Regulatory approval on FSD is critical for Tesla, says RBC's Tom Narayan

Tesla shares sinking more than 3% today, hitting a 52 week low after the company announced price cuts in a number of major markets including the US, China and Germany. This as Tesla gets ready to report earnings here in overtime tomorrow. And joining us now to discuss is Tom Narayan of RBC Capital Markets. Tom, you got a a pretty healthy price target, I believe of $294.00 on this stock, which is closer to 140, maybe 142 a share. How do we get from here to there? Yeah, and a big part of this is I wanted to wait until we really heard what happens tomorrow. So far it’s been a lot of and oppressive speculation and the like, but it my valuation, my price target is really based on Autonomy or 50-60. Maybe 70% of it comes from robo taxis, has been for a year now. I also a big believer in FSD and then energy storage. The card business for me is only less than 10% of the of the business. That said, I am concerned about what could happen tomorrow. If it is indeed true that this Model 2 vehicle is either being delayed or shelved to some extent. I do think that will have ramifications near term for the stock and and for the company. So for the Tesla bulls out there and maybe a little bit for the bears, how does Tesla ideally work its way out of this price war and competition with Chinese EV makers who have a pretty low cost of Labor and whose cars are getting decent reviews? Like what’s the way out for them? Is it, is a cheaper car really going to help them? I actually think it is. They do have the best economics in the industry. Let’s not forget a lot of those Chinese cars are being subsidized by the government over there. So I actually think, you know, they do have the best economics. I do think a Model 2 vehicle would have been or could have, could still be very powerful or they get the IRA benefit in the US. They make their own batteries in the US. China’s always going to be a very competitive. It’s also for the Chinese companies. Look what happened with, you know, BYD and the like. It’s we’re in an EV slow down right now. That’s definitely happening. But remember, this is just the car business. I think it was always going to be challenged. What I think Tesla needs to do is really focus on FSD. It’s strong suit. It has a great version 12 product out there. Do robo taxi as well. But I do think that the Model 2 is very important to get FSD out there. That is where I think most investors are focused on and they’ll really be keenly interested in hearing what they have to say tomorrow on the earnings call. OK, So sticking with that thread and the fact that if I heard you correctly before, you said for for you and how you’re valuing the company, cars are only actually the cars themselves are only 10% of of the value. Does that mean that you’re looking at Tesla as more of a tech play and less of appear to the automakers? And and if so, then how much hinges not just on FSD and on robotaxis themselves, but also on regulators actually green lighting some of these technologies and some of these capabilities, which has been such a long time coming. Huge, huge. This is really what it comes down to is they really need regulatory approval. I think what’s happened is they had this FSD version 12, which was so significant and so powerful and worked so well that I think Tesla realized, OK, now this product is so good, let’s go ahead and maybe go with the robo taxi and we’ll get the regulators to approve it. So we’ll find out more tomorrow. But I’ve long believed that, you know, Tesla has a stat. They’re five times safer than the average car. Regulators want to save lives. So I do believe ultimately that they’ll get that support and that’s probably why they pushed and dropped the price on FSD to get the take rate higher. But I do believe you’re right at regulatory approval is the critical part to this. And I do want to say it is true to cars is only less than 10% of my valuation. But they do need to sell cars to get FSD in them and on the road and people paying for it. So because I don’t think it’s very easy to license FSD to other car makers. MMM, they even said as much. So the car business on its own is not value. Not not not a big value, but you need the cars on the road to get the software in them.