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Tesla’s competition is coming from all angles: Analyst

Dan Ives, Wedbush Securities Analyst joins the On the Move panel to discuss Tesla’s Q3 Earnings.

Video Transcript

JULIE HYMAN: But first, we've got to get to our top story, which is Tesla. Those shares higher after the company reported its fifth consecutive quarterly profit. And indeed, it was a record on a quarterly basis in revenue of about $8.77 billion. The company reiterating its 500,000 production targets, though, which Elon Musk had mentioned back in January. And then it kind of languished for a bit. But he's bringing it up once again.

Dan Ives is joining us now to make sense of Tesla, Wedbush Securities Analyst. He's joining us from New Jersey. Dan, it's good to see you. So as you dig into these Tesla numbers, when have we gotten to the sort of tipping point with Tesla? You know, I mean, I don't know if it can ever live up to the hype that's priced into the stock price. But where are we at a tipping point in terms of the maturity of the company as an automaker?

DAN IVES: Yeah, it's a great question. I think if you look at the profitability, I think that's the key last night. You're starting to see more profitability from an auto gross margin perspective. And that's really key to the growth story over the coming years.

But a lot of it's also China. I mean, China could represent, we think, 40% of overall demand the next three years. You're starting to see the company grow up in terms of demand, as well as profitability.

And the haters are always going to hate on the Tesla. But I do believe you're starting to now see more Teflon-like demand. But of course, profitability-- that's the key.

ADAM SHAPIRO: OK, so when we talk about profitability, part of the goal is to deliver a $25,000 car. Musk talked about that not too long ago, I think, during Battery Day. So given what they've done in China, dropping the cost of the vehicle plus the price cuts here in the US, can they sustain what they're on? I mean, cutting your price doesn't help you get to that profitability any faster.

DAN IVES: Yeah, no doubt. And I think a lot of it's going to be around battery costs when you look at the next three to four years. And that's a big part of their move in terms of what they're trying to do from a cost perspective.

But China, we believe-- our analysis shows for every Model 3 that's sold in China, it's about 15%, 20% more profitable than one in the US. That's why China, that's the linchpin to the overall Tesla bull thesis that you're seeing play out.

DAN HOWLEY: Hey, Dan. Sorry about that. I have to learn how to un-press mute. I guess one of the things that, you know, people kind of feel about Tesla if they're not a full-on bull is that the other shoe is going to drop.

We've seen this rise from the firm [INAUDIBLE] of growth. But we don't know how sustainable it is going forward. Do you think this is finally the point where it becomes sustainable?

DAN IVES: I do believe-- look, you're always going to have that fear another shoe drops on Tesla, just given what we've seen the last few years. I think they've turned the corner.

But to your point, competition's coming from all angles. You see GM in terms of $20 billion they're going to spend on EVs. You have other automakers, 40 to 50 out there that are going after the EV market. Right now, it's a competitive move. And you're starting to see the demand, as well as the profitability, story ramp.

But that's why, from a valuation perspective, as Adam talked about, there's definitely a lot of expectations in here-- which is why they need to continue to not just deliver, but excel and hit those 500,000 units for the year on the course to 1 million next three years.

MELODY HAHM: Dan, of course, in addition to this news this week, we heard that Tesla is beta testing full self-driving mode in real-world traffic. We know there have been a bevy of accidents, lawsuits-- not only with Tesla, but also with Uber. When you think about the future of that space, how bullish are you on that sector really leading the way forward, if Tesla can be successful with this new sort of innovation?

DAN IVES: Yeah, and that's part of the longer-term bull thesis as you go into 2025 and beyond. And they're obviously clearly in one of the leadership positions out there. I think for the stock right now, it's about demand, profitability, and really getting to 1 million units in the next two or three years.

But the longer-term story over the next decade is FSD and really where they're heading. And I think it just speaks to the innovation, not just there, but also in battery technology that's coming out of Fremont as well as Giga, that they continue to have that competitive move.

And as they continue to execute, I think that's how the stock gets re-rated here. Because you take a step back, it's only 3% to 4% penetration in the EV market. Investors want to play this transformational theme. And that's why right now, Tesla continues to be in pole position.

ADAM SHAPIRO: We could ask you about competition for Tesla. We. Just had on Lucent Motors I don't think they're worried too much just yet about Lucent. But shifting gears totally, next week we've got Microsoft on deck. Is there anything we should be paying attention to right now as we get ready for that?

DAN IVES: Well, I think it's all about cloud. I mean, we're seeing the cloud stories get accelerated by one to two years in terms of this COVID backdrop. I think Microsoft continues to really be firmly positioned as a golden age for cloud. And I think you're going to see that stock continue to get re-rated. We think 250. You could see 275 next year.

And I think that's the key. You're seeing with Microsoft, as well as AWS-- and we believe tech's going to have a real strong week next week, you know, in terms of FAANG names. And I still view, going into now end of the year, 10% to 15% upside in overall tech stocks.