Ronald Jewsikow, Guggenheim Securities Vice President – Automotive Equity Research, discusses Tesla's Q1 earnings report and details the potential ramifications of the companies EV price cuts.

Video Transcript

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DAVE BRIGGS: All right, for a deeper dive on Tesla's earnings, we're joined by Ron Jewsikow, Guggenheim Securities vice president of automotive equity research. Good to see you, sir. So a quick look at it. Net income, $2.51 billion. That's down 24% from last year. What jumped out to you on this latest report?

RONALD JEWSIKOW: Yeah, I think investors mostly were focused on the gross margins ex credits line, which looks like it came in maybe about 200 basis points light of where the Street was this quarter. I think the other thing that's notable in the release is the free cash flow. There was some risk coming into this quarter with Tesla messaging things like captive financing and a bit of an accounts receivable, accounts payable unwind, as well as inventory build that weighed on free cash flow. But overall, I think those are the two major highlights at first glance, at least.

SEANA SMITH: So Ron, with all that, then, taken into account, I know you got a sell rating on the stock. Considering the fact that we are seeing a pretty considerable slowdown quarter-over-quarter basis, do you think there's more downside risk than ahead?

RONALD JEWSIKOW: Yeah, I think-- I think the issues at this point are proving to be pretty structural, at least on the pricing side. The latest US price cut was pretty surprising, I think, overnight just given how quickly it came after the price cuts earlier this quarter. So I think that shows that our data supports this, that there wasn't much stimulative impact from the-- from the price cuts earlier this month. And they had to take an additional roughly $3,000 off the Model Y and $2,000 off the Model 3.

DAVE BRIGGS: Yeah, speaking of those price cuts, we spoke with Ross Gerber, an investor in Tesla, also the CEO of Gerber Kawasaki. He had an interesting perspective on those price caps-- or price cuts and ultimately their impact. I want you to listen quickly.

ROSS GERBER: Buyers will actually not buy the car, thinking that it's going to get cheaper. Like, I talk to somebody who bought a car, like, four months ago, and they paid over $60,000 for their car. And they're quite unhappy. You know, they're just really unhappy. And for a good reason, because the prices dropped 30%. So if you kind of think the price is going to drop, like, why would you buy a Tesla today when they're going to be cheaper in two weeks or a month? And so it creates the wrong type of consumer behavior.

DAVE BRIGGS: So Ron, from a demand perspective, are these price cuts backfiring?

RONALD JEWSIKOW: I think they don't really have another tool to use is the problem. So I don't think it's per se backfiring. I think it's they're backed into a corner. They put a lot of supply in place that needs to find a home. And the only tool they really have is cutting prices. And you've seen it work in China to a degree, and you've seen it work in the US. I just think the stimulative impacts of the price cuts has been waning with each incremental cut. And I do think it's true that, if you are a prospective buyer, you are worried about the residual value of your vehicle. And if that is cut right after you buy it, it does leave a sour taste in consumers' mouth.

SEANA SMITH: And certainly, with global inventory rising to 15 days, up from 13 days, you would think that that might be a little bit concerning there. Ron, when you take a look at the Cybertruck, there was lots of talk about the Cybertruck, of course, looking for updates here in this release. The one line that they did give was that it's on track to begin production this year. Is this at all important to the investor story or how big of an impact this could maybe have on Tesla given the fact that maybe they are struggling a little bit with demand for its other vehicles?

RONALD JEWSIKOW: Yeah, I think it's really important. During our discussions with investors, I think the focus really is on what price point Tesla can deliver for this vehicle now. Obviously, a lot of things have changed since Tesla first unveiled the Cybertruck. And so I think the ultimate price point that they can deliver for this vehicle, I think, is-- call it $60,000, $70,000-- would be not as-- not as meaningful to the company. If they can deliver something under $60,000 for the Cybertruck, then you're starting to talk about a much more meaningful TAM. And pickups, obviously, are a large, profitable segment, particularly in the US.

DAVE BRIGGS: What could sway you? As Seana mentioned, you're on the sell side of Tesla. What can convince you otherwise that there is, in fact, some upside at this current price level?

RONALD JEWSIKOW: Yeah. I mean, it's-- it's tough until pricing bottoms because we are more than a dollar below Street EPS estimates next year. And I think, with recent price cuts, if anything, numbers are biased lower for the Street at least. And Tesla is trading at north of 40 times our estimates for a stock that, when we look out on our fiscal year '24 estimates, won't really have grown EPS for two years.

I think free cash flow is-- is a risk in the near term as Tesla talks about captive financing and things like that to grow the business. But there's no valuation metric you can point to. When we talk to bulls, I think it's more about if you want a DCF and go out '26, '27, or even 2030 and kind of dream the dream on what this-- what this business could look like. It's a different-- it's a different argument there. But I think on the next, call it, two-plus years of earnings until the Model 2 is-- is a growing and profitable platform, there's not a lot of earnings growth here.

SEANA SMITH: All right, we're looking at shares off just about 3% in after-hours trading. Ron Jewsikow of Guggenheim-- excuse me there-- weighing in on Tesla's result. Thanks so much for joining us. And of course--