Tesla price cuts a ‘strategic poker move by Musk,’ analyst says

Wedbush Managing Director & Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss Tesla price cuts in China, whether Tesla stock is a buying opportunity after a major sell-off, Elon Musk moving more and more operations from California to Texas, and the outlook for EVs and the Tesla Cybertruck.

Video Transcript

- All right, well, Tesla owners in China aren't happy about these recent price cuts. Footage from Chengdu over the weekend shows dozens of customers showing up at a showroom in the city. This amid reports of similar activity at various distribution centers as customers vent frustration at the changes, demanding everything from rebates to credit.

Now, the EV leader cut prices by 6% at 13.5% on certain models on Friday, stoking concerns of a growing price war in the nation. Now, of course, after a tough year, short sellers remain laser focused on the group shares that were at the end of December. CEO Elon Musk said he would not shed any more stock in the company, and that's after months of selling.

Well, joining us now is Dan Ives, Senior Equity Analyst at Wedbush Securities. Good to see you, Dan. I first want to start with, obviously, this consumer backlash that we've seen in China. There was a price cut in certain models. In October, again, we saw the subsidies come off in December. People thought they were in the clear. So really, on Friday, there's another price cut really hitting home for a lot of consumers in China.

DAN IVES: Look, but Tesla had to rip the Band-Aid off, I mean, in terms of price cuts. What we're seeing in China, I think they could still cut prices another 5%, and margins, I think, could be relatively rangebound, I mean, soften a bit because of the scale that they now have in terms of Giga Shanghai. But ultimately, for Tesla, it's about getting in front of this, not behind it. And ultimately, I think, if you look at what growth is going to be in China after these price cuts, I think it's going to be strong. The strategic poker move by Musk, I believe that was a real smart one that they did early.

- And this was something that they really needed to stoke demand. It appears to be working. We're seeing some reports from Reuters saying that there could be now delays in some models because of the spike in demand. What do you think this does, though, when you look at this picture for Tesla's bottom line?

DAN IVES: Well, we were hearing that from Chinese consumers. I mean, any types of work that we've done, they had to cut prices, and this is after price increases, clearly, a softening macro. And look, I think for Tesla, as well as others in terms of autos, not just in China, but globally, I mean, the clock struck midnight.

You're starting to see cracks in the armor in terms of the macro. They need to cut prices ahead. They have that flexibility because of much more scale globally, and I think it's the right move. And I also believe the stock, you're starting to now see just so much bad news reflected in the name. Deliveries already came out, and I think we could start right from here. I think the worst could be in the rear view.

- And, Dan, I mean, as we look at what we're seeing today with the stock price action today up almost 8%, obviously, we're seeing the broader markets also up, as well, but not to the degree that we're seeing with Tesla. What do you think is driving this optimism?

DAN IVES: Look, I think it's a crowded, bearish name. I still think it's on their own here. I think 70% of the sell off was ultimately Musk Twitter driven, and it's still one of the most transformational companies over the next decade. And if you're able to kind of see through this what I'll call near-term turbulence, I think this is a very attractive risk reward, and I think that's what's really playing out here is risk assets are way oversold.

That goes for the likes of Apple, Microsoft, Tesla across the board, and the bears on this name were wrong for 12 years. They, obviously, were very right last year. I think they're going to be wrong this year. I think this is a stock that's going to be closer to 200 than 100.

- And I know that we still have, of course, one eye on what we're seeing with Twitter and the distraction there, and you said that the Tesla shares are becoming "a massive risk reward to own." But obviously, you also have Leo Kogan, who's the third largest individual investor in Tesla, as well, growing frustrated as well. When do you think this ends? Will it end when Musk, finally, names a CEO for Twitter and can focus on Tesla, or will there be some other sort of catalyst to really get things back on track?

DAN IVES: Well, I think there's three specific things that could happen. One, fundamentally, clear the deck on numbers of 2023, said hittable to beatable numbers. Let's call it 35% to 40% delivery growth. Take out that 50% for the year, but the other two are non-fundamental. You've got to name a CEO of Twitter, I believe, over the next few weeks, because that's been part of the brand issues and part of the spider web with Twitter as, I think, many shareholders have gotten increasingly more frustrated. And just put an edict out there, not going to sell stock, say it on the conference call.

That's really been an issue. I mean, if you look at that, that personal ATM in terms of using Tesla pay for Twitter, it's, in part, the overhang here. Musk started the five alarm fire. He's the one that can extinguish it. I believe that happens January 25 when they report.

- And I want to ask you. There's, obviously, still an ongoing lawsuit that Musk has asked to be moved out of California, because he believes that it's too negative there, that he'll have a better chance in Texas. And this is regarding when he was planning to take Tesla private at $420 a share. How much does this sort of way into sort of brand Tesla, and really, the trust that comes with the company?

DAN IVES: Look, I wouldn't expect any candlelight dinners between Musk and California officials, and there's no love lost. And that's why more and more of Tesla is really going to be coming out of Austin and Texas in terms of production. Of course, you'll have Cybertruck.

I think, over time, a lot more brain trust goes from California to Texas. Look, this is, obviously, a darker chapter that we're starting to continue to see some of these issues perk up, but I think for Musk and Tesla, it's about looking forward. And it's around no more brand deterioration. And I think, now, if you look at EVs, we're still in the second or third inning of this all playing out after what's been a disaster year for Tesla over the last year with that Twitter overhang.

- And you mentioned the Cybertruck. So as we sort of throw this forward, what are the expectations there? I mean, who is this actually targeted to?

DAN IVES: Well, I mean, even if you across the board from F-150 to Rivian to what we see from GM and others, I mean, this is really the year of the pickup truck, or I'd say, on the consumer trucking side for 2023 with EVs. Cybertruck's important, because not just in terms of what reservations look like, but just to have another product out there that they can monetize. That's a huge opportunity they can go after.

And if you look, I mean, you see, despite the stock price, what Rivian is doing in terms of the overall demand environment. This is going to be a strong area of demand. Now, I think the key for Cybertruck, making sure that ultimately hits in the second half of 2023, doesn't get pushed to 2024. Because clearly, that would be late to the game, but this is an important product in terms of the overall ecosystem of Musk and Tesla.

- Certainly, one we'll be watching. Hopefully, no more delays and no more broken promises. A big thank you there to Dan Ives, Senior Equity Analyst at Wedbush Securities. Always good to see you.