Hey everyone, welcome back to another episode of the Meet Kevin show today. We have the honor of being here with Gary Black in Gary Black's office the Future Fund ETF Thank you so much for inviting me into your office. Thanks for coming out! So we have to start with uh, the elephant in the room. When are we getting stimulus checks again? Hopefully not a lot of people are talking about that.

And I do want to start about the recession and we'll get into Tesla of course. uh, but a lot of people have this mindset that if the Federal Reserve stays higher for longer, that there will end up being not only no worries about the debt ceiling, but actually potentially bipartisan support for supporting maybe lower income individuals or, uh, you know, uh, benefits for unemployment extended benefits Again, What do you think about that? Yeah, I guess I'm more of the camp that we're not going to have a deep recession I Think it's going to be, you know, six months and it'll be over. I Think the FED is smart enough to know that they already broke something you've seen a couple banks already go under. you might see First Republic go under which would inspires me and at this point I think they're going to do one one more one and done one until we raise rates in May by 25.

that's next week. and then I think they're just going to sit here for a while and see what what the impact is. And as you've seen with the economy today, GDP was up 1-1 Not not a big number. Um, fourth Quarter was revised down to two six.

You still see claims coming down, so there's still strength and inflation has has really retreated. If you look at don't look at a year Rolling numbers, but look at say six month numbers. Yeah, you're down to about three percent annualized inflation. Wow.

and so I don't think that the FED really needs to keep pushing rates up. So my bet is we're going to get to next week they'll do 25. They'll probably signal that they're going to want to pause and I don't know how explicit they'll be. Yeah, and then I think that'll be enough that the economy can kind of and I don't want to be Goldilocks about it or pollyanish about it.

but I think we can float down to about a zero Maybe minus 1 for the second half and then it'll be over. Because at some point the Fed's going to start cutting rates if we're in a recession, right? So so maybe we get in other words, a quarter where we've towed the line at I Think what? the next quarter's estimate for Q3 is maybe a point? Uh, 0.2 I think uh. and then you think maybe negative for Q4 but you're not seeing a signal that with certainty will be negative for two quarters in a row or more. Huh? I Don't see it and look I Talked to business owners just like you do.

I'm a business owner. Nobody can get any help if you go out to any restaurant here in Chicago Everybody says this is there's not a recession. Unemployment is the lowest it's ever been. They can't get help and so at this point we clearly are not in a recession now.

Okay, the question is is the Fed going to be smart enough to stop before it breaks something else and I think yeah, look they're they're They're smart people. They've got a lot of research, They've got a lot of data. I Think they're going to basically say you know things are slowing we the banks are not in a great situation right now because you still have deposits being disintermediate, because you know people can put money into a treasury bond or money market fund and earn you know 200 basis points more than they're earning in their savings accounts, right? And I think the FED is going to be smart enough to say we can't keep pushing rates especially if inflation is is really coming down. Which to me I think the bigger risk is deflation and inflation right now from where we are.

But some people though, they talk about well, what if we have a wage price spiral I mean if Walmart's raising wages or Starbucks or Chipotle if they they keep having these margins and they're able to pass on these prices like we saw in the Chipotle earnings or the Nestle uh earnings. Isn't that a risk that if the FED pauses too soon, people try to see through this tighter Period start spending even more again and just reignite inflation. It's a risk. It's a risk.

And look, we follow all the consumer names we own Chipotle it's our third largest position and nice. They pass through nine percent pricing last year. Yes, and you look at Coke Pepsi McDonald's Starbucks you know they're Nestle they're all pushing through pricing so that is the risk. But I still believe at the end of the day if the economy starts slowing dramatically and I don't I'm not smart enough.

nobody's smart enough to know how bad it's going to be in a second or third quarter. but we did have. As you've pointed out before, we had two quarters last year of negative growth. You know small numbers? well, like minus one or so.

