Rethinking Tesla and Apple

SPEAKER_1 (0:00)

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Ethan Wu (0:36)

You Pushkin, we've been talking for the better part of a year about the Magnificent 7 tech stocks, but two of them recently have not looked so magnificent. That would be Apple and Tesla, both of which have lagged both the broader market, which is up, and the Magnificent 7 in general. Today on the show, what's up guys, what's going on?

This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I'm reporter Ethan Wu here in New York, joined by my boss, Robert Armstrong, who has just pulled up to the office in his brand shiny new Tesla Cybertruck.

Robert Armstrong (1:11)

The great thing about parking the Cybertruck is you don't need a parking space. I just drive it over whatever car is in the parking space I want, and it works perfectly.

Ethan Wu (1:21)

Yeah, it's like the world is your bathroom equivalent to parking spots.

Robert Armstrong (1:25)

I have no idea what you're talking about.

Ethan Wu (1:26)

That's probably for the best. Speaking of other things that are pooping the bed, Tesla.

So S&P is up about 10% this year. Some of the Mag 7 are up even more. Nvidia up almost 100%. Microsoft chugging along Alphabet. But Tesla has lost about a third of its market value this year and Apple about 10% of its value this year.

Robert Armstrong (1:49)

And those together are 100% of my 401k. So I am in big trouble.

Ethan Wu (1:55)

Well, Rob, see, I diversified with some Bitcoin. So I'm actually doing quite well offsetting those two holdings.

Be that as it may, we thought we'd talk about some of the fundamentals going on. There are some interesting stock-specific fundamental stories at play here, which can help explain some of the price movement. So Rob, let's start with Tesla, everyone's favorite EV stock.

Robert Armstrong (2:14)

Yes.

Well, part of the problem here is the simplest reason of all. Tesla is making less cars and thus fewer money.

Ethan Wu (2:26)

We just got these first quarter delivery numbers, right? So every quarter before earnings, Tesla tells us how many cars we produced, how many cars we delivered.

And the delivery numbers for the first time in several years, I think it's four years, declined and quite precipitously, nine percent year over year, pretty chunky decline, way below analyst expectations.

Pretty disappointing news. I think people were feeling rather alarmed about what's going on at Tesla. And it fits into a broader picture of you have all this new Chinese electric vehicle competition from the likes of BYD. You have global automakers piling into the EV industry. And with all that supply coming online, you don't have the kind of commensurate demands on the other side, right?

Robert Armstrong (3:09)

Yeah, it's interesting. The people I know who drive Teslas fit into two camps. People I talk to, one camp is New York City Uber drivers who love their Teslas.

They, you know, it's very easy to charge around here.

It's very efficient, obviously, from a cost point of view versus gas cars. Then on the other hand, there's like my friends who, it's the family car, maybe they live in the suburbs. And for them, it actually turns out to be a bit of a hassle. If they're taking a weekend trip going far, where are they going to charge along the way? Will there be a line at the charger? How long will it take? Et cetera, et cetera. So I wonder if there is a real shift in the demand picture, at least in the United States, at a moment when Chinese manufacturers are just churning these things out at very attractive prices.

Ethan Wu (4:01)

And look, right, maybe we build more charging stations in the US and it ends up being fine in the long run, but at least in the short term, it's a serious concern for Tesla and Tesla investors. What the companies had to do is actually cut prices to stay competitive with this huge onslaught of EV supply coming online in the face of somewhat soft demand.

And that's put really serious pressure on Tesla margins, which have just compressed quite dramatically. And so, you know, I think there's a decent fundamental story behind the 30 plus percent decline in Tesla stock this year.