They will start potentially shipping some of these trucks in the latter half of 2021 and early into 2022. Certainly, I'm sure you saw the GM news with the electric Hummer this week. They're dubbing it the Super-- Super Truck. How big of a sales driver will the Cybertruck be for Tesla?
GARRETT NELSON: We think it'll be a huge sales driver. And you look at the specs of that, the Cybertruck versus the Hummer, you know, the Hummer is pushing six figures as far as the MSRP starting price. So you know, the Cybertruck is much more competitively priced, and so we think it'll sell a lot more units than the Hummer.
So you know, we're very bullish on the Cybertruck. And I think everyone was very surprised at the strength of the reservations that Tesla received after the rollout of that vehicle, which was-- which was kind of botched. You had the two windows that broke during that demonstration by Elon Musk.
So we're bullish on that, the Cybertruck. You'll have the Semi-truck coming. And then beyond that, the Roadster and some other vehicles. So you know, Tesla's pipeline looks very strong in the coming years.
BRIAN SOZZI: Is the Cybertruck, in your view, is that going to be a mass market truck?
GARRETT NELSON: Probably more of a niche product. But I think when consumers see the product and see the acceleration and the tone capacity, really the strength of that, you know, the pickup truck segment is so strong in the United States that we think it will have some appeal beyond the niche product. And you know, the sales, I think, will surprise to the upside.
ALEXIS CHRISTOFOROUS: Garrett, you know, those third quarter results were helped quite a bit by regulatory credit sales. Is there one administration that would be more friendly to an electric vehicle maker like a Tesla that investors should be keeping an eye on?
GARRETT NELSON: Sure. So we actually put a report out last month on the implications of a potential Biden win. And in our view, Tesla would be one of the biggest winners as an electric vehicle pure play, because EVs are going to be very-- would be very heavily subsidized under a Biden administration if you look at what he's proposing, a massive expansion of tax credits and also a huge build-out of EV charging stations.
If you look at nonresidential EV charging stations, they currently total only about 27,000 in the United States. He wants to increase that number by 500,000. So you're looking at about a 20-fold increase in the number of EV charging stations, which would really help electric vehicles in the adoption, and certainly in a lot of the states where they really haven't gained traction so far.
ALEXIS CHRISTOFOROUS: Garrett, in your analysis, did you-- were you able to quantify what a Biden win might mean for Tesla's bottom line or maybe for its stock price?
GARRETT NELSON: No, we haven't. We look at more of the market dynamics. So we know electric vehicles accounted for just under 2% of all new vehicle sales in the US last year. Under a base case scenario, we see that increasing to about 20% of new vehicle sales in 2030, so you know, a huge earnings increase. I think the way to look at it is under a Biden administration, you'd be probably looking at something a little more bullish than 20% in 2030, maybe something in the vicinity of 25%, because EVs would be so heavily subsidized.
BRIAN SOZZI: All right, Garrett Nelson, Analyst at CFRA. Always good to see.
GARRETT NELSON: Thanks for having me.