Tesla stock gains premarket after UBS upgraded shares

Yahoo Finance Live anchors discuss Tesla upgrading to buy at UBS.

Video transcript

- All right, let's talk about another company that has a big interest in China but, of course, is based here in the US. Talking about Tesla, that stock is up about 2 1/2%, after UBS came out this morning in a note and said now is a good time to buy, upgrading the stock to buy from neutral maintained its price target. However, and the analysts there saying there are record high backlogs, increasing margins. Those are some of the reasons for the upgrade.

A lot of it had to do with the valuation, because we have seen the stock really fall quite a bit. We also, speaking of China, have seen a reopening of China production, and while the production there is still not back to pre-shutdown levels, it's up about triple over the past month or so. So we see Tesla benefiting from some of the loosening of the COVID restrictions there.

- And so much of the decline that we've seen, as well, in recent weeks, especially since early May, mid-April even, it's been attributed to what the CEO is going through on a totally separate issue, in how he might have to unload a fair amount of his shares, continuing to sell, which would essentially depress the stock price to the point where we've seen right now, where I mean, it's sitting at around $744. You compare that to some of the highs that we had seen over these past 52 weeks of $1,200 in advance of that. And so I think for Tesla, it really is about what they're citing in some of the fundamentals remaining solid for them. If they see more people for just a mass market model three, which is really the car between the 3 and the Y that are going to make up the lion's share of the sales, the deliveries, the production for the foreseeable future. And making sure that they're actually opting into a higher package on those, thus propping up some of the margins there.

- Yeah. I'll point out two things from this note. Patrick Hummel is the analyst over at UBS that wrote this one. He's noting that he's actually cutting his earnings-per-share estimates by 12% for this year because of those Shanghai lockdowns. So just something to stick away, because of course, as this situation in Shanghai impacts the likes of Tesla, it's impacting Apple and many other manufacturers in the country. You have to wonder if you'll see more analysts slash their ratings or earnings estimates on an Apple or Tesla here because of these lockdowns.

In the next two, the innovation pipeline is seen as a key growth driver from this note, according to Hummel, but I would say, this is the first year where we have started to really see some strong competitors in the EV space, and it's not just GM. It's not just Ford. We were talking about Polestar yesterday putting out a credible SUV. Now, none of this is coming to scale anytime soon, but still, this promise that Tesla is going to have new rivals in the EV industry, this has been the year where a lot of these new entrants have finally brought their things to market, and they're starting to scale them up in a big way.

- Well, and in China itself, there's already robust competition. Right? So let's talk about NIO for a second because that company reported numbers this morning, and the numbers were disappointing. I mean, that said, it is one of the competitors to Tesla, but the company came out with second-quarter delivery and revenue forecast that missed analyst estimates. That's why the stock is down some 7 1/2% today. And if you look at the vehicle deliveries last quarter, just under 26,000, they actually delivered fewer vehicles than Xpeng and Li Auto which are another couple of EV makers in China.

- Absolutely, and on the topic of NIO, the vehicle margin, 18.1%, that was actually a decrease versus the 21.2% margin that they're seeing per vehicle. So a declining vehicle margin, you've also got the broader production issues that we've been monitoring, especially for companies in China that are trying to produce these vehicles, make sure they're still hitting on some of the delivery metrics. And overall, the increases in revenues from the first quarter of 2021, I mean, sequentially, there is not much that they're able to grasp onto here. But if there's anything that we can look to, it's the broader wave of consumers who are still looking to opt into an electric vehicle in some capacity or another. It's really going to come down to, I think as well, where these companies fall within that range in the high value, high cost, kind of part of this equation too.

- I'll just quickly add too. Good, helpful note by Jeff Chung, over at Citi, on NIO, noting that June sales volume, if they hit the top end of their guidance, could be up 84% month over month, as some of those lockdowns ease. That is helpful, but I think we are seeing the stock-- maybe there's a contrarian take here. There's still a lot of questions about margins. What do the margins look like on this business and inflationary world, when things are locked down?