Tesla Reports Results… And A Rising Star In The Athleisure Space 10/23/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Apple hit on iPhone demand fears. NVIDIA and the chips feeling the pain. All the while, yields keep climbing. Could this be the start of a fall fade? We'll debate that. Then we'll get the latest on the E. coli breakout at McDonald's. Go inside the luxury warning from Caring and dial up a bright spot on a bad day for stocks. All that plus a pulse check on the consumer. With the CEO, Viore, they are the athleisure disruptor some people are calling the Lululemon killer. I'm Melissa Lee coming to you live from Studio B at the NASDAQ.

0:47On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. We start off with an earnings alert on Tesla. Shares of the EV maker moving higher. The company posting earnings of 72 cents a share. That's well above estimates. The earnings call kicking off in just about half an hour time. Phil Ebo's got all the numbers from the quarter right now. And margins, they were a stunner, Phil. They were, Melissa. And I think that's the main driver here. There was a lot to like in this Q3 report, both in terms of the numbers in the Q3, as well as the outlook there. So let's go first off with the earnings per share.

1:18You mentioned 72 cents a share. That is 14 cents better than what the street was expecting. That's one of the drivers for the stock moving higher. Revenue came in just a smidge light, but this is not a miss by a wide margin on revenue. 25.18 billion. Street was expecting 25.37 billion. And the automotive gross margins, whether you include zero emission vehicle credits or you exclude them, they're better than expected. Most were expecting them at around 15%. They're coming in closer to 19, 19.5%, depending on what exactly you put into the automotive gross margin calculation. Energy storage deployments more than doubling this year versus last year.

1:58And they also have given some guidance on the more affordable models that they have been teasing us over the last couple of quarters about. They will be going into production in the first half of 2025. That means for 2024, deliveries this year, they're not going to be impacting deliveries this year. They're not going to happen this year. And the expectation is that they will have a drop in deliveries for the first time as a company, really going all the way back to when they had meaningful numbers. $1.75 million is the expectation. But generally speaking, when you look at this report, as you take a look at shares of Tesla, And again, moving higher, Cybertruck, positive gross margins for the first time.

2:40Melissa, really across the board, if you are long on Tesla, there's a lot to like in this report. We'll see what Elon Musk has to say coming up in about 25 minutes. Yeah, it's always an interesting appearance by a CEO. Phil, thank you. Phil LeBeau. In addition to the margins, which Phil mentioned, you know, they're very strong. Ex-auto credits, it could be more than 100 basis points, depending on exactly how you calculate it. automotive gross margins as a whole, 200 basis point beat. I mean, these are just firm beats. Yeah, ex-regulatory credits and margins were still 17.1%. Good for them. I mean, the number that, aside from margins, stuck out to me.

3:16Free cash flow, almost$2.75 billion, which was twice what the street was looking for. Okay, so how do you trade the stock? First of all, full disclosure, I didn't see this coming, but where does it go from here? So if you go back and look, we topped that around 263-ish in July. We traded up there in September, I think. We've obviously come off quite a bit. I mean, that's the level that off the back of this earnings report it should get to, Mel. Cost of goods sold lowest ever as well,$35 ,000 per vehicle. How do they get there? I mean, listen, you know, if they're not going to be on units this year, I mean, to me, I don't know how you get that sort of leverage.

3:50But, again, last night you asked us, you know, what is this stock going to be graded on? It's going to be margins. So, like, it looks like the automotives are better. It looks like the gross margins are better. Are we focused on the fact that, you know, their margins on both of those were coming in in line with GM, you know, and this was yesterday after that huge report. The other thing, you know, that folks were very focused on going into the robo taxi event last week was a lower end EV at twenty five thousand dollars. That's what they're suggesting it comes in at. You know, there's not a single EV that they've come out with in 10 years when they put the price point on.

4:22That's what it actually costs. So we'll see and we'll see what sort of demand is. And I'll just say this about the stock. It's trading about two thirty two here. Again, this is after hours, and who knows what it's going to trade tomorrow. That gap lower, that 10 % gap lower after the robo-taxi, was from 240. So it's trading at 232 right here. So it'll be interesting to see how far it could get going into this sort of thing. I think, Guy, I think your estimate, 260 or something, is that what you said? I think it's a little optimistic. Yeah, your take. Well, I think it's all about gross margin. And depending on how you're calculating, it doesn't really matter, because you're still about 250 basis points over where the street was on consensus.

