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Tesla’s India market will be ‘just as big as China’: Analyst

Roth Capital Analyst Craig Irwin joins Yahoo Finance Live to discuss the outlook for the electric vehicle space.

Video Transcript

AKIKO FUJITA: Let's turn our attention to shares of Fisker. That stock is up more than 8% in the session after the company reported a smaller loss than expected in the quarter. Fisker announcing it still expects to deliver its first product, the SUV Ocean, in late 2022 with 16,000 reservations so far.

Fisker one of a number of EV companies that have experienced a bumpy ride since coming to market through a special purpose acquisition company, or SPAC, with the SEC now increasing scrutiny over some of those transactions. Canoo the very latest to come under SEC scrutiny.

Let's bring in Craig Irwin. He is Roth Capital analyst. Craig, it's good to talk to you. You know, I'm thinking back to the conversation over the last year or so about how much competition there is for Tesla. But it feels like for all that talk, at the end of the day when we're talking about EVs, it does come down to Tesla, and then the traditional carmakers like GM, who are really ramping up their offerings. What do you make of the shift that we've seen in the EV landscape? Craig, you're muted. Hopefully we can get you. There you go.

CRAIG IRWIN: OK, sorry about that. So there have been a couple of dozen companies come public via the SPAC route. This is a fairly novel thing for the market in the last year.

Many of these companies are at a pretty early stage, a lot of them pre-revenue. So there were several small cap companies in the EV landscape public beforehand. I've been saying for a while, listen, there's going to be 500 EVs on the road by 2025 in North America and Europe. Tesla has real competition coming. You know, you look at the amount of money that some of these companies have raised. Fisker you mentioned, for example, raised $1 billion. Canoo, another one, raised $700 million.

This is a lot of capital, gets them a long way down the runway to commercial production, gives them room to operate. The conventional OEMs, a lot of them are getting much more serious about the offerings that they're bringing to market. You know, you have names like Porsche, where the Taycan is actually starting to outsell the 911. So people are looking at these other companies and taking them much more seriously.

You know, Tesla is still the leader. Tesla's got an amazing brand, an amazing following, and has executed impeccably and is positioned to continue executing well. So its sentiment right now-- and the early stage companies, a lot of them have stumbled as normal. But Tesla and sentiment around Tesla, I think, is a large part of sort of what's going through the space as well.

ZACK GUZMAN: And Craig I mean, that was interesting to me too, to see Michael Burry of "The Big Short" coming out talking about Tesla. And we learned more-- I mean, he tweeted about this before. But we learned about kind of his short position now, a $530 million bet against Tesla.

And you talk about maybe some of that steam coming out of the trade. I mean, you don't need to look any farther than what Tesla has been able to do this year, the weakness relative to last. I mean, what does that say to you about maybe the expectations when it comes specifically to Tesla? It may have been running hot, especially when you factor in competition not just from, you know, traditional automakers, but other new EV entrants like Fisker.

CRAIG IRWIN: Yeah, so valuation of Tesla is really sentiment-driven more than anything. You know, fundamentals I don't think are part of the picture, because you look at the $560 billion valuation versus roughly $700 billion for the total value of the North American and European markets. Tesla is going to do 1 million cars maybe, if they're lucky, this year, versus a market of somewhere between 35 and 40. So they're a minor player with an outsized valuation.

So sentiment looks like it's being impacted by three specific things. One, obviously things are going badly in China. The fact that the Chinese state media is allowing the videos of some of these autopilot crashes to be spread around and for the conversation there to take place. The fact that Tesla is putting on hold some of its expansion in the Chinese gigafactory. You know, China's not going well for Tesla right now.

The second thing is Apple. There have been some leaks in The Korea Times and other places about the LG manufacturing agreement for the Apple Car, expected in 2024. You know, Apple is a name with a lot of luster on it. That's one that I think retail investors take incredibly seriously.

And then Musk flipflopping multiple times on Bitcoin. You know, the harshest criticism is some saying pump and dump about buying $1.5 billion of Bitcoin, promoting it, and then selling it to make his numbers. But the retail investors, I think, are reacting more to the comments about the environment, and then the changing attitudes, changing trends there, jumping back and forth, back and forth. So these three things, I think, are impacting sentiment in a fairly negative way.

ZACK GUZMAN: Well, when you talk about how quickly it could flip sentiment there-- I mean, you got a $150 price target, if I'm reading that correctly, here on Tesla. I mean, how quickly do you see things deteriorating here if sentiment is turning for Tesla?

CRAIG IRWIN: So there's puts and takes, right? So these things are all very serious, and I see the fundamental value in the shares really closer to $150 versus where we are today-- you know, $580 something, right? The reality, though, is they're going to continue to execute. They've got a lot of leverage they can pull.

The entry into the Indian market I expect to be a big, big boost for them. You know, I've been talking about this I guess for about a year now, but they have actually been building out stores in India and building out supply chain in India. And that market will be just as big as China, maybe even bigger, in the long-run. So there are some short-term boosts that they're looking at.

Operationally, I don't question things. I think sentiment-wise, if Musk continues this sort of pre-verification-- sort of jumping between one extreme and another around things that his retail base really care about-- that that will erode his credibility and push people more into other companies. We've been saying people are better off in small cap. And I think they have been in the last number of months, if they've been very selective about where they've put their money.

AKIKO FUJITA: Craig, I want to get back to the larger discussion around some of these upstarts, EVs. Because it does feel like-- we've seen a lot of money pour into the EV space as a whole on the expectation of what the Biden administration's policy is likely to do in terms of the growth for the space. Trying to find that next big competitor against Tesla.

And yet you look at a company like a Lordstown, like a Fisker-- I mean, it feels like it's sort of going in the same direction that we saw with Nikola, which is there's no real product in the market, and their technology largely has been exposed to be flawed. How do you think investors should be looking at that, and how strong is the growth case for these companies?

CRAIG IRWIN: So my comment to people is always, do your own diligence. Right? You know, I've been relatively lucky to have clients appreciate me for my diligence over the last several years. Each one of the companies you mentioned has strengths and weaknesses. It's how they play out in the public market that really impacts valuation.

I think a number of companies have been treated unfairly for increases to their R&D budget and spending, where traditionally growth stocks, you know, they don't get punished for that. That's sentiment-driven. That's the market that we're in.

But you're right, the Biden administration-- what our president is eventually able to do as far as promoting his clean environmental agenda is going to have a very big impact on all of these companies. And you could see every last one of them, Tesla included, come roaring back to life if we do see a tax package that's supportive of a half million charging endpoints, generous EV subsidies, et cetera-- which I think is really know on the negotiating table in DC.

We're just waiting for good news. And it was expected, and then it went sideways. Negotiations deteriorated. When they come back, I mean, the whole space could be back with a bang.

AKIKO FUJITA: OK, we'll be watching. It's good to get your insight, though. Craig Irwin, Roth Capital analyst joining us.