China is the 'hearts and lungs' of the Tesla story: Analyst

Dan Ives, Wedbush Managing Director and Senior Equity Analyst, examines Tesla's second-quarter earnings, the importance of Chinese manufacturing for the EV developer, and Tesla's purchase of bitcoin.

Video transcript

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- All right, Tesla just reporting earnings after the break. Let's bring in Wedbush Securities' Dan Ives to break down the results. Tesla better than expected earnings report, but the market has decided they're not so impressed, Dan. Basically, the initial pop is now gone. The stock essentially flat, which leaves them down more than 30% year to date. What's your headline from today's results?

DAN IVES: Look, I mean, there is a steep ramp second half. They're reiterating their guidance 50%. That's the positive. Now it's about them executing it. And I think that's really going to be the big focus of TheStreet going forward. Gross margins this quarter obviously got hit because of the zero COVID shutdowns. That cannot sustain going into 3Q and 4Q. You need to see a ramp. And that's why I continue to sort of be [INAUDIBLE] here in the eyes of TheStreet.

RACHELLE AKUFFO: And, Dan, you did tweet that overall second quarter Tesla did navigate with its margins and its supply chain issues better than feared due to that China shutdown. How important is some of the guidance and some of the information that we're now sort of getting out of the conference call?

DAN IVES: The guidance is going to be the key, because 2Q, TheStreet will basically say, this is an anomaly given what happened in China. But there's the fear about, what happens if there's another shutdown? What does the margins look like? It looks positive in terms of what they're guiding for growth, but it's about that margin. That's what separates them from other, quote unquote, "traditional automakers." And they really need to ramp those margins back up into 3Q and 4Q. And that, in terms of feet to the fire, that will be the focus in the conference call.

SEANA SMITH: Dan, what about the slowdown that we're seeing in the economy? There's lots of fear out there that we will start to see consumers pull back on purchases. That could obviously have an effect on Tesla. What do you see being the impact in the second half of the year?

DAN IVES: Look, I think right now, China is the heart and lungs of the Tesla story. And of course, with the zero COVID issues and the shutdown, that continues to sort of be touch and go. And I think that's the fear. They'll get a strong month of June. That's really going to be as a positive. But now it's also about the demand picture. What does demand look like? Are they seeing any softening? Right now, demand still is [INAUDIBLE] supply. But that's what's really going to be the focus of the conference call.

- So much focus on Shanghai and the shutdowns, of course, Dan. But he scared TheStreet a little bit, did Elon, with that interview recently when he talked about the cash furnace in Berlin and in Texas. From what you're seeing, has he been able to shrink, to calm that fire and trim expenses?

DAN IVES: Yeah, look, I mean, when you look at Berlin and you look at Austin, those are the [INAUDIBLE] that ultimately is key, the longer term Tesla store in terms of production in 2023. But going through now, what's been the storm in China, investors are going to be laser focused on them getting through and making sure demand continues to sustain, which it appears to basically in terms of what they're guiding to. But now in terms of China, that's really the linchpin to the whole Tesla story as we go into the next 12 to 18 months.

RACHELLE AKUFFO: And as we look at some of these operation costs, we obviously see a rise in commodities. You see obviously issues sometimes in getting-- that's impacting the ability to get these cars actually off the belt and actually onto the roads. What are you watching in terms of the number of cars that are getting rolled off the belt at Tesla?

DAN IVES: Yeah, it's a great question. It's really about the month of June and what that run rate looks like into the second half and what logistics looks like because what investors don't want to see is the head fake. [INAUDIBLE] ultimately three weeks now, we have another sort of negative impact. That's really what happened when you go back to April and May. So that's going to be the focus now for investors on the Tesla story, especially as China, a lot of that out of their control in terms of zero COVID issues. No different than Apple, which that right now continues to be an overhang in the stock.

- And of course, Dan, the closest-- and the question of who's closest to Tesla's bumper, VW has a whole host of cars, EVs on the way. Hyundai has a lineup. Ford F-150 Lightning has done very well. And then on their heels, Chevy has a whole host of EVs. Who is closest to their bumpers? And how do you feel about the new products on the way, or frankly, lack thereof from Tesla in '23?

DAN IVES: I think VW has some impressive vehicles coming out, and that's been a big focus of theirs, obviously. And then when you also look at what's happened with Ford F-150, that's potentially a game-changer in terms of what we see there on the pickup truck side. Look, this is not just going to be Tesla. You're going to see many, many automakers a part of what's the biggest transformation to the auto industry since 1950s.

RACHELLE AKUFFO: And we know that on top of having to raise the price to meet with inflation, we're also seeing a lot of companies streamlining, including Tesla. What's your take on how we should be viewing some of the layoffs going on at Tesla?

DAN IVES: I think just like every other big tech company that we're seeing, some sort of prudence going into 2023. And that's not necessarily a major concern, but it's something that is something to keep an eye on as you read the room in terms of going into later this year with some economic storm clouds.

- A lot of ink, Dan, devoted to their purchase and sell of bitcoin and a lot of discussion, of course, about the looming Twitter battle and how that may have impacted Elon running the company. What are your thoughts on those two issues?

DAN IVES: I think they both have been black eyes for the Tesla story, for Musk in particular. Obviously, the right-- in terms of the bitcoin, that's a move in the right direction in terms of some of those [INAUDIBLE]. But the Twitter situation, because of the Musk's ownership and what ultimately could happen in the court case, that continues to be a bit of an overhang. And that's ultimately played out in terms of what we see in the stock.