Tesla sinks as 'Battery Day' underwhelms investors

Industry Analyst Karl Brauer joins Yahoo Finance’s Akiko Fujita to discuss Elon Musk's promise of a $25,000 Tesla as its cyber truck reportedly has 600K pre-orders.

Video Transcript

AKIKO FUJITA: Let's move on to a stock we've been tracking very closely today, and that is Tesla off more than 8% with investors expressing their disappointment in those highly touted developments coming out of Battery Day. Elon Musk making a number of announcements yesterday. A new $25,000 fully autonomous car within three years, a longer range Plaid Model S next year and improvements in the range of price and efficiency of its battery technology. Let's break down those developments with Karl Brauer. He's an Industry Analyst at Forbes Autos Contributor as well as a juror and board member of the North American Car, Trucks and SUV Jury. Karl, it's good to have you on today.

KARL BRAUER: Hey, great to be on with you.

AKIKO FUJITA: So Karl, let's talk about the stock move right now. You could argue that this is a stock that was really frothy going into the Battery Day. We saw a huge run up with the stock split, but are you a little surprised by the investor reaction given the news that came out yesterday, or is this really about Elon Musk maybe in the lead up to it hyping up this day a little too much before coming out in that tweet saying, OK, this is going to be a long term process.

KARL BRAUER: It's not really that surprising to me when you consider where the stocks that compared to a year ago, right? There's been a lot of optimism priced into this stock a long time ago, and I think all you heard yesterday was validation of that optimism. So we know the stock is representing where Tesla is, I think, today, and it already kind of represents that. I think a lot of people were hoping it would represent where Elon wants it to be tomorrow and beyond, but I think it's right where it should be given what we got yesterday.

AKIKO FUJITA: So let's break down some of those announcement. There's certainly the autonomous car that we're talking about, although that's three years out, and then what was expected with the improvements in the battery efficiency and range. And what does this mean for Tesla from a competitive landscape at a time when they're increasingly facing competition?

KARL BRAUER: That's really the key, right? I mean, that's what we heard a lot yesterday. You know, Elon kept emphasizing it's easy to build a prototype, it's hard to build mass production, and it's easy to build batteries, but it's hard to make batteries better and get them where they need to be for a long term solution through electric vehicles. And so he was kind of offering that. He was saying, you know, Tesla is going to be the best at manufacturing on the earth, I believe was his exact quote.

And I think what he was really trying to paint a picture of is, look, you know, we know Tesla is kind of lost its uniqueness as a EV maker with nice looking cars that go over 250 miles on a charge. That's not very unique now. So he needs something more, and I think he knows that. I think he's known that for a while, and I think he spent a lot of yesterday telling us that we are prepared. We're prepared to be differentiated from all of our competitors even when they're able to produce nice looking 200 to 300 mile range cars that are fast and well engineered. We're already beyond them, and we're going to stay beyond.

AKIKO FUJITA: One of the things that was expected going into this announcement was that million mile battery technology. It would've been a big upgrade on a lifespan of Tesla's batteries. How big of a miss was that? You know, is that still expected down the line? Is this just one of those things where investors had kind of gotten ahead of the actual Battery Day expectations and maybe that's what led to the disappointment?

KARL BRAUER: I think so. I think there was a little maybe overoptimism on what we were going to hear, and I think Elon even try to temper that a little bit with the tweet he'd done the day before, right? So I think he's not trying to reinvent the battery completely, but he's trying to reinvent components of it, whether how it's built or how long it takes to build or how much energy it can contain, and each one of these is kind of a tweak. No single one of them is a revolutionary change, but every one of them adds up to, you know, having batteries that are going to last longer, provide more energy density, be easier to produce and be cheaper, and those are all things we need to see.

And even if we get there in steps, that's good. We don't need a, you know, overnight revolution with a million mile battery. That'd be great. The stock market and the stock would love it, but we don't need that to get further down the road toward EVs, which is where he's trying to get us.

AKIKO FUJITA: How do you think we should be looking at Tesla in the context of, you know, some of those gross margin concerns right now? When you look at the most recent quarter, we saw, yes, revenue growth moving higher, but a lot of that was driven by those regulatory credits. You've heard a lot of the analysts single that out with regulatory credit sales greater than the company's free cash flow in the most recent quarter. So you've got these announcement that came out yesterday, but we're still talking about a longer timeline. How are you looking at Tesla right now, at least in the short to medium term?

KARL BRAUER: You know, for me, the fact that he's kind of gotten past what I still thought even as recently as a year ago this kind of sense of is this really a going concern? Can he still be a going concern? And I think whether it's having sales up in a downturn year or having multiple plants in progress now that are going to cut his costs once each of them is built. He talked about supply chain and proximity. I think he's past what I would call the kind of test phase. It's been 15 years, so it's good to be past that. I think he's going to have a successful long term company, and that's a big statement for me, anyone who knows my history.

But as far as like, you know, kind of tomorrow being super profitable and not needing those regulatory credits to help? He still leans on those, and he still has to get past those. And if he just has to use those for the next couple of years and he gets a lot of these other things accomplished that he mentioned, then he'll be really well positioned. But I'm just glad to see he's profitable using, you know, standard practices, and he's growing sales and he's got increased production capability coming along. Those are all the baseline foundations for the long term health of that company.

AKIKO FUJITA: And Karl, finally, I know you're not a stock analyst per se, but there's a lot of people looking at the pullback recently, down 8% today. We saw a sell-off in the lead-up to Battery Day. Do you think if you were an investor, this is kind of a good time to buy the dip given the long term potential of the company?

KARL BRAUER: I think it might be a little bit longer. I might wait, make a little bit longer-- wait a little bit longer. I've been telling people in my social circles that I still think we're in kind of the pandemic honeymoon. Your previous guest just talked a lot about that. I think we're still going to be a little ways figuring out the damage we've done to the economy and how long it's going to take to fix, and I don't think it's going to take five years to figure that out, but I think it could be months away, and there still might be some upside if you wait. That's just my thinking.