4:56You're still about 180 basis points better than the last quarter. So the trends are good. This is the issue, though. I just think there's a lot of there's a lot of sloppiness. There's a lot of unevenness in these numbers. In other words, to say that this is where gross margins are going to be, it's hard to know. Clearly, we knew gross margins were going to be under pressure. That's why this is such a surprise. Part of what it does for for at least medium term traders is, you know, this is a stock that a lot of people are saying there's not a whole lot of good news coming outside of some surprises.

5:26on the headline stuff. But in terms of operations, in terms of that turn until you got into the middle part of next year, maybe it's happening sooner. I mean, the price of EV and battery inputs and things like that are coming down. There's no question about that, whether that's also some dynamics of just they were higher than they should have been. And as demand picks back up again, you might start to see a squeeze again. But gross margins are what everyone was looking for. I think we knew deliveries and we know where deliveries are going to be. China, we have to hear about. We still have to worry about the competitive landscape.

5:55those are going to be issues. All right. Karen? Yeah. Well, as I said, margin is really the issue here. So that was a big beat. I was surprised, actually, by the strength of that. I want to look through the cash flow, free cash flow, which actually looked good as well. Very good. 2.74 billion. Which was a very nice beat. So that's clearly a good thing happening. So the stock, I think, had been 260 maybe recently. So it was sort of set up nicely for a beat because it had come in a very long way. But still, I'm surprised by how strong these were. I mean, you had sort of this conspiracy. Why didn't they talk about that lower end vehicle last week?

6:32Listen, I just find it pretty curious. I mean, when you think about the sort of price action of this stock and you think about the things driving, a lot of folks out there say it's not an auto company. It's not an auto company. This thing is trading off of automotive gross margins and it's trading off of a low end EV. So it's got a$700 billion market cap. Just go look at what GM, you know, it's a$60 billion market cap. Obviously, there's a lot of debt there. So a higher enterprise value. But like at the end of the day, it's just not that compelling as an auto company, in my opinion, right now, until they can actually more clearly lay out this vision for autonomy until they can get full self-driving, not supervised.

7:06You know, those are the things that I think that a lot of folks are valuing it right here. And I don't know if it deserves to be that robotics and all this other. Does it deserve, though, a premium because it is in the lead on those fronts. Premium. Premium. I mean, like, so here's a stock that trades, like, all the other auto market caps combined in the world are less than this one, and then you think about it, it's still down 50 % or so from its all-time highs. Should it trade at the same multiple as GM? No. Of course not. Okay. Should it trade where it is trading here? I think it's expensive, but, I mean, this is a trade.

7:41I mean, valuation has never really come into play on anything you do with this stock. So, again, you've got to give them something. I mean, their energy generation, their margins there were 30%. The street was at 23%. Their services, which is, I think, a$2 billion business, almost 9%. So they're operating better regardless of what I think of the company. Good for them. And it's been in this range. You know, we mentioned 263, I think, the level in July and the level in September. This quarter alone should sort of get the stock there, I would think. I think about the marginal investor in Tesla, who's the next dollar to allocate.

8:15And I think, obviously, there's room for another dollar to come in based upon where I think the sentiment is around this stock. It's one of the great trading stocks in the market. I was just counting. I was playing around. There's probably nine moves of 40 percent or more in the last two years. Is this one of these moves that's sustainable? Hard to know. I don't think that you make that call off of one trading move in the after hour. But I think from terms of sentiment and terms of where the gross margin profile came in that was so far in advance of where people were. Dan's right. Where did this come from?

8:44I don't totally know. I don't like Tesla here because I think the valuation is something I can't really get behind. Let's get more with Fast Money friend Gene Munster. Gene, you heard the conversation here. Where did it come from? And to Tim's point in terms of lumpiness, this looked like a great quarter. But we don't know. We have no idea what next quarter is going to be. And that's sort of the rollercoaster ride that I guess investors have to just expect. I want to put a little bit of context on next quarter is that they did give some guidance related to what the revenue is going to look like.

