All Eyes on Tesla Earnings, and What Banks’ Results Say About the Consumer 4/19/23

0:01Right now in fast, Tesla shares dropping. The EV maker posting better than expected. revenue has been margins coming in well below what the street was looking for. The incident analysis on Tesla's quarter straight ahead. Plus, snapping into AI, the social network saying it is its artificial intelligence chatbot is attracting millions of users, and it now plans to expand the offerings from its MyAI. So will this be a sticky revenue driver or just another flash in the pan for Snap? And later, what's behind the headache in health care stocks, the options action in the not-so-volatile volatility trade, and the profit warning rippling through the computer hardware sector.

0:34I'm Melissa Lee. This is Fast Money. We're live with the Nasdaq MarketSight. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Bonoan Eisen. Welcome back, Bonoan. Thank you. And we begin with an earnings alert on Tesla. The stock dropping after hours EPS in line. Revenue beat estimates. But after cutting prices six times already this year, margins for the EV maker coming in well below expectations. CMDC's Phil LeBeau is here to take us inside the numbers. Phil. And Melissa, remember, the latest round of price cuts initiated just this week. So what we're looking at are Q1 results here.

1:05So this is just the impact of the price cuts that we're seeing in the first quarter. As you mentioned, EPS coming in line with expectations, a profit of 85 cents a share, revenue slightly better than expected at 23.33 billion. But the story is all about the margins. We said that going into today, the street was looking for margins, basically 20 % or above. This is the margin pressure they're feeling because of these price cuts. Compare year over year. That's a 900-point basis point drop in total gross margins. A little bit better, but still a rough drop for the adjusted EBITDA margins down to 18.3%.

1:42And here's the reason why. Look at the change in pricing. And this is just from the beginning of the year for the Model 3 and the Model Y. Look at that. You've got the Model 3 now down to under$40 ,000. That's the base model price. And you've got the Model Y, which was at$65 ,000 for the entry-level model back in January, now down to$46 ,990. As a result, when you take a look at these results from Tesla, the big question for investors is going to be, where do the margins settle out? Are they going to settle out at 18%, 19 %? Do they have any kind of idea when we listen to the conference call in terms of what they're expecting from the next quarter or two when it comes to pricing pressure?

2:26Remember, they are expecting to deliver, Melissa, 1.8 million vehicles. That's their guidance. They said during this report, and we'll get more on the conference call, they expect to hit their estimate of delivering 1.8 million vehicles. So that's not changing. But the pricing pressure and the margins, that's the story right now. I guess, Phil, the question here is, is the pain worth it in order to gain the market share? You know, in an environment where the others are feeling pain as well, why not just put the screws on their competitors? Well, and I think that's what they're doing. Look, it's much easier for them to put the screws on their competitors here in North America where they don't have as much competition, especially at the lower end, than in China.

3:09China is a much different story. It's much more aggressive in terms of pricing on the lower end. And remember, that's the part of the EV market that's going to be growing over the next decade. It's not above$50 ,000. It's the lower end of the market. That's really where you're going to see the competition. Yeah, especially when you have BYD announcing an$11 ,000 electric vehicle. That's not easy. Phil, thank you. Keep us posted. Phil LeBeau with Tesla here, down about 3.6 % on the back of earnings. Tim, what do you make of this news? Well, I'm never going to be the guy that dies on the Tesla defense hill.

3:40But I have to point out that no one should be surprised that the margins are going down. it. And no one should be surprised that this is their strategy. They believe that they're still, when it's all said and done, going to have the best operating margins in the industry. A couple of different brokers. I looked at, again, I echo Piper. Jaffrey has a report out there where they say every time wait times in Tesla cars go down to four to six weeks, they cut prices. And they cut prices because they know they can and because they think they can outlast everybody else. This is offsetting EV credits that are going to lose ground, too.

