00:00 Speaker A

So, it feels like there’s a lot riding, maybe not just on these numbers, but on Tesla execution generally. I mean, the shares have doubled since last April, but they’ve kind of gone sideways, kind of tread water since September. So, what in your view would sort of move the needle more substantially in in terms of these numbers?

00:30 Speaker B

Yeah, in our view, it’s all about risk reward and given the run up that the stock had had uh really since last April, um, you know, caused us to go to a sell last fall. Um, we just felt like the risk reward um was no longer favorable and in fact unfavorable. So, um our current price target is $350. You know, if you look back over the last several quarters, Tesla has not had a very good earnings track record. In fact, they’ve missed on the bottom line in seven of the past nine quarters. Um, so I think what you’re seeing with the shares, you know, both today and leading up to this release last week, um, ahead on Wednesday is is is there’s really a lot of caution. Um, we know Tesla’s earnings were down 31% year over year in the first three quarters of last year. and now they’re getting ready to report the fourth quarter, the first quarter in which the US EV market was no longer subsidized by federal EV tax credit. So, we’re expecting a more substantial year over year drop in earnings. Um, we, uh, if you look at consensus, they’re expecting earnings to be down 38% year over year. And, uh, you know, we think that earnings, um, really this earnings melee is going to carry over into 2026, which is our primary concern. It’s just the disconnect between what the stock price has done over the last several months and uh the earnings trajectory that we see uh in the coming quarters.

02:27 Speaker A

Um, so you know, and and in your view is that elimination of those tax credits sort of twofold. On the one hand, maybe reduce demand for Tesla vehicles. On the other hand, they’ve sold those tax credits, right? Or you know, and that was a source of revenue for them too. So, how what sort of combined effect, how should we be looking at that?

02:54 Speaker B

Sure. So we know exactly what Tesla’s vehicle sales were in the fourth quarter. They reported that in early January and their sales were down 16% year-over-year. Um but you know, our bigger concern with Tesla is just the sale of these regulatory emissions credits under um CAFE standards of the US government. and and that’s been a very fast growing high margin revenue stream for the company in recent years. And essentially that market, um largely went away overnight with the signing of the one big beautiful bill act because CAFE standards were no longer enforced. And so these emissions credits with which Tesla would sell to other other auto makers which didn’t have as much uh EV exposure, um was a very profitable source of revenue and uh uh earnings for the company. and so that largely will go away and and that’s going to really affect Tesla’s bottom line in our opinion. So, um and then, you know, you look at 2026 and this is a year where Tesla really has a lot to prove from an execution standpoint. They’ve promised volume production of the cyber cab, the semi and the Mega pack 3 uh this year and and so, you know, it’s a big year from an execution standpoint and we think uh, you know, the management really has a lot to prove here.