Why Tesla stock will rise for the ‘next decade’: Expert

Gerber Kawasaki Wealth and Investment Management CEO Ross Gerber joins Yahoo Finance’s Akiko Fujita to discuss what’s ahead for Tesla as the automaker’s stock reaches another record high.

Video Transcript

AKIKO FUJITA: Tesla shares hitting a new high in the session today. That stock is up about 4% today, but up more than 20% this week and up about 50% since the stock split was announced. Let’s bring in Ross Gerber from Gerber Kawasaki Wealth and Investment Management.

Ross, how do we explain these moves? Is it really all about the stock split? Is it about the Battery Day? Why have we seen such big gains in the stock?

ROSS GERBER: Well, I think we’re seeing a confluence, or almost like the perfect storm of things that make a stock go up, from rampant speculation with individual investors who have made Tesla kind of a cult name. Secondly, the company is executing brilliantly right now. So their earnings report really started this rally, where they proved that even despite the pandemic, they could make money and grow the business.

I mean, that’s incredible operational success, followed by Battery Day. So I do think part of this has to do with Battery Day. In a month, Tesla is going to announce what I think will be just groundbreaking technology, bringing up the capacity of batteries by some sort of multiple, maybe 10x. That would really change the game for not only solar power, but for the cars, too.

And so the stock split is a symbolic thing that I pushed Tesla and Apple to do, because I think it’s great to have individual investors who can afford the stock. But I think because it’s so rare, investors took it to be a much more positive symbol than it really is, because it’s become so rare for companies to do. So they really have a perfect storm right now with everything going right. And if you go back a year ago, where everything was going wrong, I can tell you, It’s been a long year, but I’m pretty happy to be making money.

AKIKO FUJITA: Yeah, I mean, to your point, the stock split didn’t really change the company materially in any way. But it certainly lifted the sentiment around the company. I want to talk about Battery Day, because it seems like when you look at all the bullish calls, the bullish notes that have come out over the last several weeks, it is really about Tesla and the potential to own the entire stack when it comes to EVs.

I mean, how realistic is this when you’re talking about the potential in the medium term? They’re certainly going to have to ramp up production in the same way they’ve had to ramp up production with cars. Help us understand what the potential is here and what we’re expected to hear on Battery Day.

ROSS GERBER: So Battery Day is just one step in the technological innovation that Tesla’s focused on, because the second part of that is full self-driving, too. So as much as I’m excited about Battery Day, simultaneously, we’re getting very close to full self-driving, which is really the margin driver for Tesla, is the software. But I think there’s a viewpoint change in Tesla as a technology company, which it always has been, from an auto company that many of the short-sighted analysts had considered it. And so now it’s being valued like a tech company.

But I think the thing that makes Tesla so unique as a company is exactly what you said earlier about dominating a field where most car companies chose to placate the market with kind of weak entrants to compete with Tesla that weren’t that good, to many companies just being light years behind. And many organizations, even the biggest ones, ill-suited for the change in the industry. So when you look at companies like Volkswagen or Toyota, they’re just not set for the EV era. They’re not close to it.

And that’s what I think Tesla is doing, not by their design, but because so many people resisted the change away from oil that they fought Tesla, tried to bankrupt Tesla, versus just went all-in a couple of years ago and just accepted that’s the future. And now because of the pandemic, every company in the world has to accept the digital era is that’s our world. And we’re going to see massive disruption over the next year or two.

And Tesla is an example of this. Netflix is an example of this, and many other companies that are booming right now because of the forcing of digital adoption. And Tesla is– the only way you can buy a car on your phone and pick it up without a person is a Tesla.

AKIKO FUJITA: That viewpoint change you talked about– I mean, what should Tesla be valued on right now? Is it a car company? Is it an energy company? I mean–

ROSS GERBER: It’s a model for–

AKIKO FUJITA: –$2,082 a share– where’s the value, what it should be?

ROSS GERBER: Well, look, I mean, Tesla people don’t like when I get into this, because now I have the lowest price target on the Street. These analysts are so bad at their jobs, it’s embarrassing. So now I have the lowest price target from the highest. So I had one of the higher price targets at $1,000 or $750 when they were all at 10 bucks and 20 bucks. And now they’re all at $2,000 price targets.

But it’s hard for– so I Tesla’s runway over the next couple of years is amazing, right. But Tesla has made many mistakes over the years, too, in this path, because they’re very aggressive. So to assume that Tesla’s runway is just going to be a smooth ride is really ignorant. I mean, this is not an easy thing what they’re doing– global expansion, multiple gigafactories building at the same time, multiple markets, multiple products. This is hard.

So we value Tesla closer to $1,000 than to $2,000. And we’ve been taking profits. And when I get off the air, I’m going to take some more profits. And we have a huge position. It’s the largest position at my firm is Tesla.

So it’s been hugely lucrative for our clients. And I’m really stoked about it. But we also have made a fortune and we have to take some profits here, just out of prudent money management. Do I think Tesla will go up for the next decade? Yeah. But I’ve got to also have a position size that makes sense so I can sleep at night and not worry about Elon crashing his plane or something like that.

So I think investors need to assess their position and assess their risk tolerance. And they should speak to a financial advisor before they bet their life on Tesla at $2,000 a share in a pandemic with a lot of uncertainty. So this is a great time. And we’re very happy about it. But investors should be very cautious.

AKIKO FUJITA: Yeah, that’s a lot of risk-taking you just highlighted there. The stock split, you point out it is rare. But we’ve also seen Apple and that stock see a huge run-up since they announced the four-for-one split. Does that make you look around and say, well, what are some other companies that could potentially be considering this?

ROSS GERBER: Right, well, I think there was this ego game between all the tech titans of I’m not going to split my stock. I’m going to have the highest price. Oh, my Google stock is higher than my Amazon stock, right. And I definitely know Jeff Bezos is playing the ego game.

So everybody didn’t want to split their stock. They want to be like Warren Buffett. And so I think what’s happened is that isn’t good for an individual investor.

So I have clients of all size. Let’s say I have a client who wants to invest $5,000 with my firm. We do this, OK? And they want to buy Tesla. Well, what do I do when it’s $2,000 a share?

And so it’s like a lot of small investors miss out on being able to invest in these companies because the prices are so high. And even some of the companies are now offering a half a share. And that’s ridiculous, versus just the company splitting their stock.

So I think with Apple, they’ve split their stock pretty consistently every decade or so. So it’s not so rare for Apple to split their stock. But they’re a leader in the markets. And they set a tone.

And then, once again, I was pushing Tesla to split their stock because I wanted individual investors to be able to buy the stock easier. And they did that. And it makes sense. And I expect we’ll see Google and Amazon soon follow. And if you can make your stock go up 30% by splitting it, I would do it twice.

AKIKO FUJITA: Ross Gerber from Gerber Kawasaki, always good to talk to you.

ROSS GERBER: Yeah, thanks for having me.

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