Deutsche Bank U.S. Auto Technology Analyst Emmanuel Rosner joins Yahoo Finance Live to discuss second-quarter deliveries for Tesla as EV production reaches a new high, production, raising prices, recessionary risks, and the outlook for growth.

Video Transcript

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BRIAN SOZZI: Tesla shares in focus as the EV maker slightly missed estimates for second-quarter deliveries. Let's talk more about this with Deutsche Bank lead auto and auto technology analyst Emmanuel Rosner. Emmanuel, always great to get some time with you.

So you wrote out this morning a new note-- have a price target of $1,125. Why that optimism after this delivery miss?

EMMANUEL ROSNER: Hey, good morning. Thanks for having me here. So, first of all, the deliveries themselves were basically in line with analysts' expectations, 255,000 units. That's basically maybe 1,000 or 2,000 units shy of what analysts were looking for. And that was pretty much predictable because they were shut down. Their Shanghai factory was shut down for most of the quarter because of a COVID lockdown.

So there was definitely a lot of units of production that didn't happen, a lot of units of deliveries that couldn't happen. I think what's important for the stock is basically to look forward. And, as part of the release, Tesla commented that June was the highest month of production ever in the company history, which means that they're really lapping some of these, you know, supply chain and lockdown issues and that they're really ramping up.

And that makes us very optimistic for the second half of the year in terms of what production could look like. We still think they're on track for 1.4 million units for the full year, which is up 50%. And they've also done an incredible job, you know, pricing up for some of the raw materials pressure. And so we think the margins could actually, you know, look good going forward.

So Q2, definitely a challenge, but a predictable one. And I think it looks good going forward.

- OK. And so you kind of started to answer my question there on the unit front, because even as we start to see them raise prices, to what extent will that impact some of the demand that they're seeing?

EMMANUEL ROSNER: That really is one of the most important questions for Tesla and for the industry. Obviously, raw materials pressure has been, you know, relentless. And the cost of building EVs has gone up. And Tesla has been incredibly proactive at, you know, raising prices. I think they've done so at least 10 times in the US just last year and then multiple times again this year.

Now, from what we're able to see, the wait times to get a car are not getting shorter. You still have to wait several months, in some cases, well into 2023, to get your vehicles in most geographies where Tesla operates. So there is no sense that so far it's hurting the order book. There's no question sort of like that. At some point, this is obviously a very legitimate question-- just no evidence of it right now.

BRIAN SOZZI: Emmanuel, have you stress tested your models in trying to figure out what this stock and what Tesla's profits look like in a recession?

EMMANUEL ROSNER: Yeah. So I think one thing that's, I think, particularly important to note is you essentially have, you know, the world moving towards electric vehicles. So the adoption of electric vehicle is really rising incredibly fast. The ability of the industry to supply is not happening as fast as, you know, the demand is growing.

This is why the few EVs that are available or can come into the market have very long order books, you know, sometimes multi-hundred-thousand units, and certainly, many years of wait time. I think that what's essentially going to happen is this is gonna be about-- success in EVs is gonna be about the ability to supply. And Tesla has demonstrated, both last year when the whole industry was losing a lot of volume because of semis, and this year through some of the shutdowns, that they're the ones that are actually able to keep producing.

So I think what essentially is gonna happen is Tesla will be the ones able to supply the vehicles. Even if overall demand were to come down somehow-- this would actually shrink the order books-- they still have many, many months of forward-looking orders there. So we're really not too worried about the volume trajectory for Tesla. Even if you go into what would be considered sort of like a mild recession, I think that they would capture the demand from those that could still afford it in the context of essentially the whole world moving to EVs, and just not that many credible alternatives here.

BRIAN SOZZI: I'll just follow up on that, Emmanuel. So is Tesla still growing sales inside of a recession? I believe the Deutsche Bank team is looking for a mild recession in the first half of next year. In that environment, is Tesla still growing sales? And that is that coming more from price or units?

EMMANUEL ROSNER: Yeah. So they are. Our view, both for the auto industry and then Tesla specifically, is that you're gonna continue to see auto sales grow. In the case of the broader industry, it is because we're starting from recession-level volumes. The SAR right now is at 13 million for the month of June. This is recession level.

SAR has been supply constrained. As supply bottlenecks get alleviated, you're gonna see essentially, you know, more production, and therefore, more sales. And so we see pretty good visibility for auto sales going up, easily for the next 18 to 24 months, almost regardless of the economic backdrop. In the case of Tesla, it will come really from-- primarily from units, essentially. They're still at the beginning of ramping up factories in two regions, you know, in Texas as well as in Berlin.

There is tremendous demand for EVs in Europe, which has been so far been served by, you know, the China factory. Now there will be-- there is ramping up a factory locally there. This is a whole new ability to serve this market and better economics. The Chinese market itself is now rebounding incredibly fast after the COVID, you know, lockdowns.

So I think that the whole Shanghai factory will be able to serve it. And the company is in the process of adding more capacity over there. So, essentially, it will be driven by units.

As you move into 2023, you're also gonna see new models, potentially the Cybertruck. We'll look for an update on this. But this is something that has many hundreds of thousands of units of reservations. People have been waiting for many years.

This is all incremental versus the base demand. So my answer would be yes. We expect volumes to keep growing, both for the industry as well as for Tesla, even in a recession in 2023.

- And so much of that growth, to your point, around the Cybertruck is really around them getting that category, that model that has done so well for other auto manufacturers over decades, getting that approach correctly. And, I mean, it's estimated at this point that they might even have well over a million reservations. And so, you know, how quickly are they going to be able to get some of that backlog solved for? Because it sounds like, based on what we've heard from the company, I mean, this could be something-- a situation where they're not able to fulfill those obligations until 2026, 2027, even.

EMMANUEL ROSNER: Yeah, that's a great question. So, as of now, starter production is-- you know, latest updates from Tesla sometime in 2023, so call it sort of middle of the year-- you know, unclear exactly how much capacity there will be dedicated specifically, you know, to that product line. But assuming that they start with maybe 200,000 or 300,000 units a year, which would be sort of like a portion of the Texas factory, yes, it would certainly take a number of years to just meet the existing backlog of orders.

Now, if, obviously, the orders stick around, and they see sort of good pricing and good reception in the market, they could certainly, you know, ramp up, you know, capacity further, just like they're doing currently in China, potentially ramping this up up to half a million units or so a year, and therefore, being able to address the backlog. But I have no doubt that if someone were to place an order for a Cybertruck today, it would take several years until they could actually get one.