Tesla's profitability story has 'changed the paradigm': Dan Ives

Yahoo Finance’s Brian Sozzi, Ines Ferre, and Dan Howley discuss Tesla, Apple, Nio, and TikTok with Dan Ives of Wedbush Securities.

Video Transcript

BRIAN SOZZI: Tesla shareholders may be feeling more electrified after the company's five-for-one stock split took effect at today's opening bell. Shares of the electric carmaker up 6%. Joining us now to discuss Tesla and a possible TikTok deal is Dan Ives, managing director at Wedbush Securities. Dan, always good to speak with you, I have about 87 questions to ask you here.

But let me start off with you're out with a note this morning, you adjusted your price target to effect the stock split. How will you know when it's time to downgrade the stock?


DAN IVES: Sure, it's a great question. And I think it really comes down to deliveries and especially China. Right now, everything we're seeing, it continues to be a tick up in terms of overall demand and the overall opportunity. And look, this is the drumroll on the Battery Day.

I think Battery Day is going to be a massive catalyst with the million mile battery in further, you know, showing where they are relative to other competitors. That's the key in terms of this Tesla story. And right now, I still think it's a green light.

BRIAN SOZZI: Well, who is driving the latest rally, Dan? Are institutions coming in to the Tesla story? Are-- is this purely speculative trading by people on Robinhood?

DAN IVES: I think there's a misperception a bit on the retailer institution. I can tell you, I've talked to more institutional investors in the last six months on Tesla than the last six years because the story's changed fundamentally profitability-wise as well as even more generalist PMS. You need to start to focus on the EV market.

And even from a valuation perspective, especially on the indexing with the S&P, it's changed the game a bit. Of course, there's a retail momentum, no doubt. But I do think there's a little bit of a misperception that it's all retail. I believe there's a strong institutional because there's a change in the fundamental story of Tesla.

INES FERRE: Yeah, Ines here. What about-- in China, there's so much competition for Tesla. So we saw that Xpeng went public last week, its share price soared 40% on its first day of trading. We're seeing that Nio, that that stock is up more than 350% year to date.

And Nio announced a subscription for its battery pack, basically lowering the price of its vehicles and also announced that it perhaps may be expanding into Europe. So what do you see for Tesla when it comes to these competitors like Nio, for example?

DAN IVES: Yeah, Nio, a phenomenal company, and everything that's happening in China, as well as, obviously, a lot more innovative companies even, you know, on the horizon, comes down to it's 4% penetrated today in terms of the EV market. The EV market in China could be five to seven x what it is in the US. And you're just starting to see tip of the iceberg there.

And for Tesla, it comes down to Giga. Giga continues to be Giga 3 in terms of what they've built. That's the move, and ultimately, for them, it just starts with Giga. And obviously, what they're seeing from a demand perspective is you're really selling like hotcakes in terms of everything we've seen in China despite the skeptics saying otherwise.

BRIAN SOZZI: Dan, you say institutions are getting involved in Tesla. Is one way to think about it that institutions are betting that the gas engine in cars is really-- goes away in 10 years?

DAN IVES: Well, I don't think it goes away. I think they're betting that share is 10% versus 3% today. Because if that is and you missed the Tesla story, especially from an indexing perspective, you know, you're trying to figure out what font to use in a resume. So I think it really comes down to, Brian, is that the profitability story of Tesla and what we've seen with demand, it's changed the paradigm.

And what Musk has been able to accomplish in Fremont is really a game changer. Now, of course, they have to continue to execute. Stocks had the huge move. Any speed bump stock will get, you know, hit significantly, but that's the difference. That's why, institutionally speaking, especially in the profitability side, why there's really been a paradigm change over Tesla.

DAN HOWLEY: Hey, Dan, it's Dan Howley. I wanted to kind of switch over to Apple and ask where you think the stock is going with the new split rate. Now, I guess, you know, do you see the next iPhone cycle really having to power the stock going forward? And what happens if we don't see a supercycle this time around?

DAN IVES: Yeah, and look, Dan knows-- you know, I think you know Apple as well as anyone. And I think great questions because it's a supercycle. That's, in my opinion, is a once in a decade opportunity in terms of what we see 350 million of 950 million iPhones were a wider of a window of an upgrade opportunity. And that's the key here.