4:08So, again, I hate the multiple. I don't need to chase the stock here. It's of all the mega cap tech stocks. It's the one that is still in its downtrend from November of 21. It has not broken back above it. And I don't see that it will. But but today's you know, the margin number today, no one should be surprised by that. And Tesla should be arguing this is exactly what we want to happen. Yeah. Karen. So I think I mean, the stock acts pretty well given. Yes, actually, I'm sort of surprised that it's not down more. So like Tim, I'm not going to die on the Tesla Hill. I wonder, though, about this continually cutting prices.

4:39At some point, do you train the customer to wait, right? If you're a customer who bought a Y not that long ago, you're not going to be happy with this. Five cuts ago. Five cuts ago, exactly. You're not going to be happy about this. And I don't know, might they wait? I'm sure a lot of thought goes into the price cuts, no doubt. But it's a kind of, it should be a worrying trend as we see margins go down, obviously. Yeah, I would argue, you know, along with Tim, that you shouldn't be surprised that you're seeing margins thinner and you're seeing some margin compression, but there was debate about whether or not they were going to be able to maintain around that 19.5%, 20 % margin level, and they're coming in below that.

5:14Keeping in mind that these peaked out around 29 % last year, right? So like year over year, that's almost a 10 % decline in terms of margin. And then when you couple in the CapEx spin that they're wrapping up, right, the further and further that you push this off and it becomes more of a volume story than a profitability story, the creativeness of that CapEx spin gets pushed out. And that, to me, why you're starting to see downward pressure on the stock immediately when a lot of retail investors have a tendency to buy on any type of weakness. Then just one thing to add, though, all of this to get synthesized, what's the right multiple?

5:46Is it in the mid 40s for an auto company? I mean, that seems really high for an auto company in the in the next technology of automobiles. Right. Right. The technology that the others are trying to catch up on. It's got the pole position right now. It's got the edge. And I'm just playing. Nobody's dying on the Tesla Hill here. Certainly not Dan. Before Dan jumps in, because I know he's got a lot. One with the edge of battery technology. I mean, maybe for these reasons, it deserves that multiple. Because catching up on that technology aspect is going to be so difficult for the legacy automakers.

6:21One other thing that, again, I'm not dying on this hill. But, you know, they're talking about growing 50 % CAGR in terms of deliveries. The more they grow, and they said this. They said Q1 profitability was positively impacted by growth in vehicle deliveries despite margin headwind. They're going to argue economies of scale, economies of scale, and we're going to crush people. And again, you know, are they doing it? So far, they're kind of doing it. It's it's that's the argument against it. Economies of scale. All right, Dan. All right, Dan. What do you think? If this was anything other than a cult, the stock would be down 20 percent on this quarter right here.

6:55I'm just going to tell you that right now. This is an investing cult. And so when you look at the you guys are saying that people were not surprised by the margin degradation. Why was the street consensus at 21 percent or something like that? Why is it? I mean, like they cut this week. They mean, I don't know. I mean, I I think a lot of the street expected this. And any other consumer product where it's been an earning story, a margin story, a free cash flow story. If you had an estimate of$3.2 billion in free cash flow and you printed 441 and you had$500 million in regulatory credits in a quarter.

7:25I mean, are you kidding me? Like, this is a joke. I mean, so in any other growth story, when you have this sort of like just turnaround in the fundamentals of the company and you can argue away whatever you want. They've cut their price. How many times in the last 10 years have you guys seen a company cut their prices in a market-leading product six times in 10 years, let alone six months? OK, so listen, have at it, people. Go buy it. I'm sure it'll be up on the opening tomorrow. This stock is very likely to go back and retest those lows. But they are growing. I mean, again, it feels so awful to be going on the opposite.

8:00But this is what we do on the show. So here I am saying they are growing. I mean, they're growing dramatically. I mean, they're growing in terms of their profitability. They're growing in terms of their delivery. So if you think it's a growth story, if they're going to grow at 50 percent a year for the foreseeable and they've kind of been very vague about this. You should buy it right here. You know I'm not saying that, though. I mean, come on. I'm not going to go buy the stock. You can see why people might. Yeah. You can see why people might. Well, they will. And you can't see why people might.

