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Tesla's supercharger deals with GM, Ford are 'the cheapest forms of advertising'

Tesla recently announced its EV charging deals with Ford and GM. Oppenheimer Managing Director and Senior Research Analyst Colin Rusch joins Yahoo Finance Live to discuss what this means for Tesla and the EV charging landscape.

Video transcript

- Tesla shares higher after GM followed in Ford's footsteps with plans to use the EV maker's charging network. The stock extending recent gains, up another 4% today. On track to close higher for the 11th trading day in a row. For more on what this means for Tesla and the broader EV market, we want to bring in Colin Rusch, Oppenheimer senior research analyst.

Colin, it's good to see you here. So what does this mean for Tesla? Has Tesla won the EV charging wars?

COLIN RUSCH: I don't know if there's an EV charging war. What they're trying to do is facilitate EV adoption and a couple of things are happening with this. Is one, you're getting a standardization on plugs. It's just going to simplify, you know, the manufacturing for those connectors across the industry. We think that's a net positive and a savings for everyone across the industry.

Secondly, we don't need a million networks of charging. And so Tesla's already built out a fairly effective fast charging network, but that's not necessarily going to be the bulk of how charging happens. Most of the charging actually happens at home or at work, where most of these cars sit idle and it's really a top up market. And so you've got some fast charging that'll happen, but the bulk of the charging actually happens with level one and level two chargers.

And so you know, the stock that we cover, ChargePoint, has sold off today and we think that's going to ultimately be a net winner with some buying opportunity right here on some confusion around how the usage patterns are really changing for vehicles as we move towards EVs.

AKIKO FUJITA: Yeah, Colin, I'm glad you brought that up. Because it was interesting to see the reaction to ChargePoint, as well as EVgo, some of these other charging companies, you sort of wonder, well, you need all these chargers to really get the EV adoption going. I want to point to a conversation we had with ChargePoint CEO, Pasquale Romano earlier, in the week when we asked him specifically about the Tesla-Ford partnership. Take a listen to what he had to say.

PASQUALE ROMANO: We don't want our customers to have to assign a particular-- our business customers-- to have to assign a particular parking space to a connector type because you'll never get that mix right and that mix will change over time. You want to make sure that any car can park in any parking space and use the charger, because that's just what's simple for consumers. That's just what consumers want. So we're looking to innovate there to make sure that we can adequately support both standards and potentially even go beyond the consumer having to carry that adapter in their car.

AKIKO FUJITA: So that came on Monday, sort of already hinting that they are looking at the NACS offering as well. When you look at how ChargePoint has moved down more than 10%, is it a little overdone, number one? And is there a bit of a misunderstanding here? I mean, could ChargePoint also be a big winner on the back of this?

COLIN RUSCH: I think both of the answers or the answer to both those questions is yes. You know, certainly this is overdone. I think folks misunderstand what's actually at stake here. Charging in the EV world is really an amenity, particularly in public charging. It's not necessarily where most of the charging happens.

And so when you look at, you know, retailers or multifamily homes, the charging actually is an add on. You know, it's cheaper than a cup of coffee for folks at work and you're providing coffee for your employees. You know, it's one of the cheapest forms of advertising and marketing for retailers.

And so for us, I don't see there being a slowdown in terms of charging infrastructure that gets built out. And ChargePoint is really well positioned with the back end software. They're really the only company that has fully integrated software with their chargers and the accounting systems and operating systems in the market for their customers.

And so for me, I think it's a huge opportunity for them as you start to look at standardization. The companies that can actually provide the full suite of solutions across their platform are really going to benefit from this. And Tesla is really only concerned with facilitating and adoption. And so they're not going to go after charging as a key market for the company. It's really part of their strategy around enabling EVs and helping drive the cost of EVs lower. And so I think ChargePoint ends up being the specialist in this space that really ultimately wins a lot of market share and a lot of value capture over time.

AKIKO FUJITA: Let me pick up on that point. I mean, what is the calculation for Tesla? First, it was Ford. Now, it's GM. They aren't just doing this out of the goodness of their heart, right? I mean, there's got to be a business case here. What is it?

COLIN RUSCH: You know, I think this is really more coming from Ford and GM. At this point, when they look at the number of variables that they have to solve to move through this technology transition, you know, providing charging and enabling charging for their customers is one of the key ones that it's actually quite expensive. Tesla has invested an awful lot of money, billions of dollars, in building out this network.

And for them, you know, they're just providing service and renting out that asset. And so for them, you know, it has been part of a customer service offering that they recently started charging new customers for. You know, initially it was a free service for customers and now they're starting to charge some of their competitors for it. And so it's a profit pool for the company on some sunk costs.

So for Tesla, I think it's just monetizing an asset that they have. And for these other OEMs, it's a realization that they can simplify their lives and really focus on some of the challenges that they have ahead in terms of moving through the transition towards building EVs, which is actually much more difficult than I think most of these OEMs ever really anticipated.

- Colin how much revenue-- how much more revenue do you think Tesla is going to generate as a result of these partnerships here with GM and Ford? And to that point, now they have partnerships with their superchargers. There has been some talk from Musk just about licensing their self-driving technology. Is that a move that you think makes sense?

COLIN RUSCH: You know, what we've seen the company do in the past is really offer up some of the non-cutting edge technology for competition, whether it's battery technology or otherwise. And so I think it helps some of those competitors move through some of the early stages of commercialization. But it really doesn't change Tesla's technology lead to a real material extent.

From a revenue standpoint, you know, we don't have much detail on what's going to really-- these deals will amount to. At the end of the day, the real driver for Tesla right now is selling cars and then upselling services and features on those vehicles over time. And that's the real thrust here for us is that it's going to enable more adoption of EVs. And Tesla is in a great position from a product perspective and our cost perspective to really take share in the market. And as we see some of the supply chains simplify, it makes things easier for them as the largest buyer of a lot of these components to continue driving costs down and continue to maintain their advantage versus peers.

AKIKO FUJITA: What does this ultimately mean for Tesla's competitors in the EV space, whether that is somebody like a Rivian or somebody like Volkswagen, that is not using NICS right now? Are they going to be forced to change as well?

COLIN RUSCH: You know, it's a little unclear. The electrical industry has not provided a standard yet for the industry. It's a little curious, that sort of thing typically happens early on in a new market and it's taken the standard setters longer than we would have anticipated to come to a conclusion on that. For some of these other folks, it's just-- it's an adapter that they need to put on there or their customers are going to have to use.

So it's a nominal cost. It's not a big deal. But it is a level of convenience, per Pasquale's comments earlier, that consumers would like to make this easier and they certainly-- folks are trying to work in that direction. But I don't think it's a real meaningful change for any of the competition as we move towards standards.

- All right. Oppenheimer Senior Research analyst, Colin Rusch. Thanks so much. Have a good weekend.