Everyone kevin here. Let's talk about tesla. Because it's about daily that i i get hated on on the internet and that's okay. But there's been lot of confusion that i'm trying to spread tesla foot complaining about things i shouldn't be complaining about because the permabulls like to go like this i can do no wrong look.

I'm a really big bull for tesla. And i really respect the tesla community. I think they're wonderful people very educated people and they're people who are right to be long. Tesla.

Tesla is an absolute phenomenal company. There's a reason. It is the largest position that i have but as with the largest position. I have i'm going to place the highest amount of scrutiny on that company because when something has the potential to really hurt.

Me i would be stupid not to hyper analyze and hyper focus on the red flags. So that way i know when to pivot in the event that i need to and tesla is very very very critically exposed to one simple thing that props. It up. What props tesla up is a multiple that's it a multiple of their earnings and their projected earnings.

We refer to this as the price to earnings multiple. If tesla makes fifty dollars of earnings and the stock is trading for five hundred dollars. Then it is selling for 10 times earnings right very simple again you make 50 of earnings per share. It's trading for 500 well.

Then that's 10 in terms of your multiple your price. Earnings. Multiple the issue is this multiple fluctuates based on what the growth is that tesla faces and there are three red flags that came out of the last earnings report that testables don't want to hear about but they're things that we seriously have to look at because they have the potential of affecting. What the market's perception of this multiple is and should be now tesla is nowhere near 50 of earnings per share in fact wall street.

Or bloomberg. Doesn't even have them at half of that by 2025. Let's just for example look at 2022 estimates. Though because lately.

That's what we've been doing for all of the companies that we're looking at so we're just looking at the end of 2022. What do we get we get probably earnings per share of around 13. And the share price currently is around 800. Let's go with 815 that's going to give us a multiple.

That's obviously a lot larger than this let's even be generous. Though and go out just to compare to a future year and say we're going to get to 25 by 2025. So we'll call this the 2025 and this will be the 2022. Multiple right and then at this point this becomes easy math because we just take 815 divided by 13 and what do we get we get a current multiple of about 626.

And if we go all the way out to. 2025 tesla's currently trading for 326. This is really considered a forward multiple and this could be considered a forward multiple as well because oftentimes if you just type into google. Hey what's the pe.

Multiple of tesla. What they're doing is they're looking at the trailing 12 months of earnings per share. That means you're looking at a snapshot of earnings. The last 12 months.

Which are obviously substantially less uh than what this uh you know what what the 2022 earnings per share could be in fact the trailing 12 month is sitting at eight dollars and 43 cents. So obviously very very small relative to 13. Which would make this like 100 pe. Right okay.

So we've got to understand that at 62 times earnings. This is selling at a 50 growth rate of a peg ratio by dividing. 626 by the growth rate of 50 selling for a peg ratio of about 125. That's actually pretty decent.

I like that about tesla. I really do the issue is if tesla stops growing at that 50 clip. Then you're not going to be selling four peg ratio that that that's that high anymore in fact if tesla starts growing at just a 25 clip. Which at some point in the future.

It will just because of the law of large numbers. It's not going to grow at 50 forever. So two measures of growth here. One would be the top line.

Which would be revenue growth and the other would be earnings a growth. So let's just go revenue growth here for a moment. This is the bloomberg. Consensus estimate going forward that revenue is going.

To. Grow. 579. In 2022 and.

Then. 405 in. 23. 20.

Thereafter. 12. Percent thereafter and 232. In 2026.

I'm not sure why you get this sort of weird bump maybe they assume another gigafactory will come online at that point whatever that's earnings now if i do eps growth and i show you this i'm going to skip 2022 because it's confusing let's go over here to 385 point 201. Percent uh and then nineteen point one percent. The point is all of these numbers are substantially under fifty percent and when you get a number that's substantially under fifty percent. It makes your multiple much larger and so what tassel really needs to do is make sure that these numbers over here are consistently over 50 percent wall street does not believe it's possible.

Most tesla. Investors do believe that we can easily get to a compounded annual growth rate of 50 percent. At least through 2025. At some point that will go down.