8:26Well, I don't know why this is such a special story. I think that article in The Wall Street Journal the other day talking about this Shanghai auto event where, you know, there's literally dozens of local manufacturers of EVs there. And you just mentioned the Boyd at 11 ,000 or something like that. I mean, they didn't show up because they got nothing new to show. OK, like and they have tons of competition. So I think China is really and we've been saying that on this desk. I mean, China is a real problem for them. I mean, it's a huge problem because so much of their growth is expected to come from there at a time where we've been talking about competition in Detroit.

8:58That's not even the story. The Germans, that's not even the story. It really is about China and future growth. And so, you know, I do think it's interesting last week before they decided not to go to this event. I don't know when they decided not to go to this event, but they announced another gigafactory in Shanghai. But they're also going to start paying much higher taxes and they're going to have much less favorable treatment in China than they have over the last few years in the next few. So, I mean, listen, if your antennas are not up about this story right now from a fundamental basis, then I think you're doing this wrong.

9:27I think the chart is also really important. again. We've seen this inflection where at least somewhere in March, really before we started to see triple Q's, we saw the biggest names in the mega cap tech world outperform the S &P and actually break out of a downtrend that was very defined either from November of 21 or January of 22. Tesla has not done that. It's had a few moments where it's gotten. But again, it got smacked down at 200. It got smacked down at 260. And you look at this chart all the way back. It tells me it's going to continue to get smacked down. So, no, I don't want to chase it.

9:55But I and I it's just interesting to me for a company that nobody cared about fundamentals for a long time. And I argued that side of it, too. I mean, I found the company to be and I don't trust anything they say. Like, I think the corporate governance dynamics here are things that that really make it frustrating to follow this stock because they they've sent a lot of misinformation. No one cared about valuation. They cared about the fundamentals and they were right. And you were talking about this, this free cash flow story and their ability to kind of work on that balance sheet. OK, let's be fair.

10:23OK, they are not in a situation where many of their competitors are, where they're burning billions and billions of dollars. But they've got 22 billion of cash and cash equivalents, as they just said, on their balance sheet right now. Totally. But my point is, it's like all of this happening without a recession. So think about what happens to this company that has a very high price point. They've told you, we know they have a high price point. They keep cutting prices on their cars to be more competitive with some of these other providers. The last point I'll make is the conference call is going to start at 530.

10:51And you just said it. You don't trust anything that they say, they are going to be overly optimistic about their ability to then have some pricing power once they recapture share, once they get some of these factories going. That's going to be the story. And that's probably why you'll see in 40 minutes, we're going to be talking about how the stock is. We'll mention new products. They'll have a couple of dangle, a couple of sweeteners. We're just in a new environment. We're talking about the past and you talked about Tesla coming down from whatever, whatever it was, 400 to 300 to 260. we're in an environment where it was growth and it was growth at any cost.

11:22And we have drastically shifted. And I think to Dan's points and both of your points that you've made there, I think now, like you said, it is all about scale. They are admitting that we can no longer continue this narrative of growth at any cost and expect to protect margin or to protect valuation. So they are going all in on CapEx spend. They are going all in on being able to scale. And to me, that really is the transition story now. I don't know what else you would expect them to do when we're seeing margin compression across the board. They have no alternative but to go and compete at the lower end of the market and try to blow competitors out of the water because that really is the only story that leads to continued growth that investors are going to be willing to pay for.

12:03By the way, Ford was down 4 % today. I mean, it's not like the auto sector is on fire. Yeah. And if we call this a car company, I'd call it a car company. It's not been a great time for Ford or GM or, you know, look across the pond. Yeah. For more on Tesla, let's bring in our fast money friend, Gene Munster, managing partner at Deepwater Asset Management. Gene, great to have you with us. We've been having a robust debate here on the desk about Tesla. Where do you think we are in the Tesla story right here, right now? So right here, right now, we are challenged. The company's margins are going down a little bit more than what investors had hoped.

12:35That critical metric was EV gross margins, ex-EV tax credits. That came in at 19 percent. It could have been 20 percent based on some accounting of some advanced credits for manufacturing. We'll have to wait for the call. But that's an important distinction. People are going to view this this quarter. If it could be a 20 percent number, investors will feel good. If it's 19, they don't feel good. So to answer your question near term, they are feeling the pressure here and it is impacting their business. And I want to jump back to an important point that Dan made about the cult piece of this story.

