TSLA Roadster, SPCX Merger Talks Excite Bulls as Earnings Path Stays Foggy

SPEAKER_1 (0:00)

Steve Westley, founder, managing partner at the Westley Group, and Karl Brauer, executive analyst at iccars.com. Karl, let's start with you. I'd love to get your takeaways from this long-awaited revamped Roadster launch, and if it could potentially move the needle for Tesla.

Karl Brauer (0:17)

You mean the Floatster? Yeah, it's gonna be interesting to see how this plays out because obviously it's a very limited production, highly specialized vehicle, and it's not going to pay a lot of bills. You just can't sell cars like that in super high volumes, whether it's production limitations, whether it's audience, buyer base limitations because of the cost. So it's a fascinating look at technology and clearly an effort to have the benefits of merging SpaceX and Tesla, what you could do with it, but the functional, practical capabilities of the car, both in terms of non-pilots being able to actually take advantage of the flying element, which I don't think anyone can if they are on a pilot, to the amount of revenue that it would generate for the parent company for Tesla. It's pretty limited.

SPEAKER_1 (1:10)

Steve, Karl just mentioned there how cool it was. We all watched the video of the car hovering above the ground, and it can go zero to 60 in less than a second. These are all very cool things. But how are you looking at the Roadster as it fits into the broader picture for Tesla?

Steve Westley (1:25)

Look, this is a stunningly beautiful car, amazing stats, zero to 60.9 seconds, and you get a cold gas thruster, whatever that is, to go with it.

But an estimated 250K price point, you're just not going to sell enough to move the revenue needle that Tesla really needs to move. But I think what Elon is trying to do here is something different, and that is capture people's imagination. He wants to show the world that someday soon, we will have flying cars, Tesla is likely to lead in it. And what I think he's really trying to do here is set the stage for SpaceX and Tesla to merge and to be the company that builds them first. So I think that's what's going on.

SPEAKER_1 (2:04)

All right, so clearly that integration was on full display with the thrusters being from SpaceX, the testing done at a SpaceX site. Karl, how are you looking at that and your expectation coming into earnings? Because we do have some concerns about any discussion creating an SEC violation here. So are you expecting there to be any commentary around a potential mega merger when we hear from Tesla on Wednesday?

Karl Brauer (2:29)

Well it is potentially an SEC violation if he talks about mergers during the call.

But it is, Elon, so I kind of am expecting him to talk about it anyways. But yeah, that's clearly where everyone's mind is at no matter what he does or doesn't say during the call. The actual numbers on the call are expected to be flat or down slightly in most key elements. And of course, there's the free cash flow is one of the concerns because he's spending a lot of money. But we know that he's just not going to grow revenue and profit and market share by selling electric cars.

That element of evolution of the company is done now. And you got reduced incentives and EV interest in the US, you got massive competition from China in every other market for EV sales. So he's really got to move forward on the self-driving technology, make that work, make the cyber cab work. That's how Tesla, without any integration with SpaceX, moves forward in terms of revenue.

SPEAKER_1 (3:26)

And Steve, how are you looking at the earnings report we're going to get on Wednesday? What are your expectations here?

Are we going to see more profitability drivers here? Are we still trading on potential when it comes to Tesla?

Steve Westley (3:41)

Well, this is the big challenge for Tesla.

I think they're going to beat expectations. They've had a solid Q3, 486,000 cars sold on track to do about 28 billion, I think, for the year, 20 billion in the quarter, 105 billion for the year. But the big question is, will it last? Europe's up 40%, so that's a good market for them. But China, their biggest market is flat to down, and US has slowed down. Big problem is they got shrinking margins, share price down 20% year over year, and flat growth. So, they really need new revenue stream soon. And I think, simply put, they got four shots on goal. They've got to get more full self-driving approved in different cities around the country to keep up from way above. They're way behind so far. Second, they've got to get optimists into market.