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Tesla’s stock split doesn’t change ‘the fundamental view’ of the company: Analyst

Tesla shares soar after the automaker set a five-for-one stock split. Oppenheimer Senior Research Analyst Colin Rusch joins Yahoo Finance’s On The Move panel to discuss.

Video Transcript

ADAM SHAPIRO: Shares of Tesla are moving higher right now, up almost 10%. This on the news that was announced yesterday of a 5-for-1 stock split. That will take place after the closing bell August 31.

To help us understand where Tesla is heading, we invite into the stream Colin Rusch. He is Oppenheimer Senior Research Analyst. And what do you make of this move? Is it going to hurt anybody or is it going to help everybody?

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COLIN RUSCH: You know, I think it's a bit of a neutral or maybe a slight positive. You know, the stock is consolidated a fair amount in the last couple of weeks after earnings, which I think was a much overdue rest after the sharp moves that we've seen this year. And so I think at this point, it puts the stock at a different level where a few more people can buy it. You know, as we evaluate, or you know, S&P 500, [INAUDIBLE] how and it gets integrated into the index. That may ease some of the liquidity concerns around getting enough stock in the index.

And so I think net-net, it's a positive, but really doesn't really change the fundamental view for us from a technology or market perspective.

JULIE HYMAN: Colin, it's Julie here. Something that I keep trying to wrap my head around, both after Apple's news and now after Tesla's news, is the motivation behind this at a time when people can buy fractional shares, right? So the accessibility is no longer really an issue or an argument for splitting a stock. Is there just something psychological about being able to afford to a whole share instead of just buying a piece of a share?

COLIN RUSCH: So really, that may be, you know, beyond my pay grade in terms of the psychology of owning whole stock versus fractional shares. I think for many folks, that may be the case. You know, really, at the end of the day, I think you do kind of want to own a whole share if you're a retail investor. But you know, I think that's really about an education level with, you know, somewhat sophisticated investors or retail investors.

ADAM SHAPIRO: You raised the price target on this stock, and I'm curious, though, we know they're profitable, but their cars are still more expensive than the average American could buy. So where's the return going to come going forward?

COLIN RUSCH: You know, there's a few really important things that are driving our view on the company. So first, we think there's a real significant move from consumers toward sustainability. And we're seeing that, you know, whether it's in consumer goods or, you know, home purchases, solar as well as on their vehicles. And so we think there's still a fair amount of pent-up demand.

On the production side, we're seeing some really critical technology differentiators. So first, on the factory throughput, Tesla's really accelerating the throughput on their factories and getting a lot more vehicles out of their existing capital investments. And we see that accelerating as they go forward and put up new factories.

More importantly, on the [INAUDIBLE] vehicle functionality side, there's two key areas for us. One is on the [INAUDIBLE] their updates, you know, we had expected a lot of the OEMs to be able to catch up on that functionality. And it's really taking them far, far longer than we expected. They're at least a couple years behind on that functionality. And it doesn't look like we're going to see that really in a widespread way for another two to three years. And so that really, I think, helps Tesla in terms of being able to speak to consumers and help them understand that their cars are going to change and improve functionality over time.

On the powertrain, we think they have some substantial advantages around battery chemistry as well as the power electronics design, which is just going to make the cars cheaper versus other [INAUDIBLE]. And we think that that lead is at least two to three years.

And then the last piece is really that they've got almost a million vehicles on the road right now collecting data for their advanced driver assist systems, which is on a road map toward self-driving vehicles, and they're collecting data. And so when we look at the number of vehicles that they have on the road versus competitors, you know, a million vehicles versus, you know, call it, best in class, 2,000 or 3,000 potentially, they're really at an order of magnitude higher in terms of data collection, which I think is going to help them extend their lead on those navigation systems and also continue to capture value [INAUDIBLE] consumers.

ADAM SHAPIRO: And you brought up the issue of sustainability. Are there going to be able to turn the technology they get from these automobiles into, you know, perhaps batteries for our homes? Is that anywhere down the road that would creating, generate revenue for them?

COLIN RUSCH: That's actually now, right? So you know, they bought Solar City to have a channel out to consumers for solar plus storage. They've got the battery technology right now and are leveraging their sales channel to actually sell solar plus storage, you know, in a light touch way, which helps them reduce some of the cost.

You know, they haven't really grown that channel in a couple of years. And so just one thing that we're watching as an option for the company, historically, you know, battery producers have not been a high margin business. What we're seeing now is a migration with the backup power and having folks be able to really have their own fully functional micro grids at their homes. That's becoming a reality. And that's something that I think Tesla is clearly one of the leaders at, both from a functionality and a cost perspective. We don't really have that built into our financial model at this point, but that's certainly an option for them, from a growth perspective.

ADAM SHAPIRO: I have a feeling we're going to be talking about the term we just heard from you, fully functioning micro grids, as we look at this sustainability issue for investments going forward.

Colin Rusch, Oppenheimer Senior Research Analyst, thank you for joining us On the Move.