Tesla's cost of delivery a 'growing pain,' analyst says

Oppenheimer Sr. Research Analyst Colin Rusch joins Yahoo Finance Live to discuss third-quarter production for Tesla, vehicle deliveries, inflationary pressures, supply chain woes, recessionary risks, and the outlook for the automotive company.

Video Transcript

JULIE HYMAN: All right for macro, we're going to micro-- although it's a big micro, I guess you could argue. Tesla is what we're talking about. The stock is down ahead of the opening bell. That's after the company said it delivered more than 343,000 vehicles in the third quarter.

That, however, while a record, was below forecast. Let's bring in Oppenheimer Senior Research Analyst Colin Rusch to discuss this a bit further here. Now, the company produced more vehicles, but it talked about the high cost of getting them to people who wanted them, Colin. So how negative do you view this, if at all?

COLIN RUSCH: This is just a growing pain and as far as we're concerned. So what's going on is the company is effectively doubling capacity and doubling the number of factories that they're selling out of. And so they're going through a shift in terms of the logistics on getting those vehicles out to folks, as well as the delivery schedules. They've been very tailored and focused in terms of geographies where they were selling vehicles and kind of shifting that around from geography to geography.

Now that they're going to have four factories rather than two, it allows them to have a more broad-based delivery system that's more equitable and really simplifies their system in terms of where they're sending things. And I think they're just going through that transition right now.

The production number is what we're really concerned about, and that number came in at a pretty healthy clip. You know, obviously, there's a ton going on in the supply chain right now. And to see that number come in at 365 was actually encouraging for us.

BRAD SMITH: And so-- I mean, its continued focus on the 3 and the Y-- is there any kind of clear insight that we have right now on how many of the vehicles that are being produced, especially the 3 and the Y, are actually upgrades or higher kinded packages on those 3 and Y vehicles, considering the 3 was a mass market and, ultimately, the investors still want to see a solid kind of profit margin? And so what is the health of the number of people that are purchasing into the higher packages for 3 from--

COLIN RUSH: I think the thing that we look at most consistently is the lead times. And so if you go and look at how long those lead times are, it's somewhere between six and eight months right now for a custom vehicle. And certainly what we're seeing on the pricing front is that the low-end vehicles are selling around $60,000 or a little bit higher.

That's almost 25% from where they originally had been pricing. And so we're continuing to see Tesla move prices higher, pass on some of their supply chain costs. And certainly, the uptake on the higher end features has been very strong.

We'll get a real read on that when they report earnings. And certainly, we think the margin number is what is really going to be a big concern for investors. But so far what we've seen is pricing continues to creep higher. They're passing on all of their costs. And they're managing the supply chain far more effectively than a lot of peers.

BRIAN SOZZI: Does Tesla have a demand problem?

COLIN RUSH: I don't think so. You know, what we've seen across the board is that this transition into producing EVs is very, very difficult. We've seen it with a lot of the established OEMs, we're seeing it right now with some of the newer entrants into the space. But what we've seen is that these vehicles and the EVs continue to have a depth of demand, particularly as we see energy prices remain at elevated levels.

We think the total cost of ownership advantage for an EV is around $15 to $16,000, and that's looking at maintenance savings as well as fuel savings. And so the net benefit to consumers, even if you look at some of the higher prices, is still pretty substantial. And as we go into recession, certainly folks are looking at some different ways to feel comfort. And this is an area where they can feel excited about their car without having to spend a gross amount of money to get to that sort of experience.

JULIE HYMAN: Well, you can even spend less amounts of money than getting a Tesla, right, Colin? So I'm curious-- as you look at the new entrants, and some of them are not so new, as you look at the competitive landscape right now, obviously, you think Tesla is holding its own. Do you think that will continue? Or do you think we're going to see more nibbling away at its market share?

COLIN RUSH: There's a transformation for the entire transportation market, as well as the power market. And we're seeing everyone and their brother get into the space and in terms of the EVs. But what we're seeing on the product side, really, the only products that we're seeing that really compete with Tesla from a performance and a price perspective are really on the very, very high end.

And, certainly, Tesla has some structural cost advantages as you move into the mid-range and even the low range on these vehicles. And so for us, we're not seeing that competitive dynamic really be an issue. It's really around collectively bringing consumers down the road on EV evaluation.

And when they look into the specs on these vehicles, Tesla continues to outpace their peers pretty substantially. And we see that advantage as three years-plus right now.

BRIAN SOZZI: How do Optimus robots, Colin, change Tesla's financial future?

COLIN RUSH: You know, it was an interesting session that they had on Friday. And there's a couple of things that we think are really important. So, one, the robots are way down the line. And certainly, if they're talking about three to five years, they could be much longer than that in terms of when we see that in a real way.

What we're excited about is the learning cycles that we're seeing the company execute on on the AI side, and the Dojo product-- or the Dojo system that they've got where they're accelerating a lot of the learning, doing some automated tagging on their autonomous side. That is really a meaningful set of progress that we saw from them on Friday.

And so that's where I think the real value is. If they start letting other folks use that, that could be a couple billion worth of revenue at fairly high margin for these guys. But I think the important part is them moving down the road on the technology development.

And we saw them demonstrate an awful lot of sophisticated subsystem behavior on that autonomous program. And so I'm not really concerned about this robot thing, although I think it's helping them from a recruiting perspective. But I don't think it's really meaningful for them from a financial perspective for a number of years.

BRAD SMITH: All right, well, Boston Dynamics Atlas robots are already doing Parkour and "Fortnite" dances, so this humanoid robot from Tesla has a lot of work to do to catch up. Colin Rusch, who is the Oppenheimer Senior Research Analyst-- Colin, great to have you here with us this morning. Thanks for taking the time.