We're not going to be growing at 50 percent forever by 2030. We'll probably be growing at 25 or something like that maybe even less by 2030. We'll be growing at a lower or slower clip. And what's going to happen.

Then is the valuation markets will give us will compress. See. When you look at an s. Curve that looks something like this okay.

When a company starts out you start out with this insane potentially infinite p e. Ratio. Because you're losing money then you start making profit and your p e ratio looks insane it's like a thousand uh and then it's 500 and then maybe it's a hundred right and then this p e ratio can align with a growth rate if we're at a hundred and we're growing at let's say seventy percent uh and then we're growing at you know a fifty percent over here fifty fifty fifty 50. 50.

50. Something like that and then we have a multiple let's say of 50 as the multiple that we're using or even 60 right so let's call it 60 to 50. Which is roughly. Where we sit now in that 2022 rim at some point.

When that growth rate slows and goes to maybe. 20. Over. Here or 25.

You might see this multiple collapse to about 30 kind of like an apple right. And then when you collapse. All the way to the to the tippy top. Which is sort of that flat region which i'll show you over here you get to this flat region.

Where your growth is only like three percent and you're like you know an att or whatever you're a company that's so established you just don't really grow that much anymore you're just still printing some amount of attendees. But you're growing at very very nominal paces well well then your your multiple uh that you're paying for this kind of company might be something like six to ten. You pay a very very low multiple once you get to the top of the s curve. So with tesla.

The hope is that okay. But then we're going to have fsd and that's going to be another s. Curve and then we're going to have robots. And that's going to be another s curve on top of that right and we're going to keep having these reasons to have an expanded multiple at tesla but you know future product announcements like i always say cyber truck insurance semi trucks all this stuff for me is just a margin of safety but i really want to be part of the tesla ride as an investor as we're on this first s.

Curve. But i do want to be aware that when this s. Curve hits. Here multiples are going to collapse.

And that's going to affect how much tesla can sell for on the market relative to other companies right if. And that's a very important thing that i think a lot of people forget. In the tesla. Bull community is that look.

If tesla right now were let's say uh. Twice. What it is now sixteen hundred dollars and now all of a sudden. We're selling for 120 or it'd actually be more because i think we did what was it was close to like 62.

So whatever be like 124 times. That's our multiple for 2022. Well geez man. Why would i pay 124 times.

Pe. For tesla. If i could go over to let's say. A company.

Like nvidia and nvidia. For uh has has great margins as well as a phenomenal company right uh into uh. Ai and augmented uh uh reality intelligence. Everything is i mean look they're obviously very very different companies.

But phenomenal company nvidia is a company that is presently selling for next year. We are expecting eps of 536 for nvidia. Let's go ahead and grab nvidia. Stock quickly that is 173 divided by 536 and that's compressed.

Quite a bit from the 300 where used to be look at that you're only paying 32 times. The projected eps for nvidia this year. That's not bad. Why would i pay four times.

That for tesla. Well maybe tesla's growing faster right. That's always what it goes back to maybe tesla's growing a lot faster. See the growth.

The eps growth at nvidia is expected to probably average somewhere around 15. So at around 15 percent. Growth that means we're paying about a two peg over here right. But if we're growing at 50 percent here then at 124 times uh.

124 divided by 50 that puts us closer to 248. Right so i'm paying more money for the same dollar of growth at tesla. As i would be over at nvidia. Now this is opposite right.

Now. Because tesla is actually i think at a great point right now because again we're closer to a 1. 125. Peg as we did the math earlier.

Which is substantially less than that 2 over at nvidia. So i like tesla right now just saying the stretchier. The tesla valuation gets the more attractive other companies become in comparison. And that's why there's a limit to how much tesla can explode in terms of its multiple you have to consider other companies now this led to uh the next issue and that has to do with the issue of perception.

A lot of folks don't recognize that the way wall street maintains multiples is through this very very important word called perception the perception of growth at tesla. The perception of stability at tesla. So when people like oh kevin you're only identifying the fud. I'm doing that because i know what the hedgies are going to be looking at i know how they're thinking.