9:15They said that they expect deliveries for 2024 to be up slightly. That basically implies 10 percent growth for the December quarter for deliveries. The street was at 0.5, so call it 1 percent growth. So their outlook for December was a surprise. I was expecting the profitability to actually be below the street. I was not expecting them to move up. So as somebody who's optimistic about this, this caught me by surprise, kind of the strength in these numbers. I do want to highlight that important point on the profitability. The 17.1%, that auto X credit number, that critical number that we've all been talking about, that did have a benefit, a one-time benefit of some of the cyber truck FSD recognition.

10:01We'll hear on the call how much that impacted. So I suspect that there's going to be some dial back on that. Either way, it still likely will have beaten where the street was expecting for the margin number. What's your number one question going into this call? number one question is uh this what this new vehicle uh looks like and ultimately is it just like a adjustment to model three that's what i'm going to be focused in are they going to give any color the reason they didn't talk about that at the we robot event they don't want to show an image of a new vehicle coming and slow existing sales so it makes sense that they held it to this form and hope to get some context in terms of what that vehicle actually looks like should we assume that this is basically it uses the same sort of chassis or parts as a Model 3 so as not to have to create a whole new line in a factory or mold entirely whole parts?

10:58That's generally where consensus is at now is that they're going to have to use the existing. They don't want to, as you said, kind of spin up Giga Mexico. That's probably not going to happen. That would be the case if they were making progress on Giga Mexico, which they're not for kind of a smaller two-seater. So I think it's optimistic to think we're going to see that. Initially, I thought maybe because they're building some of them for the cyber cab, but I think that investors should probably put their head around a stripped down model three here to get to this. I like what Dan said, they're not going to hit the$25 ,000.

11:29It's probably going to be 30, but keep in mind, this is the part that blows me away and that I think investors should be contemplating here. They've cut their costs by 6 % year over year on doing EVs. They're making money on EVs. Other car companies are retreating. They're doing that with some of these lower cost vehicles. ASAPs are down 6%. What this all means is they're doing all the right things to prepare for the future to build electric cars. And I think this is still a major problem for traditional auto. How are they going to solve this when they're not investing in production of EVs? Hey, Gene, it's Karen.

12:03Thanks for being on today. What are you expecting to hear about China? It's kind of fallen below the fold here. And so it ultimately, I think what's most important is that they see growth in China. And so like, when are they going to see growth? That has been a headwind. So call it China's about 15, 17 % of overall units right now. And so it's important. I like to hear about growth, but it kind of falls below the fold. Hey, Gene. So you talked about that margin improvement benefiting from cost of goods sold coming down. Like, how do they get there? If you think about, like, you know, raw materials and shipping and all this sort of stuff, have they come down that much that would help, you know, the margin?

12:47So just help me with that. Because, again, in a year where you're going to have deliveries, you know, in line to probably a little bit less, how do you get that leverage? I'm just curious. So one way you get it is by improving production and the efficiencies around the Cybertruck. That's been a huge drag. So by just streamlining that, you get some of that benefit. So keep in mind, the ASPs are down 6 % year over year, and the cost per vehicle is down 6%. So not only did they lower prices, average price now of a Tesla is$42 ,000. Average price of a new car in the U.S. is$47 ,000. So to answer your question, Dan, how did they get there?

13:24The answer is that I think a lot of it was related to what's happened with Cybertruck. Gene, we'll check back with you when the call starts. That's in about 15 minutes' time. I do hope an analyst asks about what happens if Donald Trump wins and if he actually leaves the company. But we'll see. We'll see. That's sort of another outlying factor to share. I mean, you know, nobody's a shareholder here. But if you heard that Elon Musk is going to step away from the company to join the Trump administration. I think he would say he could do both. Seriously. Of course he will say it. He will say that.

14:01Well, if that's the concern, right? He's got a lot. I don't see how you can do that. If you're not allowed to hold stock in a company actively, and put in a blind trust. And put in a blind trust. How can you run a company? Right. That hasn't stopped some of the things we've seen go on. Yeah, I agree with you. The norms are no longer the norms. So I think what historically made sense no longer does. So I think part of the agreement, my sense would be I get to do both and they probably let them do it. That's nuts. But anyway, we'll get much more on Tesla in a few minutes. Again, the conference call starts in just about 15 minutes time.

