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Tesla’s EV advantage is greater post-COVID-19, says analyst

On Thursday, Morgan Stanley’s Adam Jonas reiterated his equal-weight rating on shares of Tesla, although he believes that the immense disruption to OEM businesses from COVID-19 favors Tesla’s medium-term EV lead.

Video Transcript

MYLES UDLAND: All right, welcome back to Yahoo Finance Live. Myles Udland here in New York. We've got 40 minutes to go in this trading week. Looking at the markets here, coming off our lows of the session, the Dow and the S&P now up about 1% as we head towards, again, what will be the final closing bell of this week.

Let's turn now to our call of the day today. We've got a couple of familiar faces for Final Round viewers here. We've got Adam Jonas and Morgan Stanley out on shares of Tesla. And Jonas is writing about Tesla's competitive advantage possibly increasing on the other side of the coronavirus shutdown.

And Rick Newman, I think no one disagrees that Tesla has an advantage in the electric vehicle space and that there's a lot of things Tesla does far better than its competition, which was expected to come online soon, but maybe is facing some setbacks here.

But I just find it-- it's kind of like, to my mind, is buying a Tesla or is electrifying your house or your car, how far down everybody-- every consumer's personal shopping list does that fall as a broad concern on the other side of this? It really goes back to our behavioral conversation on OK, maybe a Tesla is cool, but if 2021 was your target year, does that roll to '24, '25, '26 after this?

RICK NEWMAN: We're going to find out. This is basically Tesla's first recession as a real automaker. This is a cyclical industry, whether you're a luxury brand or a mainstream brand. And it just stands to reason that Tesla is going to get hit just like everybody else. So Adam Jonas' point in this note is that Tesla basically has first-mover advantage in the electric vehicle market. And I think that's reasonable.

It's their whole company. It's all they do, is electric vehicles. They don't do gas-powered vehicles. So they have-- that's where they put all of their R&D, and they are ahead on that. I think you have to think about the other side. First of all, the other automakers have been through recessions before. They have been preparing for a downturn for a long time.

And they also have gas vehicles to fall back on. Now what have we been seeing lately? A plunge in oil and gas prices. That is going to hurt demand for electric vehicles, at least among people who like them because they think it might be cheaper than a gas vehicle down the road. Tesla is a premium brand, so their buyers aren't as worried about that.

But this is going to be a giant downturn in the auto industry. And sure, on the other side, the big automakers may have to put off R&D into electric vehicles because it's a relatively small part of what they do, which could help Tesla get ahead a little bit more. But that's way down the road, man. I mean, Tesla has to get through this giant ditch first.

MELODY HAHM: Yeah, and I think another thing we haven't yet talked about is China, right? And it was interesting to even track COVID-19 from the China angle and see what kind of repercussions there would be here in the US. And the Shanghai Gigafactory, of course, initially met with skepticism wondering about Elon Musk's timeline, had been relatively successful.

And then, of course, a couple of months into opening, they had to shut down because COVID hit them hard early on. I think, according to Jonas's note, he points out that China Passenger Car Association says Tesla's sales hit a record high in March. So we anticipate that that demand may still be there on the other side of this as China slowly recovers.

And then another point, as Rick was mentioning, of course, there are other players in the space. We're supposed to be expecting that electrified Hummer. But all of those additional things have been delayed, right? People who perhaps were waiting out maybe were saying, hey, I don't want a Tesla. I want this OG car that now has an electric spin to it. They would have to wait an additional year, two, three years to potentially get that in their hands.

And then the upstart here is Rivian, right? And they have delayed two of their models to 2021. So I think just the landscape at large, in this case, being deeply entrenched, having household name recognition, certainly helps.

RICK NEWMAN: Yeah, I mean, this is a giant hit to any company that makes cars. Let's remember, Tesla wants people to think of it as a technology company. It is, but it's also a manufacturing company, and it's a cyclical consumer company.

It is highly sensitive to downturns such as the one we're seeing now, and that includes in China. I mean, there's a big downturn in China, too, and Tesla vehicles are a premium product there as well. So Tesla's going to be hurting. You know, so we have to wait and see what happens to Ford and GM, for example.

I don't think GM for one, I don't think they have said yet that they are delaying development of that electric Hummer. That's a real high profile electric vehicle for them. But there's speculation that they're going to have no choice. I mean, you know, there's a giant crimp on cash flow at all the automakers right now. Something has to give, so what's going to give? We don't know that yet.

But Melody, you're right. The speculation is, since this is not yet the bread and butter for companies like Ford and GM electric vehicles, good chance that that's where they delay some of their spending so they can get back some of the spending just in the, you know, the big trucks and SUVs where they make their money.

MYLES UDLAND: Yeah, and I will say there's a lot, I think from a fundamental standpoint, a lot to be desired about the way that Tesla has capitalized itself. But one thing you can say is they're pure play in EV space, and they're not going to have any of the problems that a Ford or a GM or other competitors are going to have in terms of just trying to hunker down and survive the next 18 months. Tesla, I think, has a little more flexiblity than--