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Tesla's Elon Musk has at least a '3-5 year run' left with the company

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Yahoo Finance’s Myles Udland, Julie Hyman, and Brian Sozzi break down Tesla’s Q4 earnings with Oppenheimer Senior Research Analyst, Colin Rusch.

Video Transcript

MYLES UDLAND: All right, let's take a look at a stock that is on the move this morning. That is Tesla. Shares under a little bit of pressure after the company out with its fourth quarter earnings report last night. Joining us now to talk a bit more about the quarter, the year for Tesla, and what to expect as we go forward. Here is Collin Rusch. He's a Senior Research Analyst over at Oppenheimer. Colin, great to speak with you once again.

I'd love to just start with your impressions on where Tesla is today, coming off a quarter where they just generated almost $2 billion in free cash flow, a year they sold almost a half million vehicles. What is the next three years for this business look like? And maybe also relative to where you thought it would be a year ago?

COLIN RUSCH: Yeah, I mean, there's a couple of really key elements here. One-- the unit growth is in excess of what we anticipated on a multi-year basis. So they're talking about 50% unit growth over the foreseeable future. So that gets out well ahead of street estimates. The second thing is really about capital intensity and efficiency. So one of the things that they're doing is actually getting better throughput on their facilities, but also figuring out how to make these cars a little bit leaner with less equipment, as they have fewer moving parts, and start to really ramp up some of their battery capacity, internally for the 4680s.

And then the third thing, which is really the big thing, I think right now, for the stock is around autonomy. So we made a call a couple of weeks ago, raising our price target over $1,000. On the accelerated learning cycles related to level [INAUDIBLE] and cars being able to drive themselves around. What we heard the company talking about last night was full rollout of that self-driving technology this year. And they're talking not about geo-fenced areas, but really having those cars be able to drive wherever they'd like.

And so seeing that come to fruition here this year, I think, is a big deal for the stock. The second thing underlying that is a move towards a subscription model around that technology and potentially a fleet of vehicles that they would own and operate themselves. So as we look out going forward, the valuation around autonomy is really unclear right now. Elon tried to address it last night on the call a little bit. I think we want to see what that subscription model starts to look like from a monetization perspective, and then we can start running our model from there.

BRIAN SOZZI: Colin, interesting exchange on the call last night. An analyst asked, how much longer Elon expects to be the CEO of Tesla? And I believe his answer was, quote, "several years." What does that mean in your estimation?

COLIN RUSCH: You know, he seems like a workaholic. He enjoys the process. He said very clearly that he didn't feel like the company had fulfilled his mission yet. And so there's multiple years left to go. It seems to me that there's at least a three to five year run for him. And who knows what else gets built out and evolving within the Tesla umbrella here that he gets interested in. And so we're not real concerned around a leadership change at this point. And certainly, what we heard last night on the call was a management team that was very focused.

They're actually very transparent about some of the technology that they're working on and how it comes to market. It was really one of the richest earnings calls that we've heard in years from this company.

JULIE HYMAN: Colin, people always talk about competition for Tesla. And it hasn't really seemed to materialize, at least not here in the US. You can make an argument more so in China. When does it come? What does it look like? If you were a car buyer right now and you want to buy an electric vehicle, what are your choices? And what, to you, is as compelling or more compelling than a Tesla?

COLIN RUSCH: Yeah, right now, we're seeing a lot of what we see on a two to three year delay on some of their programs. We're seeing some new vehicles come to market, like you said, primarily in China. And what we're seeing is really performance that just doesn't keep up with Tesla. And so if you're a new car buyer, at this point, it really depends on where you're at with your existing vehicle. The technology feels mature to us, for Tesla, that there is a reliable platform that they've been developing on and shipping cars for seven, eight years.

And so they've really debugged that. For some of these newer automakers, they're still working through that learning cycle. And so one of the things that we think about with any sort of new technology, there's going to be early adopters that are willing to take some risk around some bugs, and then there's the larger consumers. And I think what's going on right now is that as folks take a look at who's bringing products to market and who's really debugged those products. Tesla's way ahead of the game on that. The other thing that I think people are thinking about is, is this full self-driving functionality? Who really has something that can enable that sort of functionality and it's going to be able to upgrade their platform?

And that's where Tesla really stands out, in that they have an upgradable software platform, an operating system, whereas no other OEM, or major OEM, really has rolled that out in a reliable way and really proven that capability yet.

BRIAN SOZZI: Colin, I have about 25 seconds left. Tesla teased that the new Model S will be $10,000 more than the prior Model S. What's the financial impact of that this year?

COLIN RUSCH: You know, it probably is just an additional margin at this point. It's a relatively small volume of total vehicles for them. In our model, it's just a little bit below 5%. So adding a little bit of gross margin on that is fairly modest at this point. I think it is a little bit of a tailwind, particularly as they work through some of the supply chain disruptions related to COVID. And so as they ramp through the second quarter into the back half, and then get to a city run rate on some of these other larger volume vehicles like the Model Y, both in Fremont and in China. I think that becomes a fairly small deal, but I think it's certainly a challenge for them as they move into the back half of this year.

MYLES UDLAND: All right, Colin Rusch, Senior Analyst over at Oppenheimer. Colin, always appreciate the time. And we'll talk soon.

COLIN RUSCH: Thanks so much.