Tesla stock: market isn't pricing in its energy storage business

Yahoo Finance’s Myles Udland and Brian Sozzi speak with Jed Dorsheimer, Canaccord Genuity Sr. Research Analyst, about why the firm upgraded Tesla’s price target, and outlook for the EV maker.

Video transcript

BRIAN SOZZI: OK, from deep life lessons via Myles and I to potential growth in Tesla's stock price, our next guest sees more than 50% upside to Tesla's stock, driven in large part by growth in energy storage products. Canaccord Genuity senior research analyst Jed Dorsheimer joins us now. Jed, interesting note out from you and your firm looking for Tesla's stock to hit 1,071. And in this note, you compare Tesla to Apple. Why is that?

JED DORSHEIMER: Yeah, I mean, I think Apple's probably the best comparison in terms of-- well, I'll just speak for myself here. I mean, in 2003, I think the first Apple product that I bought was an Apple iPod. You know, and I bought that on the value proposition of being able to consolidate, you know, CDs-- that's what we used to store our music on before we had the streaming. Today, I have over 30 products. So Apple was able to kind of bring me into that-- really, the identity. And I think that's what we're kind of going at is, is these companies, some of them are able to kind of cross over and create almost an emergent religion in terms of the identity that people want to be associated with.

Now Tesla's done that, I think, in a fairly good job in the auto sector with EVs. And a major change has occurred, is they've been able to successfully pivot from sort of high price, low volume rich person's car to sort of lower price, higher volume with respect to the Y and the 3. And we think the profitability is far greater on both of those, as well as opening up the supply in terms of the energy storage or the batteries.

Now so far, the deployment of that storage has been in the vehicle. We believe that Tesla is at the point where they're now able to deploy and go after the energy storage, both on utility scale, as well as on the home battery on the solar side of the market. And we don't think that the market is necessarily pricing that in. And that's a large part of our upgrade.

MYLES UDLAND: And, you know, Jed, I just want to come back to that Apple comparison for a second. And I think something else, another parallel, as you were talking, it kind of strikes me is, all I've ever heard from my really techie friends my whole life is that, oh, Apple products aren't actually the best. You know, you can get a better version from Samsung, this, that, the other.

And I do wonder if in the future we're going to see superior performance from a Volkswagen or a Ford or a GM type electric vehicle. But as you're outlining, I mean, Tesla's just cooler. I mean, there's really no way around it. Tesla has a cachet around the brand, a halo, if you will, that seems unlikely, certainly in my view, to really be eroded by, again, a legacy auto coming in with a different technology.

JED DORSHEIMER: Yeah, I mean, I think there's two points that you bring up there. And one, I've been a senior executive inside a Fortune 500. So I've run an organization. I understand, you know, in most businesses, most industrial manufacturers operate around Toyota's lean based manufacturing, which is a very linear way in terms of growth, as well as improvements. When you think about Apple and you think about sort of that comparison and the difference, you know, Simon Sinek does a good job talking about Apple is, you know, we think differently.

That's really the-- so you have to ask yourself, what is it that the organization is about? Because people often aren't buying the products. What they're buying sort of in some companies, they're sort of buying that movement. And we think that there are few comparers. And Tesla is migrating towards that. And therefore, that interoperability, that sort of core essence of the business, are they able to pivot from a product and kind of build this ecosystem? And that's a bet that we're making.

BRIAN SOZZI: You know, Jim, one thing I think that got lost in this upgrade report is, is your valuation model on the bottom? And I know it's wonky. I hope I'm not losing millions and millions of viewers worldwide. But nonetheless, at the bottom of your report, you mentioned-- you note that you value Tesla on an EV to EBITDA basis at 57 times on 2022 earnings. You value Volkswagen only seven times. Do you take Volkswagen, what they're doing in electric vehicles, seriously? Do you think they can make any real dent in Tesla? Because I look at that valuation estimate, and I would say no.

JED DORSHEIMER: So, I mean, look at what Tes-- look at what Volkswagen is doing. They're literally copying the playbook of Tesla. Now they have greater resources, to some extent, in terms of their distribution, their channel. But they're still operating-- you know, if you even look at what they've put out for goals, they're operating at a far lower level in terms of-- compared to Tesla, just on the energy storage. I mean, Tesla talks about by 2030 the need to get to 3 terawatts hours of capacity in terms of their battery. When you look at Volkswagen, you're orders of magnitude lower.

So the question is, how quickly can an incumbent catch up? I think a lot of the incumbents are-- and I think Volkswagen has done a good job. But does it still have that same cachet compared to Tesla? I mean, if you ask somebody, hey, do you want to own an EV from a company that was caught up in the Dieselgate scandal versus owning a company that's sort of building this idea around saving the world, I think there's a big difference and a gap there. So I still see Tesla leading by years in terms of the competition.

BRIAN SOZZI: And Jed, 15 seconds left. Is Tesla-- is Elon Musk still the CEO of Tesla in five years?

JED DORSHEIMER: I don't know whether-- I mean, I think that, like Apple with Steve Jobs, I think it would be difficult for Tesla to disassociate from Elon. So I don't think that that's an easy-- I would bet that he would be within five years.

BRIAN SOZZI: All right, fair enough. Canaccord Genuity senior research analyst Jed Dorsheimer, good to see you.