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Tesla stock dip is ‘a generational-type opportunity’ for investors: Analyst

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CFRA VP and Equity Analyst Garrett Nelson joins Yahoo Finance Live to talk about Tesla's position in the auto industry, brand loyalty by consumers in the EV space, competition with the Ford F-150 Lightning and the Cybertruck, and the impact of CEO Elon Musk's interest in Twitter on the EV developer.

Video transcript

- Well, it has been a rough ride for Tesla shareholders this year. The stock's been hit hard, off more than 30% in the past six months alone. But one analyst says that now is the time to buy calling it a quote, "generational investment opportunity." Garrett Nelson, CFRA's VP and equity analyst is here with us.

Garrett, it's good to see you. We know you're bullish on Tesla. You have a $1,200 12-month price target on the stock. Give us the bull case, your bull case for Tesla right now.

GARRETT NELSON: Sure. So we put out this sort of deep dive report on Tesla looking at the long term opportunity, you know, what's happening here. And with the stock down more than 30% year to date, you're going to have some good buying opportunities. And that's what we see with Tesla.

But basically, we call this a generational-type opportunity. That's how we see it. And to kind of make an analogy like we discussed in the report, we kind of view the Tesla setup as very similar to either Apple or Amazon, looking back 10 to 12 years ago and the phase that they were in, and what they did to their industries, which was act as disruptors and take a huge amount of market share.

You look at Apple and cell phones, technology and Amazon, what they've done in retail. So we think that's what Tesla is doing in the auto industry right now. And we think over time, we conservatively forecast earnings growth from a little less than $7 a share that they earned last year, to north of $30 a share in earnings by the end of this decade, with revenue going from roughly $54 billion last year to north of $300 billion.

And so we think the stock has really been unfairly punished. Although at down 30%, It's still the best performing auto manufacturer that we cover by a wide margin. The industry has been extremely hard hit recently. They're not being given credit for a lot of positives in the story, such as the fact, they've beat 10 of the last 11 quarters. They just started up the two brand new factories in Austin and Berlin, dramatic balance sheet improvement over the last several quarters, and various other positives that we see in the story.

- Certainly, the negatives being the shutdowns in Shanghai. But you talk about market share. And it is a stunning discrepancy. There are 61% market share in the US, compared to 8% for Ford. And that's the second best. What's their signature advantage, Tesla over GM, over Ford, once those guys turn their attention exclusively to EVs?

GARRETT NELSON: We think it's having a product that people really want. You've seen that a lot of EVs come to market in the last year or two. But they don't even come close to Tesla in terms of demand. And you have some visibility as far as Tesla's future pipeline, the Cybertruck, which they expect to deliver first deliveries next year. We actually think they could be conservative with that guy. And so you might actually see first deliveries by the end of this year.

So that's another catalyst. But just look at that one model. They have north of 1.3 million reservations of that vehicle. So in revenue terms, that's roughly $80 billion of revenue. And then on top of that, you have the semi, where we expect very strong demand, the Roadster. And then we think longer term, there are going to be a lot of other products from all the innovation that Tesla has been doing.

- You saw on the screen there, the comparison, right, the Ford F-150, the best selling truck in America for 40 years, against something that looks like Robocop. You really think American consumers are going to choose that Cybertruck over what proves to be the most successful car in our lifetime?

GARRETT NELSON: We do. In fact, the F-150 Lightning, the reservation count is only about 200,000. So the Cybertruck reservations is more than six times that amount. So we do have some visibility with these new EV models in terms of the reservation count. So you know, it was widely mocked when it was introduced. You had the smashed window, the windows were not supposed to be able to break.

But the reservation count, I think, has surprised everyone, including ourselves. And there's really no arguing with that in our view. It's about $80 billion of revenue, of future revenue that they're sitting on.

- And in terms of the number of reservations that then translate into people actually wanting to buy this, because some people who've sort of been waiting for the Cybertruck and has been delayed, have instead gone with the Lightning from Ford. What are the expectations for the Cybertruck? And who exactly is their target market? Is it your regular pickup truck person?

GARRETT NELSON: No, we think it's a lot of younger consumers, a lot of existing Tesla customers that maybe own the Model 3 or the Model Y. And they just love the product. I mean, kind of similar in a way to Apple customers when they first came out with the iPhone, just took a huge amount of market share, was a very friendly interface.

And so, that's kind of the same, what we see with Tesla. That Tesla, their customers are borderline fanatical about the product. And so we think it's a lot of existing customers are looking to add another vehicle in their garage, but also some new customers as well.

- Garrett, there's a thought out there that Elon Musk, getting tied up now with Twitter, all the drama that's going on over there, that that would actually be bad news for Tesla going forward, bad news for Tesla shareholders. It doesn't really sound like you agree with that line of thinking. Why?

GARRETT NELSON: Well, there have been concerns. And I think they're justified, given that Twitter will act as a distraction. You know, this is a person who only has so many hours in the day, like the rest of us. But what we point to is he's been able to balance growth at both Tesla and SpaceX and his other companies very successfully over the last several years. And we think eventually, he's going to step back and take more of a Chairman's role and not really be involved in the day-to-day operations of Twitter.

So I think it's one of the factors that has weighed on Tesla stock, especially before he sold Tesla stock in order to help fund the purchase of it. But you know, so we point to that is one of the factors that has weighed on share price performance, with the stock down about 30% this year. But we think those concerns are really overblown.

- We'll have to see. He doesn't shy away from speaking his mind. A big thank you there, to Garrett Nelson, CFRA VP and equity analyst. Thank you so much.

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