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Tesla shares under pressure here this morning, off nearly 5% after deliveries came in just below the street's estimates according to Bloomberg, but despite the slight slight miss, sales were up more than 6% during the quarter, marking the company's first quarter of growth this year. We want to bring in Jed Dorsheimer. He's an analyst covering Tesla with William Blair. And Jed, it's great to have you here. So we're seeing this market reaction with the stock off nearly 5%. When you take a look at the numbers, especially factoring the fact that this is Tesla's first quarter of growth year for deliveries, is this a bit of an overreaction to the downside or how are you looking at this?

Well, I mean, the setup going into the 1010 event, which is on the Robo taxi, you've seen a number of other banks that have taken up expectations on delivery. So you've seen a creep up, uh, you know, over this quarter, which is coincident with the stock rise. And so, you know, not surprising to see a pullback as you have a bit of a disappointment here. Uh, our focus is largely on the energy side, which they came in about a gigawatt hour under our expectations as well. I think Tesla is better looked at through the lens of the patients stabilized. So, you know, we're not seeing the reductions as you pointed out that we saw, you know, earlier in the year, and there are some key catalysts that are coming up. Um, one is Robo taxi 2. The one that we're really focused on is on the energy business, getting Shanghai built where they can double the capacity and really start delivering more of these mega packs.

How far out are you modeling, modeling for Robo taxi to be a real contributor for Tesla's bottom line?

We're not. So, you know, that is a point that we're different from, uh, others. Um, there's others that are much more bullish. We're not there yet. So, you know, if we kind of go back, uh, my history with Tesla, um, was being able to call the, you know, model S and X going to the three and Y and that Shanghai kind of acceleration circa 2019 time frame. We see a similar setup with respect to energy. You know, get, and that's why we're focused on this one. There's a lot of demand in the market for this product. Their supply constrained right now, and it is lumpy, but as they get this manufacturing facility up, that's kind of what our focus is.

And so with that in mind, as you look across the regions where Tesla has made really specific and profound inroads to make sure that they can appease local governments, whether that be in the Gigafactory in China and in Shanghai. And then additionally in Europe, where they're anticipating to ramp up production there even more so, what is the territory that they need to get right, especially given the consumer backdrop that they're navigating for purchases of these luxury electric vehicles?

Well, I don't think it's, I think the whole on a vehicle side, it's not about luxury anymore. It's really about, um, uh, getting to high volume and lower price. And so I think that was the Model two. The market clearly wants the Model two and it's in a lower price, and we've seen some push outs around that, and I think we'll get some updates around Robo taxi. What I was talking about is actually in the energy side and kind of ramping the manufacturing capacity, you know, our grids are stressed to the max right now. And that's a global statement. And so, you know, looking at megapack, uh, as a solution for a portion of that, that demand, you know, in our opinion could be as much as what we're seeing on the vehicle side. And so really it's about time to market. And that tends to be, you know, as you point out the geographic location of where you're manufacturing facility and your time to market is always going to be sooner over in Asia. Uh, it's, and so, you know, that's that's our focus. And we think that could add $2.35 of additional incremental earnings and are 20 in 27. And so, um, you know, I think that that's that is an area that a lot of people aren't focusing on.

You know, that that is so interesting, especially when you talk about the fact that once they do get Shanghai built, they're going to be able to double that capacity and really start delivering more on those mega packs. I guess just in terms of even longer, if you're looking out beyond 2027 and you're talking about this massive opportunity here within Tesla, what does that upside look like five, 10 years from now?

Our model doesn't go out, so I'm going to refrain from commenting on, but I think obviously, we, you know, in our analysis, what we found is that the variabilities from renewables are actually creating a lot of the stress within the grid. And that the mega packs were not being used just to augment the time duration on solar and wind, but actually to stabilize the grid, which means that the TAM or the market opportunity is actually far larger. Because if you think about taking coal down, maybe replacing that with some natural gas or nuclear for base load, um, you know, having that stabilization to offset the 10 plus percentage penetration of variability from wind and solar, that's a much larger market. And so I think the return on invested capital on the energy business is, uh, could actually be greater than that on the auto business.

Jed Dorsheimer, who is the William Blair Group head of Energy and Sustainability Research sector. Thanks so much for taking the time here with us this morning.

No problem. Pleasure to be here. Thank you.

Thank you.