And so one of the first things that came up is folks said oh well kevin you've gone like 10 to 12 minutes in this video and you still haven't mentioned that on july 28th the programs on building your wealth expire because there's a 50 off coupon code down below and that expires and then you're not going to get that amazing price anymore. We've been talking about this coming date for a while so it's a really important date. It's also the day gdp numbers come out we find out if we're in a recession or not okay. So mark your calendar on that okay.

So what we've got to talk about now is the cash flow. And this this got a lot of people kind of like a lot of people got their their panties tied up over this one all right because they didn't like the way that i did my math. And so i'm going to now use a spreadsheet to show you why i said what i said so first of all it's it's useful. I think to know that i do a lot of quick math.

And i do that because i don't have a lot of time and when i'm live. I also respect that you might not have a lot of time now that's no excuse for doing bad math. But it's i i round. I do slight roundings so on the fly within minutes of this coming out.

I'm like you know people keep talking about how tesla has 18 billion dollars of cash. I've done that as well. But let's be real you have to do what's known as a quick test some people call. It an acid test.

And you subtract current liabilities not including inventories from current liabilities. And then you see how much cash. The company actually has available in the event of a stress event. Okay so that's very very important.

And what we're going to do is i'm just going to erase all this highlighting here for a moment and i'm going to show you what we're going to use we're going to use current the current assets available like cash short term. Marketable securities. Accounts receivable. So number one is cash in the bank number two would be stuff like treasury bills or or well cash equivalents or sometimes short or super short term treasury bills like three month treasuries short term marketable securities could be like a six month treasury.

A 12 month treasury. Whatever accounts. Receivable is you've already delivered a product. Let's say and you're expecting to receive that revenue within the next 30 days inventory.

We don't actually like to use inventory. Because inventory is part of operating expenses so or leads into operating expenses and the reason. We don't use inventory in our current quick test test or asset test is uh. Because inventory takes time to actually be used and sold.

So it's not very nimble in terms of how much actual cash do we have ready to go right now prepaid expenses. Uh fine okay so we've got a few prepaid expenses over here i usually personally don't love using prepaid expenses either. But you know people defer on this the difference on prepaid expenses here is uh somewhere around. What we got two billion dollars.

So you know depending on how you like to do your your acid test prepaid expenses by the way i think it's helpful to just understand a little bit of what they are prepaid expenses would be like all right we we paid our uh our lease next month a month early right now you wouldn't do that i'm just saying that would be an example of a prepaid expense or uh hey we paid our insurance premiums for the next six months well the next five months of those are prepaid expenses. The problem with that is it's not really like ready to go usable cash. I kind of consider it very much like an inventory so in my quick math i generally don't consider prepaid expenses. Yeah they're they're bills that you're not going to have to pay going forward.

But it's kind of already spent right you can't re spend prepaid expenses okay so that means i'm really only going to take the first three numbers here of cash okay. So we'll highlight those now we'll do the same thing over here in current liabilities. So this one's a little bit trickier okay so accounts payable these are bills. We actually have to pay accrued liabilities are things we're going to have to pay within the next 12 months deferred revenue is a tricky one we're going to get back to that in a moment customer deposits let's just assume worst case scenario we had to refund these deposits generally you don't.

But the expectation is when we're doing these these uh cash analyses is that deposits aren't money that you're actually going to spend you need to show that you have that money available in the event people want their cash back. So we're not expecting tesla to have to take that to give that cash back. But it's just money you don't spend so we subtract that off and then obviously current portion of the longer term debts like a 30 year mortgage. The stuff due within the next 12 months.

We're going to highlight that as well now notice i'm not going to subtract deferred revenue here deferred revenue is cash that you've gotten that now you just need to let's say deliver the car for we're expecting that to happen this cash is usually cash that we could expect all right yeah. We can expect to use that within the next uh you know. 12 months so so really i don't like to subtract that as a current liability. Though you can technically if you're doing the asset test by the book you would also subtract that deferred revenue.

