As Tesla (TSLA) prepares to release first-quarter earnings results, Wedbush Securities lowered its price target for the stock, citing slowing demand and headwinds impacting the company's margins. Wedbush Securities Managing Director Dan Ives joins Yahoo Finance Live to explain why he thinks the quarter will be “brutal.”
Ives expects Tesla's first-quarter performance to be a “nightmare on Elm Street,” with demand slowing domestically and internationally. Despite the disappointing outlook, “the growth story is still there,” he says.
Ive highlights the ongoing price war in China's electric vehicle market and stresses that while Wall Street recognizes this challenge, Tesla needs to “draw a line in the sand.” He believes the company must reevaluate its China strategy to improve profit margins amid the country's rapidly evolving technology landscape, saying: “It's a defining chapter in the Tesla story.”
According to Ives, for Tesla to regain momentum, the company needs to implement a clear communication strategy regarding margins, set “strategic goals” for its AI initiatives, and for Elon Musk to stop threatening to leave the company: “Tesla is Musk, and Musk is Tesla.” ” He points out that although Tesla still has growth potential, it should provide clarity to investors, stressing that “this quarter will really shake some confidence.”
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Editor's Note: This article was written by Angel Smith
Video version
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Josh Lipton: Tesla has taken a hit as Wall Street bulls turn cautious on the electric car maker. Tesla's slow first-quarter delivery outlook and of course increased price competition are weighing on this stock. Dan Ives, Managing Director of Wedbush Securities joins us now to discuss. Dan, great to see you, my friend.
Dan Ives: It's great to be here.
Josh Lipton: Great to have you in the group. Let's just dig straight into Tesla. Q1 deliveries are on deck, what does Dan Ives expect?
Dan Ives: I mean “A Nightmare on Elm Street”, “Friday the 13th”. It would be a bad idea. For this reason–
Josh Lipton: This sounds terrible.
Dan Ives: Look, it was a brutal quarter. Because if you look, Chinese demand has declined significantly. We really had to get the numbers down not only in China, but even in the United States and Europe.
Our primary goal is on the other side of this, the growth story is still there. But look, this is a crossroads in the road that Musk has to navigate. I mean, that band-aid will be removed when they report on Tuesday morning.
Akiko Fujita: You said the other side. I think I heard you say 2 and a half to 3 million deliveries, what you're looking at on the other side, right? I mean, what would be the catalyst though? Because the price doesn't seem to be lowering the pressure there is easing at any time. At the same time, when we talk about this next wave of electric vehicle adoption, we're talking about affordable cars, which Tesla doesn't necessarily have.
Dan Ives: Yes, it's a “Game of Thrones” price war in China right now. And look, while that's happening, Street gets it. But they didn't communicate well. In other words, where is the line in the sand in terms of margins? Learn how to reverse the strategy in China because the opportunity is still there.
In other words, we're still in the early stages where all of this is being done with full, self-driving AI. But there is no doubt that these are some dark days ahead that Musk needs to get through. I believe this is a crucial chapter in the Tesla story. That's why investors' patience is running out. And that's just a quarter that's going to be very difficult.
Josh Lipton: So let me ask you, or I can put you in front of Elon Musk now, what would you say to Musk? What is Dan Ives' plan to change this situation?
Dan Ives: Have an adult in the room during the conference call. Give a communication strategy about guidance and margins. Hold an AI day, set some strategic goals, and also add hype as Musk leaves behind his AI initiatives.
Josh Lipton: I'm basically saying, listen, I can use my own AI and run my own robots. I can take them somewhere else.
Dan Ives: This means that 70% of Tesla's value is Musk. Well, Musk is Tesla, Tesla is Musk. Investors have a lot of patience. We've been here before, 2018, 2019. This is nowhere near that period, but this is a white knuckle period that they need to navigate.
Compare that to what Cook, Nadella, and some other Hall of Famers would do on the calls. I'm not saying Musk will do that, but this quarter will really shake some confidence. I think that's the thing. We see it on the other side of being bullish, but without a doubt that is why we had to lower our price target.