Can the Tesla Rally Continue?

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Bloomberg Jul 11 04:16 · 3996 Views

Tesla shares rose again in the premarket on Wednesday, setting up an 11th straight session of gains. Goldman Sachs raised its price target from $175 to $248. Bloomberg's Craig Trudell reports.

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Transcript

  • 00:00 Bloomberg, Craig Trudeau joins us now for more.
  • 00:02 Craig, this is quite a run.
  • 00:03 It's 10 days of gains were up by more than 40%.
  • 00:06 Bill Gross, the founder of PIMCO coming out and saying it's trading like a meme stock.
  • 00:10 What are you hearing?
  • 00:11 What are you reporting on what is happening with this name in this market?
  • 00:16 It's hard to disagree
  • 00:17 with Mr.
  • 00:18 Gross.
  • 00:18 I think you look you look at what has happened to the fundamentals that he alluded to.
  • 00:24 You know,
  • 00:25 Goldman may sort of look at at the inventory clearing that we saw in the second quarter as positive
  • 00:31 maybe some stabilization in in the margins for this company.
  • 00:34 But those margins have been moving dramatically lower over the last year, year and a half
  • 00:39 as the company has significantly cut prices.
  • 00:43 And we have not seen,
  • 00:44 you know, a sort of
  • 00:47 result of that being increases in in deliveries.
  • 00:50 We've seen the company really over the last seven quarters see,
  • 00:55 you know, very, very flat a delivery.
  • 00:57 So this is a a growth company that is no longer growing
  • 01:00 and
  • 01:01 real questions about where that growth is going to come from going forward.
  • 01:04 If the company is unwilling to add to the line up, which
  • 01:07 Elon Musk has given every indication that, you know, he he doesn't want to expand the line up, that he wants to continue
  • 01:14 to really leverage the model 3 and the Model Y for the vast majority of this company sales.
  • 01:18 Well, you know what the carrot is now it's August and it's the robot taxi business.
  • 01:23 We're talking about price of the company for growth that doesn't have any.
  • 01:26 Craig, can that story turn that growth story around?
  • 01:29 I think there's real reason to be skeptical there just on on the basis of, you know, we look back at, at the years of experience we've been through with,
  • 01:38 you know, Musk talking about this and, and, you know, putting this on the drawing board.
  • 01:43 You know, you, you go back to 2016 when he was really first
  • 01:46 talking about this idea
  • 01:48 of, of trying to make this a business of, of putting self driving vehicles on the road,
  • 01:53 a shared fleet of them,
  • 01:55 Tesla, you know, running that fleet, managing it as a sort of Uber competitor.
  • 01:59 And this was all something that, you know, was on the drawing board way back in 2016.
  • 02:03 And, you know, really executing that has proven extremely difficult.
  • 02:07 And you look at this sort of segment leader in, in Waymo,
  • 02:11 they are making really remarkable progress
  • 02:14 of late in, in making their service available, you know, more to the public,
  • 02:19 but scaling that business has been a real slog.
  • 02:22 And and they've really focused on particular markets,
  • 02:25 whereas Tesla has has, you know, set a much higher bar for itself with wanting to do sort of
  • 02:30 general purpose autonomy.
  • 02:32 So how exactly they square that circle is really going to be,
  • 02:36 you know, something to watch in on August 8th when Musk has has scheduled this unveiling for.
  • 02:42 I think you're very diplomatically sort of doing the collective head scratch.
  • 02:45 So we all are in terms of why now in terms of this rally that we're seeing in Tesla stock,
  • 02:51 this actually adding to that collective head scratching
  • 02:54 given the fact that there is a report citing Cox Automotive, automotive research showing that Tesla's share of electric vehicles in the US has fallen below
  • 03:04 50% in the second quarter.
  • 03:06 They've lost ground to General Motors, Ford, Hyundai, Kia, all of them actually
  • 03:11 gaining on them in terms of their EV sales, even as collectively there seems to be some steam lost.
  • 03:17 How much of A hurdle do they have at a time where a lot of companies might have deemphasized EV
  • 03:23 but are still gaining share and creating a buyer base?
  • 03:29 Yeah.
  • 03:29 I mean, I, I think, you know,
  • 03:31 for Tesla to to go,
  • 03:34 you know, below 50% is a pretty significant milestone.
  • 03:37 It's it's sort of been assumed that this
  • 03:40 company was
  • 03:41 not only, you know, dominant, dominating the EV market, but going to continue to to dominate it,
  • 03:47 you know, sort of in perpetuity.
  • 03:49 And I do think that you do hear from some people that this is is, you know, maybe kind of part of the plan, this idea that