Because it just it's money that hasn't been earned yet so technically you shouldn't be spending money you haven't earned. Yet right. Which which makes sense. That's logical okay so let's just go with that example.

Okay. I think i'm being very generous on both sides so my mental math. When i did this said. We were roughly at a wash and people got mad at this because they're like oh.

My gosh tesla has kevin kevin you're reading this statement wrong tesla has 31 billion dollars of assets and the current liability section. Only says. 21 that means they have like 10 billion dollars of extra again they're not considering that eight of those billion are inventories right and things that we can't quickly use. So this is this is just a debate to be had these are nominal little differences.

But i think the conclusion makes a very very important one and that's what i'm going to show you here so take a look at this by the way sorry to the course. Members uh. I i gave out my cell phone number to all course members yesterday and i'm like 400 text messages down to still reply to so i'm working on it i'm like on the subway. Lauren's like how why are you texting.

So many people. I'm like yeah don't ask anyway um. Yeah. It's been kind of fun.

Thank you for all your support by the way. There's so many of you sending even just nice messages. Like hey. Thank you so much you know made a lot of money or changed.

My perspective in life here. I'll pull up a couple screenshots. I have that's my little there's lego on my desk right behind me. And so i thought.

It was um. Yeah. Anyway uh so um. This this was a pretty neat.

One. I thought i'd just shout out really quick so shout out over here love all the work kevin been a disabled investor proving. You don't need much to get started only got 30k net worth. But it's a start much love i thought that was really cool somebody who's just getting started with the program uh really really awesome so anyway.

Thank you course members really really do love you and appreciate you okay uh and again my goal is always to provide more value and that's that's my life school. Okay so if we put this silliness on a spreadsheet all right we get the cash. The short term. The accounts receivable.

I'm putting zero for inventory prepaids that gets us to 21 ish billion dollars payables accrued liabilities again i'm not subtracting off the deferred revenues here deposits current portion of long term fine. Okay. That gives you an extra billion dollars of cash so so that gives you think about that for a moment okay on one hand you have people running around going. Oh my gosh tesla's got all this cash they've got 18 billion dollars of cash and i'm at fault for throwing that number around as well it's a nice you know little tidbit to throw on on on tv or whatever.

But like when you actually do the nuanced math. You have to remember that this isn't like math. That we could spend tomorrow. It's not accessible a cash to us in math cash to us what's really accessible and usable is about this extra 1 billion dollars.

And what's remarkable about that is it's propped up by a sale of about 900 million dollars. 936 roughly million dollars of bitcoin you see what i mean like if you take the 936 million out of this the extra actual literal free cash. That tesla has or would have had would have been next to zero. But let's say they have this billion dollars.

This is again extra cash above their current liabilities not considering inventory right why is this important well if tomorrow. We decided to build another five billion dollar factory. We don't have it okay now some people are like oh what about operating cash flows. We'll talk about that in a second the point is if you have one billion dollars of available cash and it looks like you have 18 billion dollars.

We don't have that 18 billion dollars. We have another billion dollars that we could go spend now the difference is that we do have cash to fund our operations and that's really really important but if tomorrow elon musk is like all right we're announcing that we're going to build three new gigafactories which i think they should do they should do this and they're like we got to raise 10 billion. Because we think our operating activities will eventually cover the nf5 but we got to raise 10 billion dollars. What are they going to do folks well folks if they need to raise 10 billion dollars to build three more gigafactories first of all hell.

Yeah. Why hell yeah. Because you're gonna have a short term pain. Because they'll probably do bonds.

Which are convertible to stocks. Which dilute shareholders or they'll sell stock right. Which also uh you know puts downward pressure on uh on the uh. The company uh the company's valuation on public markets.

But that's short term because now they have ten billion dollars to go build more gigafactories. Why do we actually need to do this well we need to do this because again. Remember the beginning part of the video. How i talked about tesla has to maintain that growth that 50 and right now wall street is thinking what 30 20.

18. Right roughly numbers like that like wall street's like you guys ai. N't grown at 50 for the next four or five years. So i'm making this argument.

