China COVID protests are ‘a gut punch at the worst possible time for Apple’: Analyst

Wedbush Managing Director & Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss how China's zero-COVID policy and ensuing protests are having a detrimental impact on Apple stock.

Video Transcript

[AUDIO LOGO]

JARED BLIKRE: Joining us now is Wedbush senior analyst Dan Ives. Dan, thank you for joining us here today. You cover both Apple and Tesla. And we were just talking with Dan Howley about, well, about Elon Musk. But I want to focus on Apple here and some of the protests that we saw. We saw the protests at the Foxconn facility last week. And the big question is, what kind of a dent is this making in terms of their ability to service the holiday rush?

DAN IVES: It's been a gut punch, I mean, at the worst time possible for Apple. I mean, we're talking shortages in a lot of Apple stores of upwards of 30% of iPhone purse, in terms of, you know, iPhone 14. And I mean, this is something-- they've been able to navigate zero-COVID or probably better than any company out there in terms of China.

Clocks finally struck midnight for Apple in terms of-- they're not able to do that anymore. The Foxconn situation has really been a body blow. And that's really what's starting to play out across the board. We could be looking at 5 million units in the low-end, potentially 8 to 9 million unit shortages on the high-end.

DAVE BRIGGS: It's been revealing, Dan, and not just the protests, but we've learned that it's essentially slave labor making iPhones. I mean, maybe that's going too far, but all the reporting I've seen, you're talking about 12-hour shifts rotating, essentially what people are describing as forced labor. Do you expect Apple to make any production changes begin to move, fast forward, things will India and to Vietnam? And how big a dent will this be in their Q4?

DAN IVES: You know what, I think the biggest problem is zero-COVID issue, right? I mean, the zero-COVID policy in China, I don't think anyone in their wildest nightmares thought we'd be sitting here going to December 2022, and it's actually getting worse in terms of the restrictions. And that's been something that's caught, I think, Foxconn and Apple by surprise and basically, every other company, including domestic.

Well, realistically, best case, if they look to move production 5% to 7% would be the most that they can move out of China by 2024. I mean, that's really cemented in terms of the supply chain. That's why right now getting an iPhone 14 Pro is nearly impossible before the holidays.

JARED BLIKRE: I want to turn our attention back to Elon Musk and Twitter and Tesla, specifically Tesla. Stock coming off a 52-week lows, a big decline there. I'm just wondering, when does Elon stop or when does he have to stop selling his Tesla stock? And is Twitter too much of a distraction for him?

DAN IVES: Look, I even thought, when Dan Howley was talking about it, even the cat was shocked to explain the situation.

JARED BLIKRE: Good point.

DAN IVES: Well, look, I think the biggest frustration here is that Twitter is essentially quicksand. And the concept that Musk is going to have to sell Tesla stock to continue to fund Twitter, that's been a broad overhang on the stock. And I think that the bigger issue is just on an hourly or daily basis, just continuing to have black eye moments for Musk and just another one today. Let's pick the one company in the world, you never want to pick a fight with Apple, right? So let's do that.

And I think that's part of the problem here is that Musk is, you know, I think from a brand deterioration perspective, it's having an impact, I think, in the public perception on Tesla. And that's been overhang on Tesla's stock.

DAVE BRIGGS: You must be thrilled to see Elon suggesting that if he can't get on the App Store, he might just build his own phone. Does Apple need Twitter? Certainly, he needs Apple. But does Apple need Twitter?

DAN IVES: I mean, Apple views Twitter like a piece of bread at the restaurant before you get your meal. Now, Twitter needs Apple for basically for everything. So I think part of the problem here is that, OK, I get some of the frustration from an advertising perspective because I think I do believe Musk continues to be very frustrated as advertisers or, you know, we'll call it pausing or at bay, at least until they get a better sense of the platform.

But here, fundamentally, is the biggest problem. The golden child is Tesla. And Musk's, which from a perception perspective, attention is spent more and more on Twitter. And that is really creating what I view is just a PR black eye for Musk and therefore, for Tesla.

JARED BLIKRE: If we can, let's take Musk out of the Tesla equation for a while, at least on the headline basis. Does Tesla have what it takes to build, to grow sales next year in a meaningful way beyond analyst expectations?

DAN IVES: I think that's been the frustration. And there was the Tesla story fundamentally. I think it's extremely well positioned for 2023. Where we are in the EV inflection, I think we could be looking at 2 million units potentially for next year. They obviously run into some issues like every other auto player. But if you look at the Twitter overhang and the Musk overhang on Tesla, it's significant because Musk is Tesla, Tesla is Musk. And I think that's why this has really started to get just agonizing, almost exhausting frustration for Tesla bulls because the irony is, the Tesla story is actually doing well.

DAVE BRIGGS: I want to ask you quickly about Twitter, Dan. If you have to pay for that blue check that you've earned, how much would you be willing to pay per month? And what are the chances you think Elon can build a winner at Twitter based on what you've seen in the first few weeks?

DAN IVES: Look, in terms of Twitter, and obviously, we covered Twitter as a public company, I mean, it was a bloated structure. It was going to have to have massive headcount cuts regardless of movement. So that was something that was overdue now to the extent that that's happened that's a little obviously jaw-dropping. But from a revenue perspective, look, the verification is going to be the first past. What the adoption rate looks like on blue checks is that the first sort of step in the right direction. But it's advertisers.

I mean, we can talk about subscriptions all they want and need to increase advertisers, increase engagement. But monetization of Twitter, that is an Everest-like uphill battle for Musk.

JARED BLIKRE: And you cover the EV space in a larger sense. Just wondering, anything stick out to you, anything you want to bring to the forefront here? Giving you the floor with the last minute.

DAN IVES: I think GM, I think, what they're doing right now-- you know, obviously, they've had steps forward, steps back. I think they're set up for a massive year in 2023. I think ultimately, from a battery perspective, the models are going to hit. You know, I think everything that they've sort of laid out in the phase two of EVs, I think they could be extremely well positioned as well as with Ford. I think there's a Renaissance in the 313 area code around EVs.

DAVE BRIGGS: Got to try one last time. How much would you pay monthly for Twitter?

DAN IVES: Look, I think it comes down to $8 is pretty easily digestible, right, for from a verification perspective. But the question is, even if you had mass adoption there, we would talk about 4% or 5% of revenues max, you know, like, that's salvage is one piece. But obviously, there's a lot more heavy lifting ahead. But again, you start to lose celebrities, athletes, and others, that continue-- that's the secret sauce of Twitter. That's why right now, Musk, I think, is some-- will come high-risk plans ahead as we look at some of what he's talked about.

DAVE BRIGGS: Nobody better to have here on this day than Wedbush managing director senior equity analyst Dan Ives. Good to see you, sir. Appreciate that very much.

DAN IVES: Thank you.