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Tesla to come under ‘tremendous pressure’: GLJ Research Founder

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Gordon Johnson, GLJ Research Founder & CEO, joins Yahoo Finance to discuss Tesla’s earnings beat and outlook for the electric car maker as competition rises in the EV space.

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome back. We have got earnings in from Tesla. They were out just moments ago. We want to break down the report for you now with Gordon Johnson of GLJ Advisors. We see the stock here up more than 1% in after hours, after, at least on the face of it, Gordon, Tesla beat on both the top and bottom line. What do you make of the report in that all important deliveries number from Tesla?

GORDON JOHNSON: Yeah, so the deliveries number, we already knew. We knew what the delivery number was going to be. The earnings, both on a GAAP and non-GAAP basis, were better than expected. The revenues were better than expected. However, I think what people may be concerned about here is their credit revenues. Their credit revenues last quarter over $500 million. Credit revenues this quarter, roughly $350 million.

We know that their biggest credit customer, Stellantis, essentially unexpectedly at the beginning of the second quarter said, we're moving away from Tesla. We're never buying another credit. We're making the EVs on our own. So I think that may be a concern for people because outside of those credit revenues, outside of this quarter, Tesla has only been profitable four out of 29 quarters. So I think that's a major area of concern for people.

And keep in mind, this is a company trading at 600 times earnings versus the industry average of roughly eight times earnings. So the-- what's modeled into Tesla already is tremendous growth in earnings every quarter. So while this was a good quarter, if you have credit revenues going away, you're not seeing that tremendous growth. And I think people may be concerned.

ADAM SHAPIRO: Gordon, it is good to see you again. The last time I got to see you was before the pandemic. I need you to help me understand something because you've called it, in some respects accurately. I mean, Tesla shares, when they were 900 bucks, they're well off of that. But other analysts, your peers say that you've gone a little bit too far in your criticism of Tesla. I mean, they are the biggest player in the EV space. And the others haven't caught up yet. What do you say to the critics that say you may be too far out on this?

GORDON JOHNSON: Great question. So number one, keep in mind Tesla is less than 1% of global auto sales. Their total sales last year, less than 1% of global auto sales. Number two, only two markets-- there's three key auto markets-- US, China, Europe. Only two of those markets have we seen competition-- China and Europe. In China, fourth quarter of '19 to second quarter of this year, Tesla's market share has went from 23% to 11%. In Europe, for first quarter of 2019 to second quarter of this year, Tesla's market shares went from 33% to 15%.

So in the markets where you see competition, Tesla is seeing significant market share. And while you don't have competition in the US right now, and I think Tesla's benefiting right now in the US from chip shortages for a lot of the big auto guys so they're able to come in and sell those cars, once those chip shortages are abated, but more importantly, once the other EVs, the 35 EVs from GM by the end of next year, the Ford F-150 Lightning, and their other host of EVs that are coming, as well as the host of EVs from VW, hit the US market, I think Tesla is going to have problems.

So I don't think we've gone too far. I think our peers have been too aggressive in their bullishness. We have a peer at Morgan Stanley who has created divisions that Tesla's not even in. He's valuing Tesla's Air, Tesla Air. He says they're going to have a flying car. He's already valuing them at more than Boeing. So I think people have been very aggressive in the valuation.

And keep in mind, people say, you know, you have the $67 price target. You have over $600 stock. Look at what happened with GSX. This is a company that people had called a fraud for many years. Stock went up 8 times, recently lost-- it's down 99%. So we're not saying Tesla's a fraud, but what we're saying is, there's some aggressive accounting there. But what we're saying is, when reality reveals itself, and people put-- connect the dots that they're losing share, we think the stock's going to come under tremendous pressure.

ALEXIS CHRISTOFOROUS: Well, let's talk a little bit about that competition. You've got the established automakers like Ford and GM coming out with their cybertrucks. We haven't gotten one of those yet from Tesla. How important or is it going to be a game changer when Tesla finally does come out with that cybertruck?

GORDON JOHNSON: Great question. So keep in mind, right, Tesla's Model S Plaid. The promise, right-- keep in mind Battery Day, right? Years of building up into Battery Day. Tesla does the big Battery Day. They even have a battery. That's a fact. So, you know, the Model S5, the promise was it was going to have over 500 miles of range. Days before it launches, all of a sudden, Elon Musk comes out and says, you know what? We're not going to have that version. We're going to have the version with 300 miles range.

The reason is because the 48-- the 4680 cell structure battery is not ready. Keep in mind, Tesla does not make its own batteries. This is the major misconception. They're going to buy those batteries from Panasonic and LG. However, if you look at what Panasonic and LG have said, they've said that listen, this 4680 cell structure is extremely hard to mass produce. We're not there yet. And we don't know if we're going to get there.

So with respect to the Cybertruck, we don't think you're going to see a Cybertruck this year. And if you see one next year, we think it's going to be much different than the specs that Tesla promised. We don't think it's going to have 500 miles of range. We think it's going to be much more expensive than the $40,000 price tag that Tesla put out there. So we think that's going to be a disappointment. And with respect to the semi, we don't think you're going to even see that next year.

And one last thing. You know, everybody's talking about the GM recall, right? GM found-- what was it-- eight Chevy Bolts spontaneously combusted and caught fire. GM recalled every single Chevy Bolt. Tesla, this weekend, we found a contact that has identified 200 fires-- 200 Tesla car fires-- over the years-- 200. And Tesla hasn't recalled one car. We think that's tremendous regulatory risk and potentially financial burden risk that this company is going to see if the regulators wake up and do their homework. So we think that's something that people need to focus on.

ALEXIS CHRISTOFOROUS: All right, you gave investors a lot to think about there. Gordon Johnson of GLJ Advisors, good to see you.