Tesla Battery Day: why the EV maker is 'superior' to others: analyst

Garrett Nelson, CFRA Senior Equity Analyst, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss Tesla's Battery Day and more.

Video transcript

ALEXIS CHRISTOFOROUS: Elon Musk may be closer to his dream of a cheap electric car for everyone. At yesterday's Battery Day, he teased a $25,000 model in about three years, so you'll have to wait a little bit. Garrett Nelson covers Tesla at CFRA. He's joining us now.

Good to see you again, Garrett. So let's run this down for the folks watching. You've maintained your buy rating on the stock and your $500 price target, but you have raised your earnings per share. Why are you so bullish on Tesla right now?

GARRETT NELSON: Sure. Well, we came away impressed with the new battery cell that they unveiled, which essentially has six times the power of the current cell, and also their plan to release battery costs on a dollar per kilowatt hour basis by about 56%, which will thereby increase the vehicle range by 54%. And both of those things should really help widen their competitive advantage significantly versus other electric vehicle manufacturers.

BRIAN SOZZI: Garrett, how big is that competitive advantage for Tesla?

GARRETT NELSON: Sure. So last year, Tesla accounted for 58% of all electric vehicles sold in the United States. That's up from a 14% market share five years earlier. So you know, we just feel like Tesla vehicles, you know, it's the best product out there when you look at the price versus range proposition, which is so important to electric vehicle buyers, that Tesla just has a superior product. And coming out with this new, much improved cheaper battery will help widen their-- their competitive advantage versus peers. So really, everyone else is just trying to play catch up with Tesla.

BRIAN SOZZI: Well, then is it fair to say-- look, we've heard for some time, past year, past year or two, GM, Ford getting to swamp the electric car market with a whole bunch of vehicles. Is it fair to say, based on what you saw out of Elon Musk yesterday, that all those cars GM and Ford have coming out really don't matter?

GARRETT NELSON: We just don't think they're going to be as successful from a sales perspective compared to what Tesla has. You know, if you look back, really over the last two decades, there have been numerous EV models from both GM and Ford and others, which have been discontinued because they haven't sold necessarily well. And really, everyone else is really struggling to make any money on those vehicles, and we think that will continue.

You know, Tesla is really the dominant player, and, of course, an electric vehicle pure play, and they're doing some really innovative things on the battery side to get better. So you know, I think if there were any negatives-- obviously the stock's about-- down a little bit this morning. I think, you know, the Battery Day fell a bit short of the Street's desire for an immediate catalyst.

And you know, what-- what was announced will really be more of a long-- longer-term positive for the company. Elon Musk also seemed a little bit more subdued than normal, but I think that was more a reflection of the more technical nature of the presentation. They also didn't specifically use the term million-mile battery, as many analysts were expecting.

And then finally, Elon, you know, made several comments about the importance of a vehicle affordability. He talked about bringing the $25,000 Tesla, complete with auto pilot, to market the next three years. But the problem with that is we don't necessarily think investors want them to lower price. Instead, we think a lot of investors are hoping that their electric and autonomous technology innovations really make Tesla vehicles kind of a must-have product that consumers really have to have and that drives pricing power in the marketplace.

ALEXIS CHRISTOFOROUS: Garrett, Musk talked about targeting 20 million vehicles. He wants to produce 20 million vehicles a year. But he didn't give us a timeline or a budget for that. Are you concerned about that? And should investors be?

GARRETT NELSON: Yeah, you know, it was helpful to hear, you know, where he wants-- where he sees Tesla going in the future from a production and sales standpoint. But I think it would have been problematic for him to put a target around that. You know, we know that electric vehicles are still a fairly small part of the overall vehicle sales. So less than 2% of the vehicles sold in the US last year were EVs.

Over the next decade by 2030, we see that percentage increasing to about 20%. So we think that's a long-term secular trend, and they're really going to take advantage of that. They just need to execute by keep coming out with vehicles that people want to buy and keep growing globally, where we also see the same trend over the next decade.

ALEXIS CHRISTOFOROUS: You talk about electric vehicles. I know you had written earlier in the week that you thought Joe Biden would be particularly good for the electric vehicle market. Why is that?

GARRETT NELSON: Sure. So there's a lot of financial incentives and subsidies that he's proposed which would really benefit Tesla, for example, talking about building out the number of EV charging stations in the US, which currently stands at about 27,000. He wants to increase that by a half a million, so that would be a 20-fold increase in the number of EV charging stations in the US, which would really help Tesla tremendously. And he also wants to increase both tax credits and tax breaks to really stimulate both the production and sale of electric vehicles, which we think Tesla would benefit from as the only electric vehicle pure play.

ALEXIS CHRISTOFOROUS: All right, Garrett Nelson of CFRA, thank you.

GARRETT NELSON: Thank you.