14:40A lot to go over on that call, including the point that Jean raised about the automotive gross margin X credit, 17.1 percent. What kind of benefit is it getting from cyber and how much is going to be stripped back from the 17.1 number? We will see. Meantime, let's get a check on the broader markets. Nasdaq snapping a five-day winning streak to lead the losses. It was down more than 2 % at lows. The drop led by mega-cap technology NVIDIA dropping nearly 3 % after hitting an intraday high just yesterday. Meta and Amazon seeing outsized losses, too. And Apple salaried today on an analyst report. Go ahead.

15:14I feel like a Granny Smith. Weak iPhone 16 sales. The report saying Apple slashed production for its newest device by about 10 million units. All that as yields continue to rise. Tim, what did you make of the action today? Well, I'm not going to say a day and a half of heaviness, and it's not even that heavy in a world where everybody's focused on Armageddon in the rates markets, when, in fact, the rest of the world's rates have also moved up with ours. So I don't know. I'm not too worried about the price action today. I think if getting to Apple, you know, Apple heaviness in terms of what they're seeing in terms of iPhone sales, the word at least coming through is that ultimately, you know, orders of at least the new AI featured iPhones or the features that at least would give people the reason to go out and buy it are down and not what people expected.

16:05The question is really if you buy Apple today, if you've bought it in the last, say, two months when it's made this move from 195 to 230, do you really think that that's in the price? I mean, I think it really gets down to a place where the market is looking at Apple, their services business, their margin profile, the capital markets, and the fact that the stock has done zero in a world where the equity markets have moved a lot higher. I think that's been the story for Apple. So the iPhone story in terms of the AI and the refresh cycle, I don't think is in the stock price right now. Therefore, I'm not too worried about this headline.

16:36Yeah, I mean, the analyst Ming-Chi Kuo was saying that there is no evidence that Apple intelligence is driving any sales. And that's sort of your point. There is no Apple intelligence right now. And, you know, interestingly, so the whole notion that there's 300 million iPhones that haven't been upgraded in, you know, three years, that sort of thing. Again, that's great. We've heard about the super upgrade cycles for a very long time. They really don't materialize. But iPhones have been growing at low single digits for years now. So if there's finally a reason to do it, I get it. OK, but it's a 2025 thing.

17:05We've been talking about that for a while. Here's the other issue. Right. So China is 20 percent of their sales. And so, you know, they have a new phone out in China. There was some talk, I think, a week ago that their sales were up 20 percent in China. Right. Apple intelligence will not be in China. OK, so it's just not going to be, you know, the firewall, the whole thing or whatever. Now, at some point, might they kind of partner with a Baidu or an Alibaba and have some cloud stuff there and then some of the software intelligence? Maybe. But if China is a really big part of this, so that's not happening anytime soon.

17:34I don't mean to get I'm not particularly bared up on this. And Gene will come back on and he'll tell us the story is going to be 2025 and 2026. The mix shift of all of these services are going to be built on top of these AI models. That's when they start getting a larger share of that. And then it helps this 46 percent gross margin probably get above 50 for the first time ever. Right. By the way, Tim Cook was in China today, probably trying to smooth the way towards some sort of partnership for the AI part of the business there. Karen, that's going to be critical. It's going to be critical and difficult, I think.

18:08I mean, there again, so does the election make a big difference? Do we have do we have a, you know, sort of difficult relationship with China either way? Maybe. I don't know. But you could see Trump maybe being more hawkish. But also, I mean, I agree with Dan. It doesn't really matter right now what the sales are because we don't have the product yet. And so I think any numbers that we hear with their light or whatever, I don't think they really make much difference in the long run. We've talked about valuations all the time. I mean, 7.5 % EPS growth-ish. Yeah, no, that's, excuse me, 7.5 % revenue growth, 11 % EPS growth, margins that have flatlined to slightly higher at 31 times next year's numbers.

18:48Now, the good news, to Tim's point, the services side is a bigger portion of revenue. I think it's north of 25%, so it deserves the premium multiple. But the move from 193 to 237 or so predicated all on that June 10th, to a certain extent, I think is a little overdone. All right. Coming up, more earnings action to bring you shares of IBM, Las Vegas Sands, and more on the move after reporting results. The details from those quarters next, and it's not just IBM. Back in two.