Here that tesla does not have the money that people think it think it has in order to build more factories. They just don't have the money and so people got to get through their heads pesta is going to have to raise money if tesla goes to 1500 tomorrow. Elon musk is probably going to raise money and he would be smart to do that now some people are like but kevin. But have it they could just fund that 10 billion dollars from their operating.

Profits they had 23 billion dollars of operating profits last. Quarter this is true they had 23 billion dollars of operating profits in the last quarter. But remember the money furnace argument that elon musk talked about. Okay here's how this works you go over here to this.

23 billion. Dollars this 23. Billion dollars right here you then subtract the money that's being invested into the factories. That are currently already being built which will still be getting billed and still be getting ramped over the next six to 12 months.

Which is when i hope to hear some more gigafactory announcements. So you're still going to have expenses here you had them here you had them here right we're still going to be growing these. Factories so now the sudden your operating cash flow of 23. Billion dollars.

Actually gets reduced by what you're investing now you get a free cash flow. Number. Now your free cash flow is actually only about 600 million dollars. In fact we could jump over here.

There you go free cash flow 621 million dollars. Oh. But wait a minute. We usually ignore this eight quarters.

Thing here we usually also pay off some amount of debt whether that's 400 million dollars or a billion dollars or 600 million dollars. We usually pay off something in fact in the last quarter. We paid off about 400 million that means we basically have no money left okay we've got 621 in free cash flow. But if you pay off 400 million in debt well now you're down to 200 million.

But even if you didn't pay off any debt you're like we're going to borrow for 10 billion. And we're not going to pay off any debt. The free cash flow is still only 600 million dollars per quarter. That would take you what 15 quarters or more to actually pay for those 10 billion dollars in new factories.

So people like to make fun of me. And they they like they don't like my quick math. Or maybe. They don't like that i laugh at my own jokes.

Which are pretty funny by the way. I i don't know what it is uh like i think what somebody told it to me once uh. They're like i don't know why kevin. But i've always wanted to punch you in the face.

When i first started watching your stuff. But then when i got to know you either in person or just through watching you longer. I stopped wanting to punch you in the face. And i actually started liking you a lot uh and i sometimes i wish it were the opposite like because that's very disappointing.

It makes it harder to have lots of friends because more people don't want to be your friend out of the gate. Right the opposite is very convenient for some people. Some people they watch once and they're just like enamored in love with. But then over time they realize oh wait you know this person isn't actually what i thought they were right uh er.

This person will always tend to have more friends. Because unfortunately. Most friends are very uh surficial. Very very surface level uh and and deeper friends uh are i think very very important.

But anyway. I don't know why we're on this tangent. I think it's because we've got to get to the next thing that people get mad about and the next thing that people get mad about which i think is silly. Because again we talked about this tesla doesn't have that much cash for the next factories.

Okay. They're going to raise money in the future. Mark. My words tesla will raise money in the future.

And if that catches you blind. Because you thought. But they had all this these these uh you know current assets well. I guess you just didn't look at things the way i looked at it here and the way.

I explained and that's fine you can have a different opinion. It just means you're not prepared you're not prepared for tesla to raise money that's fine. Because i am. And so.

If tesla drops 20. Because they raise money and set off a selling frenzy. Because that's what happened the last time they did that in september of 2020. Well i'll diamond hand because i'm already expecting that to happen uh okay or i'll sell some calls before i think it's going to happen right all right the next thing that people get mad at me.

About is they say kevin. How could you say that the model s's and x's and plaids prop up margin they're only 16 000 of them versus the 250 000 vehicles that are produced well the reason for that is the s's and x's add maybe to. The margin the difference. This quarter maybe only added you know 02 to 04.

When you do the math. That's probably somewhere around what what the ss and x. Is at to margin. But what's so important when it comes to looking at margin is understanding that tesla shanghai is really really important because in my opinion.

If and we don't know this with certainty. But if we could shut down all of tesla. Except for shanghai and make vehicles margins would probably be at 35 percent or more maybe even 38. If we shut down all of china and only made american made teslas.