Yeah, but I do think that that's going to cause the FED to say you know what? Let's hold off. Let's wait because they have a Fed meeting next week and then they have another one in June And the big question is, what are they going to do in June Are they going to raise rates again? Are they going to say let's hold and see what the impact is and if the economy is truly slowing which again, first quarter slowed to 1-1 down from 2 6 in the fourth quarter. Will the FED say you know what? It doesn't make sense for us to to to raise again? let us just sit. Let's assess the impact and can they navigate this? The so-called soft Landing where GDP doesn't you know go that negative I think everybody's which is scary.

everybody's kind of agreement will have some sort of recession right? I just don't think it's gonna be that deep. and I don't think it's going to be that long because I do think the FED will start cutting rates later this year. Ah okay so you are in fed cut Camp Yeah yeah okay because the economy is going to slow and and it will go negative at some point this year I believe. So you do think we are going to Trend towards negative.

It's coming right? So when I look at you can look at CPI um X food and energy. You can look at the Pce which the FED likes. We'll get a March number. um tomorrow.

Um, but the PC if you just look at the last six months, it's about three. you know it's not. It's not a huge number, it's not. That's why I don't like this.

Look back of let's look back a whole year. Sure, because you're basically dealing with the the the ratification of what happened in Covet where the Fed was stimulating so much and the money supply was growing so much and there was all this stimulus going on, you couldn't help but have inflation. but but since that time you know you, you see a lot of people looking at M Uh, M2 M2 is is for the first time in I Guess it's 90 years it's declining. but if you average it as you've pointed out and others have pointed out, you average what happened the last you know year with today.

Yeah, it's not really. it's normalization. It's not really that bad when you think about it that way. Now would you say that when we look at inflation, there's potentially this risk that we'll see that Goods deflation inventories have built up so heavily.

Freight is supposed to be in a recession already that if the FED senses stickiness in in Services Hotel Well, stickiness in other words, prices. um, businesses like restaurants, The Chipotles hotels being able to continue to raise prices. Do you think they would hike us further into a recession just for that part? the the travel and the hotel and the food that seems to be so sticky right now you know I don't think so because you know rents and home prices which are still the biggest part of CPI yeah are coming down and we don't know. You know how quickly they're going to come down in the next six months.

So yeah, you could see the consumer package Goods maker others raising prices because you know their costs are going up. But I mean you know this better than me. You, you're you're. you.

You buy homes. Oh, you know you see home prices coming down. you know, pretty sharply and rents are starting to come down. So I think that's going to be the bigger Factor Yeah, there's a big debate about you know, our investors being dumb here or are they smart and you know it's it's I don't have a crystal ball like Elon says he doesn't have a crystal ball.

but I do believe that the FED will cut rates and I do believe while we're not in recession today, if the FED keeps pushing rates up because you have some companies as you say, they're being sticky about prices, they keep praising them. We will have a recession. but I don't think the fed's that dumb I think so. we'll stop.

If we have that even shallow recession, why not wait until then? I mean won't stocks bottom closer to the recession usually? And so you know when I look at stocks today, you know I see a three and a half percent 10-year treasury. You know the PE uh on the S P is about. Let's call it, you know, 17 18 on next year's earnings. So if you look at the What? I call the E over P ratio versus 10-year treasury.

Yeah, stocks are still offering about 200 basis points of extra and if you look at that historically, that's a big spread. So to me stocks are more downside then well I look at his stocks are pretty cheap. Oh really okay relative to the 10-year term. The earnings risk premium? So small though.

Or you still think the 200 is yes. Okay, okay, so risk premium still high right now. Doesn't that signal though? If we go into a recession I think that should spread down and tighten. If we go into a recession, you can see earnings come down a lot and so that's that's the risk.

But I go back to I Just don't see a high risk of a deep recession. If you have a you know one, let's call it a one to two percent. GDP decline. Yeah, and it lasts for six months.

You're not going to see earnings revisions that are that dramatic. So I still think that the Market's still relatively cheap. Okay, but if you're trying to time the market and you're getting in and you're getting out based on you know what the physical, it's hard to do that, it's just you. and I know that's why you have to stay.

You know, fully invested. Unless you think there's a Calamity coming where we're going to have like a really deep recession. like you know, 19. Uh, you know, 78, 79 Or you know we I wouldn't call the coveted recession deeper.

said it was over in 30 days. Yeah, 30 days. Literally Yeah. But if you, if you believe we're going into a you know, 1930s type depression, yeah, you're pulling your money out.

but I don't see that. It's interesting. 30 days to slow the spread was really 30 days to slow the declining stock market? Uh, but so okay. So then what percentage of a downside do you see I Mean if you had a diversified portfolio now where you were in the Spy or the NASDAQ um you know Technologies would you be thinking okay, maybe if you invest now for the long term, you got a 10 20 downside.

or are we facing potentially a 50 to 80 because you're not going to have a deep recession, the FED is going to stop before things get too bad. So I could see another 10 to 15 percent downside from here. Okay, um, remember the markets are up this year so we've had a good year so you get a buffer. Yeah, last year wasn't great as you and I know, but but you know this year I could see a 10 to 15 decline going into recession.