  • 03:56 the EV market is going to get more and more competitive, that Musk doesn't necessarily want to play that game, that he wants to sort of, you know, take this great big leap.
  • 04:05 And I think
  • 04:06 that may be all well and good and and be the sort of thing that you would expect
  • 04:10 of a disruptive company.
  • 04:12 But
  • 04:13 I I think people under appreciate just how difficult it's going to be to get a car to where,
  • 04:19 you know, you don't need any human behind the wheel.
  • 04:21 And I think we need to look no further than all of the money that Google has pumped into this effort for years
  • 04:27 and really done this in in sort of, you know, step by step fashion.
  • 04:31 Musk, as we know, is not one to really
  • 04:34 sort of be patient, work well with regulators.
  • 04:36 And this is an industry where,
  • 04:38 you know, one accident, one
  • 04:41 collision with a, a pedestrian or with a, a vehicle that results in fatalities can lead to you
  • 04:48 no longer being able to operate on, on the roads that you've been on.
  • 04:51 And so we've seen that from Uber, we've seen that from crews.
  • 04:55 And you know, I don't think necessarily that there's a a reason to think.
  • 05:00 That Musk is going to suddenly sort of change his ways and, and,
  • 05:04 you know, work better with with,
  • 05:06 you know, the authorities who will give him the green light at at least initially on the basis of, of the promise that this technology offers.
  • 05:14 Craig, do we talk too much about Tesla simply because Elon Musk is such a firebrand?
  • 05:18 I mean, he's liking a lot of the oxygen out of the room.
  • 05:20 Tesla shares are up 5.6%.
  • 05:22 I just looked to General Motors shares.
  • 05:23 They're up almost 30% year to date.
  • 05:25 I mean, how much has sort of the drama around Elon Musk and Tesla overshadowed
  • 05:30 some of the gains that some of the auto and other auto manufacturers have made?
  • 05:35 It is a really interesting question.
  • 05:36 And I, I do think that some of the gains that you're seeing
  • 05:39 among some of these other automotive names has actually been
  • 05:42 on the basis of, you know, what these companies have been
  • 05:46 spending sort of like drunken sailors to try and catch up to Tesla.
  • 05:50 And maybe it's not the best use of, of capital.
  • 05:52 Maybe it would we would be better off actually, you know, getting some of that back in the form of
  • 05:57 a of a dividend and a buyback.
  • 05:59 And I think, you know, those shareholder returns actually is a, a big
  • 06:02 sort of factor behind GM.
  • 06:04 But I think the reason we do talk so much about this company, you know, you want to talk about the 10 day run that this
  • 06:10 stock has been on,
  • 06:11 I mean, it's added $250 billion worth of, of market cap over that stretch.
  • 06:16 And that's, you know, multiples of, of what some of these other companies are worth.
  • 06:20 And so, you know,
  • 06:21 do they get talked about an awful lot
  • 06:24 really until everyone's blue in the face?
  • 06:25 Absolutely,
  • 06:26 but it is, you know, for good reason in the sense that we just don't see these sorts of moves in terms of, you know, market cap gains
  • 06:34 among anyone else in this space.
  • 06:36 Craig, I want to ask you about the tariff hurdle because rival BYD signed this deal
  • 06:40 to start now producing
  • 06:42 EVs in Turkey.
  • 06:44 Is this a way they can sidestep the tariffs that Europe has put on and is this something potentially must should start doing?
  • 06:51 I mean, they're, they're not only setting up
  • 06:54 in Turkey as as you've alluded to, but also in Hungary.
  • 06:58 So they've already started work on a, a plant
  • 07:01 in Hungary.
  • 07:02 I do think it's really interesting in the sense that,
  • 07:05 you know, the Chinese car makers have had these big ambitions to crack the European market.
  • 07:10 They've done so in a way to try and avoid
  • 07:13 the scrutiny that they
  • 07:15 ultimately weren't able to avoid in, in the sense that even
  • 07:19 even making, you know, bits of a progress in cracking this market was enough to really set off alarm bells in Brussels.
  • 07:25 And we so, so we have seen these tariffs
  • 07:28 put into place.
  • 07:29 This would be a way around those by setting up local production.
  • 07:33 And I do think that this is an underappreciated risk to Tesla in the sense that
  • 07:37 the Shanghai plant
  • 07:39 as of a couple of years ago became the export base from which Tesla, you know, really
  • 07:45 tried to tried to leverage.
  • 07:47 And to a great degree here in Europe where
  • 07:50 they have localized Model Y production in Germany.
  • 07:52 But the vast majority of the model threes they get for for this region come from Shanghai.
  • 07:57 And so those are at risk of of, you know,
  • 08:01 real a pain in the form of of these tariffs that that are coming into into play in the coming months.