I would guess margins would probably be around 25 and so getting the blended average together is very very important with two things or the way you get it up is propped up by two very important things i should say number one more s and x. In the mix. It might be a smaller portion. But even getting this up 50 basis points or half of a percent.

Very very very possible through premium plaid sales of the s's and the x's which have substantially higher margin substantially higher margin. I would guess that the margin on the regular vehicles is probably close to 27 28. These s's and x's are probably closer to 40 or 50 percent. There's a lot of margin in these they don't break that down because i don't think they want people like me who buy these cars to feel ripped off that we probably you know if i buy 130 000.

Car. It honestly probably only cost them 50 to make it and that's 80k right there uh that's substantially more than half. I mean that's like a 70 profit margin. This is what it is i mean that pads the margins pretty nicely so that's fact the other thing is shanghai shanghai.

Really china the low cost of labor uh and uh how quickly things can get done in china. Make it uh very very smart to do business. In china. However.

There are also real risks associated with doing business in china. Now some people are like oba cat. China is not a. Vladimir putin.

China is not going to rug pull us and go invade taiwan and then shut down shanghai dude they shut down shanghai over covet you don't think in a trade spot. There's a risk and you know what don't take my word for it don't even consider what what i'm saying about it. Why don't we just look at what elon musk says and i want you to see now that you know that had it not been well let me put this away let me remind you with this bitcoin sale totally free and available cash. Tesla's got about a billion bucks.

Not a lot of money. Without the bitcoin tesla's got nothing in fact their their cash would have been negative. They would have grown their business their cash available cash by a negative amount okay not so great all right that aside should people think you can't that you just betting. No being realistic and not going to be a permanent.

I'm not i'm not here to to to you know uh blow smoke uh and i'm not saying that talking about all these future potential revenue. Sources for tesla or whatever and all this excitement is blowing spoke. But we got to be real and by being real let's also look at what elon said about china. Yes.

It should be mentioned that the reason we sold a bunch of bitcoin holdings was that we were uncertain as to when the coveted lockdowns in china would alleviate so it was important for us to maximize our cash position. Given the uncertainty of the coveted lockdowns. We're certainly open to increasing our bitcoin holdings in the future fine. That's because elon is smart and he realizes crap the amount of free and available cash.

We have be above and beyond our current liabilities is zero let's dump our bitcoin which i made a mistake on. I said they lost money on it they actually sold their bitcoin for a gain they made money on bitcoin. I'm gonna make that clear okay. I'm sorry i made a mistake.

I went too fast on that. But this is very interesting folks elon was worried about china digging into their actual operations. Because china's closed. If china was closed for another six months tesla's cash after even breaking the piggy bank of a billion dollars of bitcoin could have gone to negative three bill.

Maybe if china was closed for the next six months. They would have to raise money just to keep the company going. And that's not saying bankrupt. I'm by no means suggesting that tesla is anywhere near bankruptcy.

But what i am saying is the amount of available cash is low above and beyond the prepaid uh or above and beyond the the quick test that we did right uh and we know again there are longer term assets. We know there's brand value. We know yeah they don't have to pay off debt and then they've got maybe 600 million dollars of free cash flow fine. That's with shanghai reopening.

Though free cash flow goes down very quickly with shanghai close so there are real risks. And what you have to remember. And this is something that that like i i can't even plan for uh. But if china does invade taiwan or we end up having some larger trade disputes with china.

Where china says we're now going to put a tariff on every tesla that that goes to the united states from shanghai. Well shucks maybe some problems and so it's just a risk factor. You have to be aware of as an investor. So perceptions are key when it comes to tesla critically.

Key and these are risk factors that we are i'm not here to suggest otezla's going to go bankrupt. I'm here to say that in order for tesla. This is sort of the bottom line in order for tesla to maintain or grow. Its wall street valuation.

They must prove wall street wrong. And show that 50 50 50. That compounded annual growth rate is possible. But it's not possible if you only have a billion dollars to spend right now.

When this tesla stock price goes up a lot. I expect them to raise money thanks for watching folks goodbye.