But what you've normally found is once the FED pauses and people conclude that there's no more rate hikes that people start discounting that the Fed's going to cut. And so the question is if they signal they're going to wait, they're going to raise rates in May and then they signal we're gonna. you know we're not gonna one and done. We're gonna wait a while and see what the impact of this is and then people will start anticipating they're going to cut the next move is a cut and that's usually the time you want to be in the equity boot.

You know you want to be in equities when the FED is cutting and back to expanding money supply. because they're signaling that the next move is no more going to be an increase, it's going to be declined. And I don't think they're going to signal that I think they're just going to Signal they're going to pause next week. Oh, so you wouldn't wait for that sort of pivot so to speak.

You would want to be in before that because of their signaling to that. and we're all in right now. I mean we, we keep our ETF You know, pretty much, you know, maybe 96 invested. You know.

Always keep a buffer of cash just to have it so we could buy something if it's down a lot. and we really like the name. Um, but we're we're not. We're not bearish about the economy and we're not that bearish about stocks because again, when I look at e over P relative to the risk-free rate yeah, I still have a big spread meaning Equity is still cheap to make relative to the history.

No. Kevin O'leary I Spoke with him yesterday. He's at 30 cash right now. Do you think that's wild? Is that a big opportunity cost? It's probably because he believes we're going to have a deeper recession than I do I just I don't I don't know if the FED is as stupid as everybody thinks that they have been.

Stupid? Sure. but they were printing in March of 2022. they were printing cash like there was no tomorrow because of Covid. and then you know they've been fighting this this Boogeyman of inflation which was caused by all this money printing from 2020 and all this excess stimulus from the government.

Yeah, but when you average it, you say okay, I've got inflation of let's call it six and now you know the marginal inflation as I call to take the monthly and then multiply it by 12. sure of one or two, you're kind of back to the norm of two to three and so I don't know if that's something the FED thinks about, but I do believe they're going to stop doing what they've been doing which is hiking links every month. Yeah, I find it fascinating. the in the after the 82 Paul volckering the the rugging, it seems like the FED took this path.

They even said it of opportunistic disinflation where they would just let inflation run a little hotter. they'd just be at nine and eight and just slowly wait over time. As it went, they took 20 30 years to get it down to two percent. Why doesn't your own Powell just do that? I Mean why not just be okay with three to four for a little bit? let things keep expanding unless he Doesn't want inflation expectations to get into people's you know psyche.

Whether to your point from before you know they're going to their employer and saying I want a you know, three and a half or four percent raise? Yeah, um I think he he doesn't want that inflation expectation which right now let's call it two and a half to three to you know, gravitate up into the mid threes because then people are gonna. then you do have a wage price type spiral risk right where you know employees which again, you know there's no unemployment right now. They can say hey, you want to keep me uh, you know you got to pay me more, You got to pay me three and a half four percent Peter Schiff Had this idea that everybody, uh, like economists and analysts and I do as well. We look at these inflation expectations whether it's the five year or break evens or the University of Michigan surveys Peter Schiff had this response to me.

He said Kevin nobody when they go out and actually buy stuff thinks about inflation expectations. They're like can I buy this or not it's in your psyche. It's just meant deep in there you don't even know it's there. No, it's there.

You're just thinking about it and I See it here. You know our rent. You know this where our offices are. It's about about 90 percent full.

You know it used to be when we first started running. it was like 30 full. Oh wow, it's like you know, are you early? Our lease is up and they wanted a a seven percent bump in a rent. I said you're out of your freaking Minds I Mean there's there's vacancies all over the city yeah and office real estate? You know they try.

But then you know people have got to say in my mind I'm not paying that. But again, if I'm if I'm an employee and I know that you know everybody's begging for me to come work for them because nobody, nobody can get help right? You might be in this mindset because your inflation expectation, whether whether you quantify it or not uh, is is higher. Now you might say you want a higher increase in order to stay put. Yeah, I Just I don't know I don't I don't I don't see that that that's happened yet.