19:15This is Fast Money with Melissa Lee right here on CNBC.

19:31Welcome back to Fast Money. We've got another earnings alert on IBM. Shares dropping after the company beat earnings estimates but missed on revenue. Seema Modi's got the details. Hey, Seema. Hey, Melissa. So far on the earnings call, analysts are focused on IBM's consulting business that contributed to an overall softer revenue picture. CFO Jim Cavanaugh telling me clients are reprioritizing technology spending away from low return on investment projects and reinvesting that money in Gen AI proof of concepts. He also cited a choppy macroeconomic backdrop. Now, what is working for IBM is continued strength in software, with revenue increasing 10 % year over year, driven in part by that acquisition of Red Hat and generative AI bookings, topping$3 billion in the quarter, more than a billion higher than the previous quarter.

20:16Kavanaugh says clients are looking to use AI to increase productivity and enter new markets. Shares of IBM pulling back slightly after hours after hitting a record high last week. Still, the stock has vastly outperformed its software competitors so far this year. Melissa. All right, Seema, thank you. Seema Modi shares down about 3 % right now. Just yesterday, we got SAP earnings. Everybody thought it was a good precursor to IBM here. Maybe not. Not horrible. I mean, I think the revenue, slight miss on the revenue side. Maybe people are looking for more on the AI side, although I will tell you, I think$3 billion is a pretty significant rise from last year.

20:52The redhead integration clearly going well, but not good enough given the run that the stock has had. It trades at 24 times next year's numbers-ish, which is not cheap. So maybe a pullback is in order. Tim and Karen are laughing at me. Did you say redhead or redhead? I heard redhead. That's what I heard. But I knew what you were talking about. Redhead. You've been talking about the redhead. I don't even need to get into that. I only heard redhead. I mean, redhead, redhead. I mean, in the context of our media, it's redhead. When is the last time this stock has traded at a market multiple and they're expecting 5 % earnings and sales growth?

21:23So I think there's probably faster-growing stories that you'd rather pay 22, 23 times for. Now I'm wondering why I'm thinking about – I mean, did I really – I have to go back and look at the tape as they said. I heard redhead. I heard redhead. Karen and I both heard redhead. So still with the redhead? Still? We listen. We're going to move on. I mean, you know. I'll say this. The Red Hat acquisition back in 2018 was something that everybody laughed at the price. But now it turns out that Red Hat is exactly the kind of move that they needed to make. And honestly, I think there's a reason why this company is trading at a market premium when it used to be at a major discount is the fact that they've got a services business that's always kind of been there.

22:01This cloud dynamic puts them in the game. The argument here around some of these things we're seeing on the headline around discretionary spend affecting their consulting business. Do you really care about that if you own IBM here? So a 90 % move since May of 23 is part of the reason why the stock needs a reason to pull back. It's not like I'm a raging IBM bull. I'm just telling you that the moves that they have made quietly have not gotten a lot of attention, and yet they're the ones that are paying dividends now. This is all part of a search for a legacy technology company that is going to participate in the AI story so you can pay a lower multiple for a growth story.

22:36This is not the one that you picked, though. You picked Dell over IBM. Yes. Yes. I mean, it's a very different business model. Right. I guess I think of well, to me, Dell was somewhat cheaper. It's now it's somewhat more expensive. But I think I don't know. I'd rather be in Dell. I feel like just the history of IBM sort of being it weighs too much on me. I give it too much. The history of IBM being the history of IBM being financial financial rejiggering. Right. Spending all of that money on buybacks. Well, ultimately, it did trade higher than it ever was. So I guess you could make the case that theoretically it was worth doing.

23:11But they, I don't know, seemed to be late. Remember Watson? Watson was like so cutting edge. And this is so old now. But at the time, the idea of it. The stock's been a beast. But the stock's been an animal. After years and years of not being an animal, right? Of course. Right. What could they have done with that money instead? There's skepticism. But I'm giving them too much of a penalty for that. No, there's skepticism because every major computing trend over the last 20 years, they've talked about Watson and what that was going to do for them. I mean, they had a commercial five years ago how Watson was tracking over the blockchain tomatoes moving around the world.