Tesla Tumbles, Earnings Weigh on Stocks, SpaceX "Starship" Explodes After Launch 4/20/23

Carl Quintanilla (0:00)

Market insight and analysis. You're listening to the opening bell of CNBC's Squawk on the Street.

David Faber (0:05)

Good Thursday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla, Jim Cramer, David Faber at Post 9 of the New York Stock Exchange. Pre-market's lower on a wave of disappointing corporate results from several financials, Tesla, AT&T, and then some weak eco data. Philly Fed, worst in nearly three years, continuing claims highest in almost a year and a half.

A roadmap begins with that Tesla tumble, posting its lowest quarterly gross margin in two years. Elon Musk says he will continue to put sales growth ahead of profit.

Carl Quintanilla (0:34)

AT&T's free cash flow fumble. Shares are falling sharply. The company, though, says it is still on track to meet all of its full year forecasts.

And SpaceX is set to launch its first test flight of the Starship rocket system. We're gonna bring that to you live, if and when it happens.

David Faber (0:52)

Let's begin with Tesla, though, down sharply in the pre-market. These price cuts resulting in the company's lowest quarterly gross margin in about two years. On last night's call, Elon Musk did highlight that sales growth is still a top priority.

Elon Musk (1:06)

While we reduced prices considerably in early Q1, it's worth noting that our operating margin remains among the best in the industry.

We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin. It's better to ship a large number of cars at a lower margin and subsequently harvest that margin in the future as we perfect autonomy. This is an extremely important point.

David Faber (1:38)

Those operating margins though, Jim, X credits are approaching sort of what legacy OEMs make.

Jim Cramer (1:43)

Yeah, and I'm glad you pointed it out and put it like that because there is a sense by a lot of the analysts that it's now a commodity. That is not what we were thinking. What do you give a commodity? Maybe eight times earnings, maybe seven.

There is a, especially if you back out the credit. You know what, there's an overwhelming sense that he's pivoted. And I have to tell you that Jonas is probably the most vocal in this. And he's just basically said, okay, look, we wouldn't even sell these stocks, these cars for nothing in order to get the aftermarket. And it was a devastating call for the industry.

For the industry, because you could say, well, wait a second, there's too many EVs. You could say that he's decided to be Henry Ford. But David, there's a Henry Ford aspect to what he said. Basically, model T, we're gonna make them, we'll go for the aftermarket. It's almost like, well, what GE does with the aircraft engines.

It was a dispiriting call, because over and over again, he kept talking about how, look, we're gonna make as many cars, it really doesn't matter. He didn't say gross margin didn't matter, but he said, listen, it's not what we're going for. We're not going for gross margin, we're going for world dominance. And world dominance comes at a cost.

Carl Quintanilla (2:52)

And those comments are being echoed by a number of, not just analysts, but I've talked to a couple of investors as well. I mean, I would note, as you already did, Adam Jonas, the analyst at Morgan Stanley, who we often quote, he's very colorful to oftentimes. He says, in our view, there were snippets of the transcript from the first quarter call that will be remembered for years to come.

Jim Cramer (3:13)

Yeah.

Carl Quintanilla (3:14)

Particularly again, Jim, to the point you just made, Elon Musk statements that the company could potentially sell a car at a loss today in order to capture far larger lifetime value of the vehicle's recurring revenue.

Jim Cramer (3:24)

You know, he said it right at the end. Someone asked him, look, we know that the legacy car companies make a lot of money off the, once they sell the car.

And once you have a body of cars, you can really make a lot of money. And Carl, I mean, it was more of a throwaway comment at the end. I think it was more of a sense that, looks, I could have interpreted it saying, listen, we don't have to make money now. We can make it later. We can do whatever we want.

But I do come back to the idea that there is a commoditization of EV. And now he's part of that. And by the way, I'm not buying a Cybertruck at all. I mean, not only am I not buying it, since I already have a truck.