Are Tesla's recent earnings call and EV production cuts enough to slow down the automaker? Tom Narayan, RBC Capital Markets Lead Equity Analyst, details whether Tesla is seeing demand issues following planned price cuts, while also looking toward the EV outlook and labor negotiations for competitors Ford, General Motors, and Stellantis.

This post was written by Luke Carberry Mogan.

Video Transcript

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SEANA SMITH: Tesla shares in the red for the week. We're looking at a loss of just over 7%. The stock tanking-- taking a hit after recent price cuts pressured margins in its most recent quarter and that overshadowed beats that Tesla posted on both the top and bottom lines.

Here with more on what this means for the EV giant and also what we could expect here from other automakers over the next several weeks. I want to bring in Tom Narayan. He's RBC Capital Markets Equity Analyst, Tom, it's great to see you here.

So despite some of the concerns that we're seeing from the Street, you reiterated your outperform rating. You kept your price target of 305. Why aren't you buying into some of the worry that we have seen from others from some of your peers?

TOM NARAYAN: Well, I think Tesla is kind of a little different than some of the peers, right? So I think, you know, for Tesla, it's really about the future, like way into the future. Their numbers came in great. It's just that they did say that they're going to be cutting some production in the third quarter.

A lot of folks wanted them to blow out of the park and raise the guidance on Model 3 and Model Y production for the year. That's probably not happening. So I think some kind of shortsighted people probably took some money off the table there. But really it's about what Elon said on the call, licensing FSD, that's going to be a game changer. That's the biggest driver really for my 305 price target.

- Tom, I'm curious over the course of the last, let's say, 3 or 4 months, what the most common question that you've gotten from clients is on Tesla, specifically. Obviously, the stock we through history has done all kinds of crazy things-- up, down, sideways for all kinds of periods of time.

But this year, it feels like when you've seen with the free cash flow. You've seen the delivery numbers. The story feels a little bit different maybe than it did in prior runs. I'm just curious what the reaction has been, what those conversations have been like with your clients.

TOM NARAYAN: Yeah. The main questions really have to do with the price cutting. Does that mean that there's a demand problem, right? And I think cutting production in Q3, now, this is planned cutting just to upgrade the production plants. That's all it is. But I think that does add fuel to the fire where people may think, oh, my god, there's a demand problem for Model 3, Model Y.

So a lot of folks are wondering, what is the next car in the pipeline? We know it's been speculated. And, you know, Elon has talked about this Model 2 car, which is going to be this lower priced car, high volume car. We're going to start seeing in 2025.

So that's really where everyone wants to see. What's the next big car to come out for Tesla? And has, you know, demand waned a little for 3 and Y? We think that's not what's happening. But we are excited about this new car that could be coming in 2025.

- And I'm curious what you guys think then of the truck. I enjoyed Elon's color on the call. Was it so far off the hook there's no hook for demand there. Just curious how you think about that forthcoming product.

TOM NARAYAN: Yeah. It looks like some pretty strong demand here. If what's indicated in the press and the price point could indicate, you know, trump trouble for some of the Detroit 3 with their electric trucks as far as how they're priced, you know. Because it looks like Cybertruck is going to be priced potentially in the 40 to $50,000 range, you know. And it offers what 500 miles of range and this is all speculated.

But if that is the case, this could be a real problem for some of the competitors. I don't know if this is going to be a huge volume maker. I think it's a great market entry for Tesla. And it really showcases the technology that they have.

But ultimately, the future of Tesla really rides on the Model 3, Model Y. And then this new Model 2 and what it does, again, with autonomy, FSD licensing it to other OEMs. That's really where I think investors should focus.

SEANA SMITH: Now, one of its competitors, Ford obviously maybe already starting to feel some of that pressure lowering the price of its Lightning earlier this week. When it comes to Ford, we'll hear from them next week. Anything that we heard from Tesla signal maybe some of the troubles that we could also see from Ford or are they uniquely positioned, given the fact that they're obviously not as reliant on EVs.

TOM NARAYAN: Yeah. I think it's kind of a different story I mean, certainly, you know, actually Ford has actually set themselves up pretty well for the quarter with very low expectations. So I actually think they could do very well. The problem is everybody already knows this. So I think for them, they'll probably beat on the quarter and raise guidance. But I think that's largely expected.

People are really looking when it comes to all these legacy automakers on pricing. So even though they may do great this quarter or maybe this year, everyone's looking at 2024 and pricing seems to finally be falling. We're seeing all this price cutting happening. And now I think that's where the focus is.

So even though, they may do fine on this next week or when they report results, I think people are going to be looking past that to 2024 and worried about pricing coming down and the impacts that will have.

- And then, Tom, finally, I just want to ask you about GM, another legacy automaker, you're looking at the stock right now. It's at 38 bucks. It feels like it's been at 38 bucks my entire life, essentially without, you know, save that one run we saw back in the pandemic. Curious what you make of this story because this is the name back in the spring you were a bit more constructive on.

TOM NARAYAN: Yeah. It's tough because I think that there's some great things going on here as well. You have an EV lineup, which should really boost pricing and absorb some of the pricing we're worried about for some of the other legacy companies, you know. Now, you have all these new EVs coming out that are higher priced-- LYRIQ, Celestiq, you know.

So the Blazer EV, the Hummer, so all of this should help and it's really exciting. The problem, though, is all of these automakers are about to face the buzzsaw of pricing coming down. It's inevitable. Incentives are going up. Used car price data, I'm sure you saw came down a lot sharply. We're in a disinflationary environment. Volumes are coming back.

So in this environment, it's a little tough to be really banging the table. But we do like some aspects of, like, the EVs coming out. Also the fact that they do have AI, right? You do have cruise, the autonomous robotaxi, maybe the interest in AI all of a sudden that we've seen lately, maybe that'll create a halo effect for GM. We'll only see.

- Levers management can certainly pull. All right, Tom Narayan, RBC Capital Markets analyst. Have a great weekend. Thanks for joining us.