Tesla earnings: 'We're expecting another very strong quarter,' analyst explains

CFRA Research Senior Equity Analyst Garrett Nelson joins Yahoo Finance Live to discuss Tesla's fourth quarter and what investors should look for in Tesla's earnings report on Wednesday.

Video transcript

- Welcome back to Yahoo Finance. Well, stocks are taking a big hit at the start of a packed earnings week with Tesla being one of the companies reporting its quarterly earnings this Wednesday. Here to help break down what's in store for the EV giant is CFRA Research Senior Equity Analyst Garrett Nelson. Garrett, thanks so much for being here. What do we expect from those earnings results? I know for the previous quarter, revenue came in at $14 billion. And then what is the outlook for revenue going into the rest of the year and perhaps next year as well?

GARRETT NELSON: Well, thanks for having me. All signs here point to another very strong quarter for Tesla. We know what their production and sales were for the quarter in terms of vehicles sold. That came out a few weeks ago, and it was a record high quarter for Tesla. So they've also gotten really good at beating consensus. So Tesla has now beat eight of the last nine quarters.

But we think with the record quarterly production in the sales that they posted for Q4, that that really bodes well in terms of their ability to beat just given the high fixed-cost nature of auto manufacturing. When you have a quarter when you have such strong volumes, that tends to really drive down unit costs and gives them a lot of bottom-line leverage. So we're expecting another very strong quarter. And really, investors will be focused on what guidance they provide in the release.

ALEXIS CHRISTOPHOROUS: Gary, you have a buy rating on Tesla right now, a 12-month price target of $1,250. What do you see as possible headwinds to that target and to that rating?

GARRETT NELSON: Yeah, the stock has really pulled back significantly since the start of the year. And it's this broader selloff in the higher growth stocks. A lot of tech stocks have sold off. Tesla trades more like a tech stock than an auto manufacturer. So we really view that as a buying opportunity.

In terms of headwinds that we're looking at, it's really consistent with the headwinds that are facing all auto manufacturers here, which is supply chain issues and semiconductor shortages. But Tesla has done a very good job navigating those headwinds. And we think there's potential upside to 2022 consensus numbers with their two new factories starting up. We think the startup of the new factory in Texas is now imminent, and then the startup of the new factory in Germany will be coming probably in the second quarter.

So we're very bullish on Tesla. We look at consensus numbers. And those two factories will essentially double Tesla's production capacity when they come online. So it's a big event. And we think the company will provide more information regarding the longer-term growth plans beyond this year. Remember that the company has a long-term growth plan to grow their annual volumes by a factor of 40 in between the years 2020 and 2030.

- And Elon Musk sat out the last earnings call. So I wonder, does he sit in this time? Because a lot of people are very interested to learn about vehicles that are down the pike, particularly things like the Cybertruck that was supposed to go into production this year.

GARRETT NELSON: So it's rumored that he will be on this call. So we view that as a positive factor. Normally, he's not going to be on the call if there's no good news or no new developments to report. So that's another reason why we're bullish heading into the quarter. As far as the Cybertruck, that's been a concern recently regarding the story.

But the company is rumored to have upwards of 1.3 million reservations for the Cybertruck. And even if it's been pushed into early 2023 as far as first production, we think investors are willing to be patient. And that reservation count is very bullish when you compare it to some of the other EVs such as Ford's F-150 Lightning or GM's Chevy Silverado Electric. So we're very bullish on the Cybertruck as well as the semi, which will be coming fairly soon.

ALEXIS CHRISTOPHOROUS: I know that for the first time, Tesla plans to produce its own cells to support its electric vehicle production. How might that impact the company going forward? And I'm thinking specifically about what those costs might mean in real terms to Tesla.

GARRETT NELSON: I think that's an area where investors are really looking for more information. Since Tesla held their Battery Day several quarters ago, they really haven't provided an update as far as their plans and how they're progressing in terms of producing their own battery cells. We know that over time, they have a plan to reduce their battery costs by over 50% and increase the intensity and power of those battery cells. But I think that's definitely an area where investors are looking for more information from the company.

- And then who is Tesla's biggest Competition is it players like Rivian and the EV space, or is it more from legacy carmakers?

GARRETT NELSON: That's a good question. It's really all of the above. We view Tesla's closest comp in terms of the specs of the vehicle, the quality of the product-- right now, we think that's Lucid. The Lucid Air really has comps that are really on par or maybe even slightly superior to a Tesla vehicle. Tesla has been rumored to have developed the Model S Plaid to compete with the Lucid Air. But incumbent traditional automakers have numerous EV models that you're going to be seeing on roads later this year and more so next year.

And really, the traditional automakers have increased their investments that they're dedicating towards EVs dramatically over the last year. So it's going to be a mix of both traditional automakers and upstarts such as Rivian, Lucid, Fisker, and others.

- All right. We will have to leave it there. Are a lot of people very interested in those earnings results out on Wednesday. Garrett Nelson, senior CFRA research senior equity analyst, thanks for stopping by today.