Okay, but we'll see the next six months. I Guess so so you have, um I guess now would be perfect time to bring up then Tesla if the economy isn't normally I know, do we have? If if the economy is, uh, not going to do so horribly, uh, you did just cut a little bit of your Tesla position after a price drop right before earnings. Good job. Um, your thought I mean is this something you would look at increasing your position or exposure to again in the future? or is this you know why we're going to keep it here and see if it grows.

Look when I look at positions and especially at the top of the portfolio because as you know, that's what drives your performance. Sure, we always look at probability weighted upside downside and so before I could calculate the downside because I thought you know the odds of them bringing their gross margins below 20 percent were very, very low. Yeah, they even said that in their first or their Q4 earnings column. but I don't know because and it's not like Elon is saying that we're going to bring margins in a zero.

He's saying, you know, technically we could and we're the only company in the industry that could do that and he's got a lot of margin to play with. but they've already brought their margins down from where they were leading the industry to now they're the average. Oh really yeah, they're average now. and you know there's reports out there's one from Bernstein that posted and I actually posted this table on Twitter where you know they're they're at 19 gross margin in the first quarter.

we're looking at it, bottoming it out about 16. Oh wow, I think it'll get close to that 15 here because they took prices down again. Yeah, well, that's true. So I'm using 16 for second quarter and you know earnings estimates have come down.

Um since they took this last price hike which was right before earnings. uh, earnings estimates have come down about 11 for this year. about 10 for next year 2024.. And so that's why the stock has fallen Falls with earnings and people haven't really, Um, taking the multiple times, there's not been a re-rating of the multiples.

Although they could have said well now that margins are going down and you, interestingly enough, you haven't seen volume estimates go up. We haven't taken our volume estimates up right. which in theory, if there's a good elasticity of demand. Sure, price down, volume up.

but nobody's taking estimates of volume up. Yeah, So yeah, which is kind of an interesting phenomena. Which I I would you know love to ask Elon that question why why people aren't and why they didn't take up their volume forecast? That's true, they kept it at about 180. Yeah, so you know back to why we took it down.

We just look at upside downside and we just thought there was a lot more downside than before because you know margins could be sick. Gross margins could be 16, but they could be 10. They could be five. Yeah, we just don't know.

And what I'm interested to see is what are competitors going to do with their gross margins over the next three to six months? Are they going to follow Tesla down and Does Elon want them? because that makes especially on EVS That makes EVS more affordable and Moss right In the whole industry, you're staying down. So EV adoption in theory should go higher or do they as most of them seem to be indicating say we're gonna We're gonna try to hold the line on prices and keep our margins where they are and I think they'll probably do the latter and then the question is will Tesla gain market share when everybody else is holding their prices where they are and Elon's down? you know, 15 to 25 prices since the beginning of the year and so for what I've seen is you get this and I call it a sugar high, you get some volume increase when you first announce a price site because everybody who's looking at a test as well and and I see it? You know because I always pretend I'm looking to buy a Tesla I have the Tesla store here on Rush Street Hopefully they're not watching this, They always call me up say we just took prices down Okay, you know and the question is are you getting people new who are not going to buy a Tesla but they were thinking about buying Tesla and then they pulled the trigger because now the price is lower, it's on sale and of course you got the media screaming. Tesla has taken six price declines even though they've taken three right? Um, and so I don't see volumes really responding that much to the the price hikes because I think you get the short-term Sugar High You accelerate people who are going to buy a Tesla anyway as opposed to what you want are the people who are driving ice. Vehicles You know, transitioning traditional and saying, you know what? I I want to buy an EV Now whether it be a Tesla or a Maki or a ID for whatever it is because Tesla's going to get its fair share and the Us are going to get 60 Globally, they're going to get 20 and so I wish what they would do is rather than use pricing which is a short-term tool, It you know does drive volume in a very short term.

but then you know and you heard Elon on the first Court He said, well, uh, orders are coming at twice the rate of production, right? Well, that didn't happen by the end of the quarter. so some something changed. sure and I think you're going to see the same thing in this quarter because when you announce a price cut, you get a lot of news. people go into the store they buy, but then you are.