13:10And I think that is the reason why cult followings happen on growth companies is because a group of investors believe in where a company is going. So it's beyond the current quarter, to your point, Melissa. And I think that's really the hinge factor and going to be the X factor here in terms of how this plays out. If, in fact, they can proceed on their growth, we can talk about what that growth strategy is. I think that the stock moves higher. And I think that's ultimately it's going to drive, I think, some of the Tesla bears mad here over the next couple of years, because there will always be this carrot out here because they're getting into some massive markets.

13:49Always this carrot out there that Tesla is going to be able to turn the corner and really hit some new growth vectors. So, Gene, you know, again, a five hundred and seventy billion dollar market cap company that's down from one point two trillion at the end of 2021 here. And again, you know, you just heard us kind of talking about this. I mean, there is clearly a change in the fundamentals in what's going on with the company. You know, even when the stock was careening lower in 2022, they weren't cutting prices there. And they sounded pretty confident about their ability to manage supply chains coming out of this uncertain period.

14:20They're still calling it an uncertain period. And we haven't even had the, you know, the recession that we're all expecting. So I guess my question to you is you've covered high growth, high valuation, you know, tech companies in the past here. What's different about this one? Because as long as I've been in the business, every single time there's been a special story like this with a special guy like Elon, it's always come undone. And I'm just not certain down 55 % really means that that's it, that it's come undone and that's it. And we get back to, you know, just like not caring about valuation and let it start working again.

14:54Well, I'm not certain how this ultimately plays out. But one of the reasons why I think what's most important here is just the trajectory of margins and growth. And you're absolutely right, is the fundamentals have not looked good. This has been a downward trajectory, especially on margins. But to answer your question, what could reverse this ultimately, is that I still believe, and this is going to be one point that's going to be hard to probably shake me from. I want to be level-headed in all this, but I still think traditional auto is in a tough spot. Ford's, their E-division's losing$35 ,000 in a car.

15:27They're just ramping up on there. Tesla's making$10 ,000 per vehicle. So to answer your question is, if they can continue to do what they're doing, being profitable at going after what I see as some large addressable markets around energy and transportation, storage, I think that the story can turn around. And so the Elon factor, agree. He's a wild card. But I think the markets that they're going after are so big that this company can continue to move higher. But, Gene, going back to something that you said earlier, basically in the next hour or so when we get clarity on this margin, If that margin moves to 20 percent because of advanced credit, then we can say that it actually met expectations.

16:05It could be a completely different story for the stock. Yeah, I mean, we are splitting hairs around that. Another factor on the call here is related to Elon's comments about their growth, if Elon's even on the call. But last quarter, of course, Elon did a very Elon-like thing. Their guidance was 1.8 million vehicles. And then on the quarter, he said, I think it's going to be closer to 2 million. They reiterated their 1.8 on the just reported numbers. Is he going to reiterate his 2 million number for the full deliveries for 2023? That, along with the margin, that margin detail about advanced credits, that's going to probably make or break the stock tomorrow.

16:39But longer term, it's can they successfully scale into what I see as large markets? All right. Thanks, Gene. Keep us posted on any developments, Gene Munster, Deepwater. Dan mentioned cold stocks that always come undone. Do they always? Yeah. How about Apple? Listen, Mel. Wasn't Apple a consult? 20 years ago, every NASDAQ. I remember getting hate mail constantly whenever you said anything bad about Apple. Yeah, and it's gotten cut in half numerous times over the last 10 years. But it's kind of a different business. Here's a company that's been able to maintain 40 % gross margins for that entire time.

17:13And they have 90 % of the gross margin in the smartphone business. But they were doing that at production of no vehicles, right? I mean, that's the argument. I also think that the getting credit for being a more efficient, higher production producer is part of what goes on at any company. But, you know, like Netflix was a cold stock that got knocked off its pedestal. I think Amazon's a cold stock that got knocked off its pedestal. Some of this is just economies of scale. Obviously. And then recovered. But I mean, I'll buy the stock at any multiple. No longer works on Amazon. And it doesn't work on Netflix.

