Tom Narayan, RBC Capital Markets Lead Equity Analyst on Global Autos, joins Yahoo Finance Live to discuss Tesla, General Motors, and the state of the EV market.
Video Transcript
- All right. GM is looking to trim its employee count here. This time the automaker is offering buyouts to the majority of its salaried workers as part of its plan to cut $2 billion in costs over the next two years. Let's take a look at shares of GM. They're off just about 4 and 1/2%. That's because GM expects to take a pre-tax charge of up to 1 and 1/2 billion on the move. And, of course, the broader markets under pressure today as well. We want to bring in Tom Narayan. He's RBC Capital Markets lead equity analyst for global autos. Tom, it's great to have you here. So starting with GM, the move from Mary Barra, what do you think of it?
TOM NARAYAN: Yeah. I mean, this was expected. It was part of their cost cutting plan to begin with. So I don't think it was really out of the ordinary. Really, when you look at the auto industry, everyone is worried about profit margins. We're at peak pricing levels, peak margin levels. So everyone's worried that pricing falls. This is a way to absorb some of those pricing corrections. New car pricing and mix is definitely going to have to come back because semis and chips are coming back. So now they're going to put chips in probably lower mix, lower priced cars. So by cutting these casts, which were always the plan to begin with, it can absorb some of that hit from pricing and mix coming down.
- How do you evaluate GM's transition to EVs? Are they anywhere near the bumper of Tesla as we transition to the Tesla conversation? But how close is GM?
TOM NARAYAN: I mean, it's a little bit of apples and oranges. So GM is predominantly in North America where, arguably, you don't need this huge ramp of electrification as quick as, let's say, you need in Europe because of CO2 compliance. So GM also has pickup trucks, which is such a great business. You don't really need to electrify those as quickly, even though they are. So it's really hard to compare the two. One is a clean sheet EV company. The other one is transitioning from ICTVs. But even so, I think GM is doing the right things. They're vertically integrated with their Ultium battery cells, doing that in house. There's only two other folks doing that. It's Tesla and Volkswagen and GM.
- Tom, let's talk a little bit more about Tesla because Cathie Wood, who's been bullish on Tesla now for quite some time, scooping up even more shares of the automaker. When it comes to the outperformance as of late of Tesla, we know that there's some concerns out there about the ongoing investigations, most recently being the steering wheel that could fall off of a Model Y. How worried are you about that in terms of what that means for Tesla's investor story going forward?
TOM NARAYAN: I mean, this is par for the course for Tesla. There's always news and headlines like this. At the end of the day, I think people who invest in Tesla, they understand these issues. And they really look at Tesla as the ability to disintermediate the entire market. It really reminds me of what Netflix did to the media industry a decade ago, coming in and completely upending the industry, cutting costs significantly. They don't advertise. The average cost of a car-- something like $5,000, $6,000 of a car is advertising. They don't use dealers. That's about 1,400 bucks off that. They found ways to cut costs in the manufacturing process. This is what investors really care about.
Definitely, there's news items that will hit the stock every now and then. But its core investor base is really about the future of this company and how they can cut costs and effectively undercut the rest of the market and their clean sheet approach. It's the only EV company, pure play EV company, that's actually seen its stock rise in recent months. And I think that's why investors are looking at EVs and they're saying, this is the clear winner. And they're choosing it over a lot of other new EV makers.
- You've got an outperform on a $223 price target on Tesla. It feels like a month ago, but I think it was just a week ago, investor day, when the perception was, meh. They did not give details about a low cost Tesla. And it was a long four hour drown out talk about the sustainability of the planet. Net impact on the stock?
TOM NARAYAN: Yeah. I think that's maybe an unfair characterization. It was immediately my characterization as well.
- Panned widely.
TOM NARAYAN: Yeah. Yeah. When you rewatch it over and over again after, its like--
- You didn't do that to yourself, did you?
TOM NARAYAN: Yes, I did.
- Wow.
TOM NARAYAN: Yeah.
- It's a long one too.
TOM NARAYAN: It's one of those where you have to like-- what is that movie, like "Memento," where you have to watch it a few times to really get it. And you do that, and you realize if you read between the lines, he is saying there's going to be a $25,000 car because he's saying 20 million cars per year. It's his target. I don't think he's going to get there.
- Which is nonsense, right?
TOM NARAYAN: It's nonesene. But the fact that he's putting that out there, you're not going to get there with Model 3's and Model Y. It's just too expensive. He even said as much. And he had a chart which had a car with the nice blanket over it that had a big number on it in one of the slides. I think that's going to be the $25,000 car. That's going to have huge implications on the rest of the industry, especially for the things I said earlier. He can come in, undercut the rest of the market.
And this could be a global vehicle. It's not just penetrating the US. Now you can go after Europe, of course, China. So I actually think when you really dive into the details, ability to cut costs on chips, right, the silicon carbide by 75%. Overall manufacturing, you showed how you can change the way you make the car and cut the cost in general by 50%. I actually don't think that it was as negative. And I think people can rewatch it and come to the conclusion, yeah, a $25,000 car is coming.
- And that would be a huge one here for Tesla going forward. What about the Cybertruck? There's lots of debate out there about how much impact that's going to have, how meaningful that will be for Tesla over the next several years. What do you think?
TOM NARAYAN: Yeah. I think he was underplayed a bit during the event, also with the Optimus robot as well. So I would agree that's probably not as emphasized as it was in the past. To me, the big takeaway from this event, $25,000 car. Not really so much Cybertruck. But I don't think you really need Cybertruck for the stock to work. It's really about upending the entire EV ecosystem.
- So real quickly, that's kind of a specialty, you believe, as opposed to those who feel it's going to be mainstream and you change the entire industry. You believe this is more the Ferrari model, as some have called it.
TOM NARAYAN: Yeah. It's probably more like the Model X and Model S. Those are pretty low volume cars. I'm not saying Cybertruck will be low volume. It has a ton of orders. But I just don't think you need that to work for Tesla stock to work. Again, this $25,000 car is going to be game changing. Also, Model 3 and Model Y have a lot of runway ahead.
- Those are the catalysts up ahead. All right. Tom Narayan, great to have you. Thanks so much. RBC Capital Markets lead equity analyst for global autos.
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