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MORE NEXT YEAR. THIS SENIOR RESEARCH ANALYST AND DIRECTOR AT OPPENHEIMER JOINS ME NOW OVER THE PHONE. HE HAS A 300 $85 PRICE TARGET. HE HAS AN OUTPERFORM RATING. LET ME GET YOUR TAKE ON THE SHARE PRICE. AT $404, WHAT IS FAIR VALUE OF THAT COMPANY? >> FIRST WE HAVE TO TALK ABOUT WHAT'S GOING ON WITH THE COMPANY . NOT ONLY DID WE GET RUMORS AROUND PRICE CUTS IN CHINA, BUT WERE SEEING CARS IN THE LOTS OUTSIDE THE CHINA FACILITY. THE COMPANY PROMISES A SIGNIFICANT COST REDUCTION OUT OF THAT FACILITY. THAT FACILITY IS RAMPING ON SCHEDULE. THEY DO GET THE SYNERGIES AND EFFICIENCIES THEY HAVE BEEN EXPECTING. THE POTENTIAL FOR MATERIAL IMPROVEMENT IN THE COST STRUCTURE IS HIGHER. AS WE THINK ABOUT THE PRICE CUT , THAT MAY BE INDICATIVE OF WHERE THEIR COST STRUCTURE WILL SHAKE OUT. TAYLOR: DO YOU LOOK AT A $385 PRICE TARGET NOW WITH NEWS ON CHINA AND POTENTIALLY RAISE THE PRICE TARGET INTO 2020? COLIN: OBVIOUSLY WE CAN'T ANTICIPATE ANY PRICE TARGET CHANGES BEFORE WE DO THEM, BUT WE ARE LOOKING FOR MORE DATA. THIS HAS BEEN AN EXTREMELY VOLATILE STOCK. WE CERTAINLY HAVE SEEN BIG MOVES UP AND DOWN. AS WE GET MORE INFORMATION ABOUT VOLUMES, AND THERE IS A BIG PUSH TO FINISH WITH STRONG VOLUMES, AND MORE INFORMATION ABOUT GROSS MARGINS AND POTENTIAL EARNINGS POWER AS THEY HIT THESE HIGHER LEVELS OF PRODUCTION, WE WILL REEVALUATE OUR PRICE TARGET AND WHERE WE THINK THE COMPANY CAN GO. SINCE WE PUBLISHED THAT PRICE TARGET, THEY ANNOUNCED THEY WILL BE LAYING OFF 10% OF MANAGEMENT AND MISSES THE EU EMISSIONS TARGETS, EVEN AFTER BUYING CREDITS FROM OTHER COMPANIES FOR ZERO EMISSION VEHICLES. WE SEE TESLA HAS A TWO YEAR TO THREE YEAR LEAD FROM TECHNOLOGICAL PERSPECTIVE AND LEVERAGING THAT INTO MARKET SHARE, AND THEY WILL DO SO FOR THE NEXT TWO TO THREE YEARS. TAYLOR: I'M SHOWING A CHART TO OUR AUDIENCE RIGHT NOW WHICH I WOULD DESCRIBE OVER THE PHONE, SHOWING CAR SALES IN CHINA FOLLING FOR A STRAIGHT YEAR. AS YOU LOOK AT TESLA DEFENDING MARKET SHARE IN CHINA, IS CUTTING THEIR PRICES BY 20% OR SO YEAR ENOUGH TO OFFSET WHAT LOOKS LIKE FALLING DEMAND IN CHINA? >> ONE, THERE HAS BEEN DEMAND FOR ELECTRIC VEHICLES BECAUSE THERE WERE SUBSIDIES, WHICH HAVE BEEN ADJUSTED, BUT WERE SEEING FLAT SALES. IN TERMS OF WHERE TESLA IS AT IN THE MARKET, JUST INTRODUCING THE SMALLER VEHICLE WITH THE MODEL THREE, WE SEE A LARGER ADDRESSABLE MARKET FOR THEM. IT HAS ALWAYS BEEN A NICHE MARKET FOR THEM , AND CHINA HAS BEEN A MINOR PART OF THEIR SELLTHROUGH. AS THEY RAMP UP MODEL THREE PRODUCTION, WE SEE A SHARE GAIN, PARTICULARLY IF THEY DROP PRICE AND ADDRESS THE LARGER MARKET. TAYLOR: WE KNOW THE MODEL THREE WAS THE LEAST PROFITABLE OF ALL OF TESLA'S MODELS, SO DOES CUTTING PRICE BY 20% OR SO CHANGE PROFITABILITY MODELS AND TARGETS? COLIN: IT DEPENDS ON WHAT THE GROSS PROFIT IS ON A PER VEHICLE BASIS. WE HAVE DONE VALUATION AND POTENTIAL CASH FLOW ANALYSIS ON TESLA LOOKING AT HOW MUCH CASH THEY ARE CAPTURING PER VEHICLE, AND WE HAVE BEEN SEEING AROUND $10,000 PER VEHICLE. IF WE SEE THAT SORT OF NUMBER WITH THE MODEL THREE IN CHINA ON THE VOLUMES THEY COULD BEGIN PRODUCING, THAT WOULD BE A BULLISH SIGNAL FOR US. TAYLOR: AS YOU LOOK INTO 2020, HOW IS THEIR CASH OUTLOOK. WHAT WOULD BE THE BIGGEST CATALYST FOR THE STOCK AS YOU SEE IT? >> TWO THINGS. ONE, THEY HAVE ABOUT $5 BILLION OF CASH ON THE BALANCE SHEET, SO WE DON'T THINK THEY HAVE ANY NEEDS FOR CASH FLOW. NEXT YEAR WE'RE LOOKING AT VOLUMES. WE THINK THEY HAVE DONE A NICE JOB OF CONTROLLING OPERATING EXPENSES AND THERE IS A LOT OF OPERATING LEVERAGE AT THEY SCALE -- AS THEY SCALE THE SET. WE THINK EARNINGS LEVERAGE WILL DRIVE THE STOCK HIGHER. TAYLOR: