Foreign What's up guys! and welcome back to Wall Street Millennial On this channel, we cover everything related to socks and investing. It's no secret that Tesla has not been having a great year. In 2022, its share prices declined by 70 over the past 12 months, wiping out roughly 800 billion dollars in market cap. This has cost Musk over 100 billion dollars in personal wealth and he has been dethroned from his position as the world's richest man.

His 44 billion acquisition of Twitter has been a complete disaster with Advertiser boycotts causing the company to lose 4 million dollars per day by Musk's own admission. But even more problematic is the distraction of this will cause Musk. He is concurrently serving as the CEO of SpaceX Techno King of Tesla and now Twitter's Chief Twit, the latter two titles being his own. Creations Tesla Shareholders fear that this will reduce Musk's attention to the automaker and thus reduce its pace of innovation.

To make matters even worse, this October Tesla cup prices of its cars in China by nine percent in December. They followed this with a seven thousand, five hundred dollar price cut across the board in the U.S which amounts to 15 of the purchase price for the base model 3.. these price Cuts indicate a deterioration in demand for years Tesla Short sellers have been talking about how Legacy automakers will start producing electric vehicles and take market share away from Tesla and for years they've been proven wrong with Tesla Building Gigafactory after Gigafactory around the world and continuing to sell every car they produce. It's important to remember that the share price movement of a company does not always equate to its fundamental performance.

At its peak in 2021, Tesla was clearly overvalued in hindsight, but since then, its share prices declined by 70 percent while its net income has increased dramatically. Currently, its trailing price to earnings multiple sits at 38 times. Which is higher than most automakers, but for a company that's growing its Revenue at more than 50 in the most recent quarter, it's finally starting to look within the realm of Reason. In this video, we'll take a deep dive in into what's going on at Tesla and whether the stock is finally worth buying after its 70 dip.

To understand what's going on with Tesla Today, we first have to understand why the share price increased 30 full in the first place, making it the first automaker to exceed a one trillion dollar market cap. This also made it more valuable than all the other automakers outside of China combined. For the first 10 years or so of Tesla's history, they only made low volume to the Roadster and later on the model S and model X. Because they made only a small number of high-priced cars.

Their number of vehicles produced were tiny compared to Legacy automakers like Ford and GM. This all changed in 2018 when they released the mass Market model 3, which started at thirty five thousand dollars, as well as the model Y which was slightly more expensive for the first time ever. High quality electric cars were finally accessible to middle class consumers, and Tesla was easily able to sell every single car they produced. as a result of their success at their California and Nevada factories Tesla's share price Rose substantially allowing them to raise tens of billions of dollars in additional Capital.

They put this to work by building gigafactories around the world, including in Shanghai Berlin and Austin Texas. As the new gigafactories came online, the company's vehicle deliveries increased almost 13-fold from 2017 to 2022, with an astonishing 1.2 million deliveries over the past 12 months, their revenue has similarly exploded. In the trailing 12-month period ended September 30th, 2022, their revenue reached 75 billion dollars and their net income reached 11 billion dollars. And on paper, it looks like things will get even better.

In 2023, they've upgraded their Fremont Factory. It's have capacity for 650 000 units per year. Their Shanghai Factory has expanded to 750 000 per year. Their Berlin and Austin gigafactories each have an estimated capacity of 250 000 units each.

If you add all of these together, you get 1.9 million Vehicles produced in 2023. This would represent a further 60 increase over what they're expected to produce this year, which is already a record. In combination with the impressive operational and financial results, Tesla's share price also benefited from Elon Musk's Cult of Personality Given the success that Musk achieved, Against All Odds People started viewing him as a real-life Tony Stark who would continue to achieve groundbreaking Innovations and perpetuity. By the end of 2020, the share price had increased to a point where the price their earnings ratio was one thousand one hundred times.

By the end of 2021, net income had increased substantially, which brought the PE Ratio down, but it was still well over 200 compared to PES of less than 10 for most Legacy automakers. On the surface, Tesla's valuation was absurd. Many investors Justified this price Anyway, with their moonshot projections like the Robo Taxi Network and the Optimus humanoid robot which could be huge Revenue generators but are many years away from fruition if they're even possible at all. In 2022, the House of Cards that was Tesla's share price came crashing down for a number of reasons.

Firstly, was the Federal Reserve's rate hikes which caused price their earnings ratios to compress across all high growth stocks including Tesla. Second was Elon Musk buying Twitter and eventually becoming its Chief Twit. This could potentially distract him from his duties as techno king of Tesla. However, neither of these factors directly impact the company's revenues or profitability.

The gigafactories have already been built, so the increased production capacity for 2023 is pretty much already baked in and Tesla has 110 000 employees. Regardless of how Visionary Musk is, it's hard to imagine that as Twitter distraction would have a material impact on Tesla as a company, especially given that he's been distracted by SpaceX the boring company Neurolink and other Ventures over the years with seemingly little adverse impact on his performance as Tesla's techno game. What's more important than any of these issues is recent concerns about demand. The major bold case for Tesla has been the massive shift from internal combustion engine cars to EVS.

With Tesla's dominance in the EV markets, The thinking was that there is so much demand for EVS that Tesla can sell every car that it makes as they ramp up production at their gigafactories. This will cause profits to look like clockwork. However, for the first time in the company's history, it's starting to look like this may no longer be the case. The first signs of stress came in October when Tesla cut the prices of its cars across the board by about nine percent.

This was the first time the company had cut prices in its history. China is facing a myriad of country specific issues including covet outbreaks following the lifting of their zero coveted policies. This is having a negative impact on their economic growth, at least in the short term. Also, the Chinese electric vehicle Market is perhaps the most competitive in the world.

The state-run Siac Motors makes the Hong Guang Mini EV which sells for a little over four thousand dollars. Given the stiff competition, it's not terribly surprising that Tesla had to cut its prices in December They announced the 7 500 so-called delivery credit for U.S Customers who take delivery of Model 3 or Model Y cars within the month of December This is a fancy way of saying a price cut as part of Joe Biden Inflation Reduction Act. Most EV models will be eligible for a seven thousand, five hundred dollar Federal tax credit starting in 2023. While the full list of models eligible has not yet been released as of the time of recording this video, it is widely expected that both the Model 3 and Model Y will be included.

So at first Tesla's 7 500 December delivery credit doesn't seem all that concerning. They're just matching the Federal tax credit that'll be available starting in January. If they didn't give a discount, people would wait until January to make their purchases, which could cause Tesla's parking lots to overflow with unsold inventory. But in addition to providing delivery credits to buyers in the U.S they applied similar delivery credits to customers in both Canada and Mexico Buyers in those countries are obviously not eligible for the federal tax credits under the inflation reduction.

Act This points to a serious demand problem whereby Tesla can no longer sell all of its production at full price and we're already starting to see this in the data. Tesla Ended the third quarter with 40 000 Vehicles sitting in their parking lots as inventory, which is a record high. As the company grows, you would naturally expect them to hold more inventory at any given time, But the fact that the inventory doubled from the previous quarter in conjunction with the price Cuts in China the U.S Mexico and Canada is not a good sign at all. So what is going on according to Kelly Blue Book the average price of a compact car in the U.S is twenty six thousand dollars.

The average price of a compact SUV is 35 000 In early 2022 Tesla Increased prices across the board. This took the price of the base model 3 to 48 thousand dollars and the more expensive Model Y to sixty seven thousand dollars. Both of these prices are inclusive with a delivery fee. If you get higher performance versions, the prices can be substantially higher.

so even at the lowest end, these prices are roughly double the price of internal combustion engine cars. Over the course of five years, you might save ten thousand dollars on gasoline, but even after subtracting this, it is still way more expensive. You could make the argument that people are willing to pay more for electric vehicles because of environmental reasons, greater driving performance, and the fact that Eva these have significantly less maintenance such as oil changes. This is undoubtedly true in 2016.

EVS made up one percent of total new vehicle sales in the US. By 2021, this number has increased five-fold to five percent. Growth has been even stronger in both China and Europe. A big part of this growth can be attributed to increased availability and lower prices of EVS across many manufacturers.

For example, the Nissan Leaf has an MSRP of 28 thousand dollars before tax incentives. This is more than 40 percent cheaper than the model 3. according to data compiled by inside EVS, there are 17 EV models available in the US that are cheaper than the cheapest model 3 from manufacturers including: Nissan Mini, Chevy Hyundai Mazda Ford Kia Volkswagen and even one Audi Model While. Most of the cheaper models have inferior range and performance in the Tesla Model 3.

A Lot of people simply can't afford a forty eight thousand dollar car and as Tesla's increased prices over the past couple years, the price to differential has increased. Another potential issue is the state of the economy and what that could mean for automobile demand in general. This summer, Musk himself said that he had a super bad feeling about the economy and felt the need to lay off 10 percent of the company's staff. Recessions are obviously bad for vehicle sales as people get laid off and don't have enough money to buy a new car.

From 2007 through 2009, total automobile sales in the U.S declined by 35 percent, which led to the bankruptcy of both General Motors and Chrysler. Even if there's a recession in 2023, Very few, if any economists believe that I'd be anywhere near as bad as 2009. But any decrease in demand would be bad news for Tesla as they are concurrently facing increased competition. Now we've looked at all the bad things happening to Tesla, but with the share price down 70 percent, a lot of this bad news is already priced in.

The most important question is how bad will things have to get for the company to start losing money again? As of the third quarter of 2022, Tesla generated 52 000 per vehicle that it sold. Its cost to produce each vehicle was thirty eight thousand dollars. This is just the cost of producing a vehicle itself. It doesn't include marketing, research and development, or general administrative expenses.

Of course, this average cost is brought up by the higher price models s X and Y. The cost to produce the base model 3 is likely to be significantly lower. They could conceivably decrease the price of the base model 3 by 30 to 35 000 and still be profitable. This is a far deeper cut than anything they've announced so far.

While other EVS like the Nissan Leaf are still cheaper than this, the model 3 has Superior range or other performance characteristics than any of the cheaper EV models on the market. today. Tesla has been massively ramping its production and delivery numbers over the past four years, while at the same time increasing prices. It is to be expected that this will reach a Breaking Point eventually.

That doesn't mean they're headed towards bankruptcy, it just means that growth will have to slow down because demand is not unlimited even for Tesla. The decline in the share price over the past year is a stock market coming to terms with this reality and Tesla will gradually turn from the growth stock to a value stock, which is an inevitable stage of evolution for any company. All right guys, that wraps it up for this video: What do you think about Tesla's share price decline? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one.

Wall Street Millennial Signing out.