00:00Tesla is tripling its spending plans for AI this year to $25 billion as investors look for signs of progress
00:06in its robotics push.
00:07TD Cowan senior analyst Itay McKellie has a buy rating on Tesla and joins us now.
00:12I know in your take of their earnings you said more positives than negatives.
00:16But Itay, I've got to say, at the moment it feels like this is a market concentrated on those CapEx
00:20numbers.
00:20Shares are down 3.5%. What did you make of it?
00:24Yeah, thank you for having me. So you're right, I mean, the CapEx number has been in focus.
00:27The stock has been kind of recovering ground, so a little bit of a pullback on the CapEx numbers I
00:32suppose makes a little bit of sense here.
00:33But the CapEx really isn't new information. They did already guide to a significant amount last quarter.
00:40Yes, it did go up again this quarter. But we don't think that the CapEx is likely to linger here
00:45for too long,
00:46just given some of the momentum we're seeing not only on the AI side, the FSD side, of course, RoboTaxi,
00:52but also on the EV side as well, where the company, we thought, made some pretty positive comments around recent
00:58demand trends.
00:59I mean, isn't it good that they're going to spend $25 billion?
01:01They're a $1.4 trillion company.
01:06And, I mean, that's a bigger market cap than every single automaker on this planet combined.
01:13Yeah, it's a great point. They are at the center of several global megatrends in AI, electronics, manufacturing, of course,
01:19EVs.
01:20And they're rolling out significant products and services, and those do require investments.
01:25And, look, we will get proof points later in the year from the CyberCab ramp, further RoboTaxi expansions,
01:32the potential for FSD on consumer vehicles to go eyes off at the end of the year or early next
01:37year.
01:38Of course, the launch of AI5 next year.
01:40So, yes, you have a big CapEx number, to your point.
01:42But you also have a number of fundamental catalysts that can serve as proof points
01:46that this company is heading in the right direction and unlocking these very significant opportunities.
01:50And that's why we don't think the CapEx number is likely to linger as an overhang going forward.
01:54And underneath it, all the EV business we think is starting to come back.
01:57We actually published a very large report about a month and a half ago calling for the bottoming of U
02:01.S. EV sentiment.
02:03We were pleased to hear last night the company talk about recent order uptick, including a record Q1 backlog.
02:11When it comes to the timelines for things like, you know, RoboTaxis, Optimus, the CyberCab, the Semi,
02:17they always tend to be a little bit squishy.
02:18When do you have these included in your earnings models?
02:22Sure. A lot of it's still upside to our model.
02:24I think the one area that we think could be maybe the biggest catalyst could be eyes off on consumer
02:31vehicles
02:32because that doesn't just accrue to more FSD subs and more revenue on the existing install base.
02:37That actually could be a significant driver, in our view, of vehicle demand going forward,
02:41given the significant amount of new services that you can launch, even in easier markets, easier conditions.
02:48You don't need to deploy in major urban areas to unlock significant new services and revenue streams and ultimately vehicle
02:56demand.
02:56So we think FSD eyes off could be a significant catalyst into next year, both for revenue as well as
03:02vehicle demand,
03:03to kind of get that virtuous cycle going.
03:05Itay, you, I think it's fair to say you're one of the most respected autos analysts on the street.
03:11You have spent at least two decades, right, covering car makers around the world.
03:16I was pretty stunned yesterday when I got a look at EV sales in Q1 compared to EV sales in
03:24Q1 last year across automakers.
03:29Almost all of them have declined really significantly.
03:32And I would have thought that in March, you know, we would have a huge rebound in EV sales.
03:39But I guess higher fuel prices, at least $4 a gallon on average,
03:42is not enough to make up for the $7,500 tax credit that we lost last September.
03:48Sure. So I'll throw out two data points on that that may paint a bit of a different picture as
03:52what we saw in March.
03:53So if you look at the reporting EVs, the actual vehicles and companies who actually report monthly sales,
03:58the mix of those relative to overall vehicle sales was the highest in March since IRA credits expired.
04:06So we have seen sort of an improvement sequentially.
04:09The year-over-year comparison, of course, is still difficult, as you point out.
04:12But even on a year-over-year basis, when you look at it on a sales relative to inventory basis,
04:18because, of course, EV inventories also come down a lot year-over-year,
04:21sales relative to inventory in March of this year was flat year-over-year,
04:26meaning consumers pulled down roughly the same percentage of, you know, of inventory as it did last year in terms
04:33of demand.
04:33So those are two encouraging signs.
04:35Of course, it does take some time for the impact of higher gas prices to flow through.
04:39Our core thesis on EV2 argues that significant new product is actually coming in the next 12 to 18 months
04:45that could catalyze significant demand in the U.S., just given the certain structural advantages we have in the U
04:51.S. to drive EV adoption.
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