Tesla notches strong Q3 profits

Tasha Keeney, ARK Invest Analyst, takes a look behind Tesla's quarterly earnings and talks about what might give the automaker an advantage in electric vehicles.

Video Transcript

ADAM SHAPIRO: All right. Afterhour shares of Tesla are down slightly, about 1%. They closed up today partially because everyone is expecting earnings, which we just got. As Jared was telling us, they actually delivered more vehicles than Wall Street was expecting. Revenue missed slightly there. The Street was expecting about $13.9 billion revenue. Came in just shy of that number.

But to break all of this down and to talk about their recent price target of almost $3,000 for Tesla stock by 2025, we invite into the stream Tasha Keeney, ARK Invest Analyst. And it's good to have you here. I do want to get you on that $3,000 price target and appreciate your sending that note through to us, but I am curious what do you think about what they've just reported to us. More cars than the Street expected, but revenue still missed.

TASHA KEENEY: Yeah. I think with Tesla, it's an innovation stock at ARK Invest. We are focused on innovation. We're long-term investors, so you know, I think like any other quarter, you have to stay focused on that long-term picture. And so you know, what I saw in the report, I think, well, we're excited about the wider release of full self-driving beta. We think that that could be a very profitable business if they're able to launch a robotaxi network, so I'm excited to hear more about that on the call.

So you know, in general, I think you have to focus on the long term here with Tesla. You mentioned it. Revenue was slightly below estimates, but I think the big picture is they're slightly more adaptable than a traditional car company as well. We've seen that with the chip shortage. They have the hardware and software talent to write their own firmware and to switch suppliers if necessary, so I think they'll continue to be a leader in EVs, and they could be one of the first companies to launch a robotaxi network at scale.

- You know, Tasha, that's interesting because supply chain issues, obviously, has been a massive concern here for automakers over the last several months. And Elon Musk, he did mention some potential challenges here during the annual investor meeting earlier this month, but I guess just in terms of the short-term risk, how worried are you that this could potentially affect the numbers that we could get for the current quarter?

TASHA KEENEY: Well, I think we've already seen them push back some production timelines for a few of their vehicle types. So we've already seen some effects, and you know, you mentioned it. Tesla is not immune to some of the supply chain shortages. I think, again, that you said it. It's a short-term phenomenon. I think long term, what are we looking at?

Well, electric vehicles are becoming a higher share of total vehicles sold. I think that if you're a traditional automaker, I'd be very worried about the chip shortage. I think there's a possibility for a glut, especially if electric vehicles continue to take share. And perhaps, you know, gas-powered car sales will not bounce back to the levels that traditional automakers expect them to. So from that perspective, I think Tesla is in a great position.

ADAM SHAPIRO: You would win a battle of wits with me when it comes to these kinds of discussions, because this is what you do professionally. But I have to ask, help those of us who don't understand the Tesla phenomenon. You just brought up traditional carmakers. The market cap for Ford is roughly like $30 billion. For General Motors, it's around [? $70. ?] Combined, they're both $100 billion.

Tesla's market cap is $860 billion, and yet, both Ford and GM outproduce them, outsell them, and they've got offerings of electric vehicles that are quite popular. Aren't they going to leave Tesla in the dust, and how do you get to a $3,000 price target on the stock with that kind of competition in the future?

TASHA KEENEY: Yes. Well, we think that the auto market could consolidate as we see the transition to autonomous electric vehicles, and automakers that don't successfully make that transition may not succeed and may not be around in the next 10 years. So I think when we look at the market cap, you know, everyone's betting on the future of Tesla. You mentioned, we have a $3,000 per share price target by 2025.

You know, other automakers are getting their electric vehicle platforms off the ground, and we expect that, by the way. We're forecasting over 40 million EVs sold in the next five years. It's not just Tesla that's going to be producing EVs, but what they have today is better-performance batteries for the price, which of course, helps with margins, gives them more cash to then build more factories. It's a flywheel.

And in terms of autonomous capability, Tesla is the only automaker that's using their customer cars as R&D centers for autonomous driving to train their autopilot software to eventually layer on the capability to create a fully autonomous car. We think this could be a highly profitable business. It'll be a recurring revenue stream, unlike the mostly one-off car sales model that you see today. It could totally transform the business, so that's what we're looking at over the next five years.

- Tasha, you mentioned some potential consolidation within the industry. Would you say that Tesla could potentially look to acquire another automaker? Where exactly are you seeing some potential for consolidation?

TASHA KEENEY: I think that I would be surprised if Tesla were to acquire another automaker. I think it's more that not all of the traditional automakers will succeed, and those that will stand to enjoy a market that we think will be a great opportunity. So I'm forecasting that the revenues off of autonomous taxi services could be $9 trillion in the next 10 years. So you know, there's a reason that many companies are investing in this opportunity, but we think it'll be a winner takes most in certain geographic areas.

Tesla has a very interesting strategy. It could allow them to scale their autonomous fleet faster in, let's say, mor cities than traditional automakers approaches. Because they're using a camera-based approach, they're not using high-definition maps, we think that makes them a little bit more scalable. So that's the Tesla difference, and that's what-- you know, actually, adoption of autonomous taxis could even surpass our forecasts if Tesla is successful in doing that in the next five years.

ADAM SHAPIRO: Well, my brother loves his Tesla, so I could go on that one, and nobody ever made any money listening to me. They make money listening to you, and that's why we invited you in because we like what you have to say. Tasha Keeney from ARK Invest, thank you so much for giving us your insight on Tesla, and we look forward to you coming back.

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