Now, of course, the service is getting rerated. I mean, if I look back, like, six, nine months, services business may be getting assigned by the sheer valuation two, 300 billion. I think that's worth nine to 950 billion. And that's why, ultimately, I think Apple is a name. It's not just rerating, but you're going into a supercycle.

And I think you're starting to see that combination happen, which, ultimately, I think is really going to be the next leg to the story.

BRIAN SOZZI: Dan, is there-- I mean, Apple, I mean, it has been rerated. Is there-- do you think the market is positioning for an unnamed product or an unclear product coming from Apple over the next 12 to 18 months? We know the iPhones, we know the AirPods, we know the Mac. Is there something they could come out that can really change a game in another category?

DAN IVES: Well, and honestly, it's being not necessarily priced in. But when you look at the AR headset and some of the other things that they're working on, those could be the next pieces. Because it all comes down to-- when AirPods came out, it was kind of used as a shrug of the shoulders from an investor perspective. That's a $30 billion revenue stream.

So now services are at 60 billion. So that's 100 billion incremental just from those two areas. And I think AR is probably the one area there's a focus on. I think the other focus is that services business on the video streaming side. Do they eventually rip the Band-Aid off and buy a studio from a content perspective? Because that's the missing piece. Remember, they built a castle, a mansion, but there's not too much furniture in there with nine or 10 shows.

DAN HOWLEY: And, Dan, I just want to touch on real quick TikTok and where you see this whole conversation with the company going and who may end up scooping it up and what it could mean if it does go to Microsoft. I mean, do you think that it would be a benefit to them in the long term? And do you think they understand how to fully run a teen-oriented social network?

We've seen their success on LinkedIn, but this would be a different kind of animal, really.

DAN IVES: Yeah, and look, I still think 90% chance it's Microsoft-Walmart. Now, obviously, a wrench thrown into it with China getting involved in the new export. But I believe that slows down, doesn't necessarily derail. I think Microsoft, Walmart, 35 billion continues to be the area code. A deal gets done.

For Microsoft, I think it will be a part of a rerating. I mean, as much as Nadella's had the golden touch on enterprise and the cloud strategy, consumers have really been on a treadmill for the last decade. This would give him a major horse in the race. Of course, it makes a lot of sense for Walmart, given the e-commerce capabilities.

And this is going to have other chapters to the soap opera, given the complexity of the deal negotiations. But I think at the end of the day, in the coming days, in a week, we're sitting here with a Microsoft-TikTok deal rather than Oracle, which, to me, is still more of a head-scratcher and a long shot.

BRIAN SOZZI: Dan, how does this-- how would this deal get structured if you're Walmart-Microsoft? I'm looking it through the Walmart prism. How would they benefit? How would they make money?

DAN IVES: Well, for Walmart, similar with TikTok's done in China, with their app there. Almost QVC-like in terms of the cross-pollination from an e-commerce perspective. This would really give them something to go against Amazon in terms of, you know, all those consumers as well as the cross e-commerce platform.

That's why, for Walmart, for them to hop into this negotiation I think was a no-brainer. And I think they're looking at how it's been used in China in terms of the opportunity. Now, in terms of the structure, is it a 90/10, an 85/15, what type of JV-ish type structure. But ultimately, I think Walmart getting involved really cemented the deal from a Microsoft perspective.

BRIAN SOZZI: And Dan, let's say this deal does get through, Walmart gets its piece, Microsoft gets its piece. What is the next evolution of TikTok? What doesn't it do now that these companies could make it do?

DAN IVES: Well, I think it's going to be more about the monetization of it rather than touching, you know, anything that's really been a golden jewel. And it goes back to, you know, in Redmond, I have a lot of confidence in terms of Redmond doing a good job containing TikTok and taking it to the next level.

I think it's getting more cross-pollination, more content-driven, I think that's something you're going to see. And really, for them, it's monetizing it. I mean, it goes back to Instagram, pre-Facebook and post-Facebook. And I think on a broader platform, with more distribution in the Microsoft brand, there's a lot of different avenues they could take this.

And that's why Nadella and for Microsoft, I mean, it's really viewed as Christmas came early in terms of this asset.