17:48So, I mean, at some point, valuation does matter. And what I find interesting is that even the biggest, most ardent bulls are now referring to this as an auto company. It's not about batteries. It's not about storage. It's not about data. It's an auto company. And I think it's too expensive. Listen, it took 14 years for the Nasdaq to get back to its bubble high. Look at a Microsoft chart for the entire 2000s. It went sideways in the tightest range imaginable. OK, so all of these things, if you look at Google, there were times, you know, this stock went sideways, you know, down considerably from their all time high.

18:20So to me, just because this thing shot up 10 ,000 percent and then lost 75 percent and now it's up, you know, 70 percent or something like that, it's still down 55 percent from its highs. And the fundamentals are about as bad as they've been in the last, I want to say easily in the last five years, other than the period of the pandemic where every company had very little visibility and their business models were up in the air. So after the break, we've got more after hours action coming your way. Shares of IBM, Las Vegas, Sands both jumping after releasing results. The details from the quarter's next and a major snap score.

18:52The company pulling in millions of users for its new AI subscription service. What it could mean for the stock and details from its developers conference when Fast Money returns.

19:08Welcome back to Fast Money. Las Vegas Sands jumping after hours on earnings and revenue beat. The company is signing a robust recovery in its Macau and Singapore markets. Let's get to CNBC's Contessa Brewer. She's got all the details. Contessa. Melissa, the call just wrapped up while we were in commercial break. CEO Rob Goldstein must get so much joy out of saying this out loud on the call. A powerful recovery underway in Macau. Business is back. His quote, Macau is in its infancy, he says, as far as the return to a more normal operating environment. So, you know, early days, Goldstein says if this is golf, this is actually the driving range and you haven't even gotten to the T yet.

19:43For one thing, labor has been a real problem. Hotels have not been able to open to capacity down by more than 30 percent. But by summer, LVS says the labor challenges will smooth out. It likely won't be a challenge, they predict, for anyone in the market. And Goldstein says he was pleasantly surprised by the amount of business Macau is already getting from international Asian high end customers without taking away from what Singapore is doing. And to Singapore, which has had a year's head start on reopening adjusted property EBITDA. That's the key gaming metric for earnings at 93 percent over the same period of 2019.

20:22It set property records in some categories for gaming and profit margins here of 47 percent. They seem very optimistic that there's a lot of room to run here, Melissa. Wow. Contessa, thanks. Contessa Brewer. Tim, LBS. So Karen and I were talking just for the show because we're geeks like this. How much of their revenue is coming from Macau? It's 91 percent. And if you think about where we were, where we've come from, and also, as I said last night, the renewals of the licenses has been such a big driver on top of what's been going on. Why you don't expect eventually Macau to open up? I realize China's reopening from COVID was the most clumsy, bizarre event that played out multiple different times.

21:02But this is a story that also, if you look at the chart on this, where it was running up against$60, I think this is your breakout. And again, the valuation is not crazy cheap anymore. At its low, it had lost two thirds of essentially the EBITDA multiple. And you've taken a lot of that back. But to me, technically, this is a really important time. And China GDP the other night, better than expected what we're seeing. And if you read a number of different brokers talking about where Macau GGR will now be at the end of 24, where it was pre-revenue, pre-pandemic, you stay in the stock. GGR meaning gross gaming revenue.

21:35Thank you. All right. Another earnings alert here on IBM shares. Also higher after posting an earnings beat. Revenues, however, did come in below expectations. Our own Frank Holland is listening in on the call. Frank. less artificial intelligence and ibm's experience using it in enterprises and business that was really the focus of ceo arvin krishna's remarks he just wrapped up a short time ago and he wasn't shy about dropping the name of some headline customers like the boston red socks and the cleveland clinic so the software business and red hat where ibm offers ai and hybrid cloud that was really the story of this quarter consulting was in line and i'm expecting some commentary later on in the call about the global demand for consulting, this after some layoffs at Ernst & Young.