The autoworkers' strike is continuing to take a toll on the Big Three Auto Makers - Ford (F), General Motors (GM), and Stellantis (STLA). It's something Tesla (TSLA) doesn't have to contend with. The EV maker will report its third-quarter earnings Wednesday after the close of trading, with investors keeping an eye on margins as the company reported low delivery numbers and cut back on prices of certain models earlier in the year. Wedbush Managing Director Dan Ives Joins Yahoo Finance to break down how Tesla benefits from the auto worker's strike.
Ives say that pricing gives GM and Ford a "huge advantage" over Tesla, and that the companies' CEOs had been trying to build an EV strategy when "the UAW really comes with a deal that is, what I view, is just not feasible, given the business model."
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Video Transcript
JULIE HYMAN: Tesla is reporting its earnings tomorrow after the close of trading. All eyes will be focused on margins after it reported low delivery numbers and cut prices earlier this year. A lot has changed since the last earnings call, with the UAW walking out on the big three automakers here in the US, and many saying the strike will benefit Tesla, including Ford's executive chairman.
BILL FORD: Toyota, Honda, Tesla, and the others are loving this strike, because they know the longer it goes on, the better it is for them.
JULIE HYMAN: Let's bring in Dan Ives, Wedbush managing director. Hey, Dan. Good to see you. You are bullish on Tesla.
DAN IVES: Good to be here.
JULIE HYMAN: You know, we've heard a lot of rhetoric that the strike is going to be good for Tesla, and I guess I'm trying to figure out exactly how that is going to play out and whether we're going to see it in the numbers.
DAN IVES: I mean, look, it's good for the long term, because the biggest competition was coming from Ford, GM, Stellantis in the US, and that's why it's really been a champagne on ice moment for Tesla relative to this, but clearly, look, they have their own challenges that they're trying to navigate. But the UAW torpedo has really been a disaster for Detroit.
JULIE HYMAN: Wait, so explain this to me, because why-- in the long term, why is it so good news for Tesla? I mean, eventually the workers are going to come back. Eventually, I mean, whether it's a week or even a month, and they're going to start churning out cars again that are going to compete with Tesla, so it feels like-- isn't it more of a temporary hiccup than anything more profound here?
DAN IVES: Yeah, Julie, I mean, that's obviously a great point, but I think the bigger thing is what the deal ultimately looks like, what the cost intakes are going to be for GM, Ford. Do they have to raise prices $2,000, $3,000, $4,000? That's a huge advantage for them relative to Tesla and others, and I think that's really been the frustration here. Just as Mary and Farley are building this EV transformational strategy, the UAW really comes with a deal that is-- what I view is just not feasible, just given the business model.
JOSH LIPTON: Well, Dan, first of all, I don't know where you are but I love that backdrop. All of a sudden, I feel like I want to just grab a couple margaritas with you, Dan, and just hang out. But let's talk Tesla. Tomorrow, what are the key metrics, Dan, you're going to be watching? You know, is it margins, is it deliveries, and what are you expecting on those bogeys?
DAN IVES: Yeah, and, Josh, great to see you. Look, from a margin perspective, with these price cuts, they've sacrificed margins for volume. So the big focus is going to be 17% gross margin, the auto gross margin that's credit, that's the line in the sand, and then does Musk formally put a flag up there and say the price cuts are basically done? Because that's the problem here is that once you start going down these price cuts, the fear is you just continue to go down that same road in 2024, and it's very important that margins drop out this quarter.
JOSH LIPTON: So, Dan, so let me ask you, though, I mean, you're right. Elon Musk has not been shy about this. He's playing a volume game, and if it means sacrificing profit margins, so be it, but in your opinion, Dan, you know the company, you've followed it for a long time, do you think the price cuts are over?
DAN IVES: We think about 95% of them are over. I mean, there could still be some price cuts down the road, but I think in China they're going to really have to stop these price cuts, because ultimately then it's a race to zero, right? And I think that's-- even though this has been the right poker move to get to this point, I think going forward, they have to hold the line in the sand, because if they continue to cut prices and margins continue to trend lower, that would probably be what I'd say is probably the biggest bear case, in what's clearly a macro that's not roses and rainbows.
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