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Tesla: Electric vehicle market ‘nowhere close to being saturated’ in China, analyst says

Oppenheimer Sr. Research Analyst Colin Rusch joins Yahoo Finance Live to discuss fourth quarter earnings for Tesla, the company's supply chain challenges, EV market capitalization, and the outlook for EVs in 2022.

Video transcript

AKIKO FUJITA: Let's turn our attention to shares of Tesla now, sliding in the session, down more than 7% as investors digest their latest quarterly results. The company beat on the top and bottom lines. Net income rose 760%. But the EV maker warned those supply chain issues could persist through much of the year.

Let's bring in Colin Rusch, Oppenheimer Senior Research Analyst. And, Colin, it was a good quarter. I guess the thinking is there's just not a lot of things to get excited about in this upcoming year.

COLIN RUSCH: Honestly, I think it wasn't so much about what they said, it's about what they didn't say. I mean, Elon wasn't on the call during the third quarter call, and so bringing him back on-- folks had expected there to be something more substantial on the call. And I think there was some enthusiasm going into the print about that.

But the reality is that they're executing incredibly well along all of the key elements of the strategy, in our view. Importantly, their battery production on the 4680, which we think is a step function both in terms of cost and performance on the powertrain, is up and getting produced in Austin, going into packs. They're growing their beta version of the FSD. They're at 60,000 users, up from a couple of thousand, you know, quarter over quarter. And we think that's just accelerating their learning cycles around autonomy, which is a critical driver for the shares over the next one to two years, in our view.

BRAD SMITH: You know, that's one of the differentiating factors, of course, for Tesla that they've been able to market on to this point. They're going to face a lot more competition. Did anything stick out to you, particularly with regard to what they've already got operationally, even with some of the headwinds that they laid out with regard to their roadmap, specifically, and how they're going to continue to retain the market share that they do have and continue to take share in other parts of the world where they're bringing gigafactories online, i.e. Berlin?

COLIN RUSCH: Yeah, I think it's important to think about what's really going to drive earnings for this company over the next few years. And a lot of that is really related to cost. You know, and what we heard from them was ongoing progress around simplification of the design of the vehicles, improvement around supply chain and manufacturing efficiency. They're bringing these factories up in Texas and Germany very, very quickly relative to any of their peers.

And they're continuing to swim out in front of folks in terms of designing cost out of their system. And we think that serves them awfully well over time. And that's really a three to five-year time period when you look at the time frame for most of these production programs.

You know, and then when we look at autonomy, you know, there's really no comparison between Tesla's vehicles on the road, which are approaching two million vehicles collecting data on a daily basis versus anybody else, which are still in the single-digit thousands in terms of any other program that's out there going through a learning cycles with vehicles on the road. And so I think what we want to see from them is just ongoing introduction of these software upgrades to really continue the learning, particularly in urban areas where they can really, we think, differentiate themselves from the pack. And we think they're in a place where their cadence is just so much faster than everyone else, that there's really just a meaningful opportunity for them to just continue to extend their lead on this.

AKIKO FUJITA: Colin, you've got an outperform rating on the stock. Price target, 12 to 18 months target of $1,103 a share-- so quite a premium to where it's trading right now. How much of this factor is in some of those new models, particularly the Cybertruck that's now been delayed until 2023? You think the stock can move higher even without those new models coming online this year?

COLIN RUSCH: Absolutely. We're really not giving them much credit for either the Cybertruck or the semi truck. At this point, we continue to see just an enormous amount of demand, both in North America and Europe, as well as in China for EVs. And it's certainly nowhere close to being saturated. So we see a solid five to seven-year growth path for Tesla to just continue taking market share, and continuing to extend their lead from a technology perspective relative to their auto peers.

BRAD SMITH: OK, can we talk about this Optimus humanoid robot, because that is getting a lot of discussion as well? What is the play there? Do you imagine that this is going to have any type of takeoff for Tesla? And why the prioritization and even bringing this up into the fold right now from your perspective?

COLIN RUSCH: You know, so I think we heard about it a little bit in your last segment around labor tightness. You know, we're in a very tight labor market right now across the economy and across our entire coverage universe. And so anywhere where we're seeing savings around labor rates or, you know, just efficiency within operations, there's a lot of value release.

I think there's an enormous opportunity around automation. We're continuing to do an awful lot of work in our research franchise around this. And the form factor with the robot is interesting. I think they're very early. Obviously, Elon likes to talk about things early in the cycle. You know, and so there's a lot of work to do here.

But the company is really built on engineering and innovation. And the learning that they've done in and around cars really has applicability in other areas. And it's interesting to see them move into that form factor. We're certainly not giving them any credit or any value around that robot. And I think, you know, to be honest, there was probably some disappointment from certain investors that they were talking about it just as a potential distraction for the organization or on their core business.

But it's important technology. We think it's going to become a bigger and bigger issue as we get into the back half of the decade. And we'll see what they come up with.

BRAD SMITH: I imagine will Smith would like to have a word with the manager on this front for Optimus. Thanks so much for joining us here. Colin Rusch is the Oppenheimer Senior Research Analyst joining us here today to discuss and break down all things Tesla.

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