Tesla’s Austin factory is the ‘golden jewel’ in its supply ecosystem: Analyst

Wedbush Managing Director & Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss the outlook for Tesla production and the electric vehicle market.

Video transcript

- Welcome back to Yahoo Finance. Well, based on analysis from Wedbush, Tesla is gearing up to begin production of its Model Y vehicle in the coming days. Here with more on that, what it means for the carmaker and the EV race, is Dan Ives, Wedbush Managing Director and Senior Equity Analyst, along with Yahoo Finance's Dani Romero.

Dan, thanks so much for being here. We've got Dan and Dani. I want to start off by saying, you know, Tesla has what I call a really high class problem. It's always had more demand than it has supply. So how important is this Austin production facility, along with the one that's coming online in Berlin, especially as you know there are legacy makers, like Ford and GM, that are now jumping on the bandwagon and getting into the EV race?

DAN IVES: Yeah, look, in terms of what we're seeing from a capacity right now, I mean, Tesla doesn't have a demand issue. It's a supply issue. That's why Berlin and especially Austin are so important to what I believe is reaching about 2 million units by the end of this year. That would double capacity.

And in terms of what we're seeing, it's a $5 trillion market opportunity in terms of EV. And it's the biggest transformation to the auto industry since the 1950s. But for Tesla, the linchpin to the success from here on forward continues to be expanding supply.

DANI ROMERO: Yeah and Dan, following to that note, you know, I read your note where you said that launching obviously production in the Lone Star State would alleviate supply chain bottlenecks, also accelerate production. What are your expectations on how soon would cars begin to be rolling off the assembly line?

DAN IVES: Based on all of our work in and around Austin, we think starting next week, we're going to get into the early stages of what I believe are cars rolling off the plant. Now a formal announcement is something the Street is looking to expect probably on the company's conference call later this month.

But it's important because Austin launching by January, and ultimately Berlin getting through some of the red tape in Europe, probably by mid-to-late February, that's really right now what the Street's looking for to expand that capacity.

And I think when you look at Austin in particular, it's been very smooth in terms of the build out. Hiring has been very strong over the last few months. And that's why Musk has made such a bet on Austin in terms of that being really the Golden jewel of the ecosystem.

DANI ROMERO: And Dan, you know, let's go to China. Tesla's profitability in China is a lot higher in the US. But with all the recent challenges with supply and demand, do you still see that that's a growth opportunity there?

DAN IVES: China has been really one of the keys to success. And we saw it in terms of 4Q deliveries. And we think China is going to be about over 40% of deliveries for Tesla in 2022. It's a tightrope in terms of China. You have domestic competition increasing across the board, geopolitical issues, US-China tech war.

But if you look what's happening right now, that China growth story is actually accelerating for Tesla in the 2022. And that we believe is worth about $500 per share to the story, and it's something we believe is underestimated by the Street, which is why we have a $1,400 base case price target.

- And Dan, just reiterate what I said earlier, there has been huge demand for these cars and supply has been the issue trying to keep up. So what's your prediction for production capacity by the end of this year? You know, Tesla has constantly struggled with that issue.

DAN IVES: Yeah we think about $2 million will be capacity by the end of this year. I think the chip shortage starts to moderate significantly going into February, March across the board. Tesla's been a little more Teflon like there. And I think this is one where as they navigate right now in EV, a lot of competitors.

We think it's not a zero sum game. Ford is going to be successful, GM, Lucid, VW in Europe, and of course Neo in China. But overall, in EV land, it's Tesla's world. Everyone else is paying rent at this point. And that's what we're seeing play on Q4.

DANI ROMERO: And Dan, just to wrap this up really quick, I saw an analyst note from Morgan Stanley that pretty much classified the EV race as a marathon and says that Tesla is on lap 21 and the others are pretty much lagging behind, maybe per se lap number two. Do you have a similar sentiment to that?

DAN IVES: Yeah. I mean, I think that that's a great sort of way to put it, because it's about the moat from the supercharger. It's about the battery technology and distribution. And it's one where Tesla continues to kind of expand that lead.

You're going to have competitors from all shapes and sizes. And the haters will continue to hate in terms of Tesla. But what they're proving, and what I think you're seeing with Austin, you'll see with Berlin, they're just further flexing their muscles going 2022.

- All right, Dan Ives, we'll have to leave it there from Wedbush managing, the Director and Senior Equity Analyst there. Thank you so much for your time and Dani Romero.