For some people, you're pulling, You're pulling volume forward. and there still is this effect where people are still waiting for a further price cut because they've heard the media say the sixth price cut that Tesla has taken this year. Well, let's just wait for the seventh one or the eighth one or whatever it is I wonder Is it possible that you could have people who say well, if prices are trending down, I'll wait. What you're actually creating is are negative inflation expectations for Tesla vehicle prices right? And in theory, when the time comes that the Federal Reserve begins to cut and we start seeing interest rates Trend down.

Perhaps people might have this impression that oh, it's the bottom and we've now pent up a lot of that demand, Could we go back to weightless? or would that be unimaginable? We could. And so the biggest question I get from people you know and I talk to a lot of Institutions and I talk to retail people on Twitter but you know the institutional. Community Probably the single biggest question is why is the elasticity of demand for Tesla Solo why is it Is it? Can you give us a reason and I've tried to list you know four or five reasons that I think it is. One is just.

you know the early adopters who wanted to be climate friendly Green whatever you want to call it, make a statement to their neighbor's head or self-driving whatever. Maybe I'm favoring the environment they've bought and you know now what you got to do is get the people who they have the money but they're afraid they're going to run out of charge and I hear that all the time so that when you see these surveys about why, why don't you buy an EV number one is cost which is a perception issue because operating costs are lower because yeah, very low. you don't have to, you know, fill it up with gas or oil and your maintenance is lower. I Don't think people will rescue once once they're in V I Can't imagine.

No, you don't go back once you go, either. You stay easy. But the number two reason is because of fear of range anxiety. They're afraid they're going to run out.

Yeah, and I think what? what? This is my view. and I know it's controversial. but rather than cut model Y which is the best, it's going to be the best selling car in the world this year. rather than cut that by another thousand dollars.

So the bottom price now is 46.9 That's the standard range. The long range is 49.9 Rather than cut that by another thousand dollars that costs tests of 500 million dollars, spend 50 million and educate the non-ev users of why EVS are better advertising. We'll call Education I Know advertising is a dirty word, it's a bad word. but but let's call it education.

And again, I Think what what they could do is they could talk about lower operating costs. They could talk about. Well, we'll call it near Autonomy because FSD doesn't allow you to just curl up in the back seat and read a book or play a video game. We'll call it near autonomy.

The idea of not having to go to a guest station which stinks and smelly. it's dirty. You know in most States including this one, you have to pump your own gas. Yeah, yeah, sure.

And to be able to just go to your garage and plug it in like you plug your iPhone in, That's like a huge selling point. Resale values are much much higher on AVS than they are traditionally and you're helping to save the planet. Yeah, and you know to me if they just did that and when after they they can show Tesla because Tesla's the hero of the ad. So you show Tesla's accelerating and the beauty of the Tesla Yeah, you're going to get your fair share of anybody who decides to go EV.

As you said, once you go, Evie you don't go back so they'll get 60 share in the U.S and 20 around the world. And to me, that would be a worthwhile expenditure of 50 million dollars as opposed to let's just use a blunt instrument called price Cut and Slash 500 million dollars at the P L Which to me it's like why you're not going to get much out of it. Is it possible that the Model 3 will be the 25 000 car? It's possible with these price Cuts It's interesting when you look at. there's a lot of people who track inventories out there and now Tesla actually has it on their website.

You can go in and you can actually you know build a model for tracking inventories. Model 3 is the one that seems to be. Model X is struggling the most. They have the most inventory.

Model S Second Model Three is is is if you if you just look at what Model 3 inventories are doing, it's gone up pretty dramatically. Yeah, um, in fact, you know Troy tests like Kauai have a lot of respect for he's great. he's on Twitter. You know he will say that the inventories now and tests are the highest they've been even before the January 12th price.

Cuts But and it's not Model Y. Model Y is actually kind of rolled over a little bit. It's Model Three. It's Model S model X The model 3 is the interesting thing to me because to your point, you know the starting price is 39.9 You get 7 500 EV credits.

you're down to 32 and yet it's not selling. Yeah, and so the question is why? And so one reason is because that 399 is for a rear-wheel drive model 3 and half the country. Not you, but here at the country it still snows. So you don't want a rear wheel drive car, You want an all-wheel drive car and then there is no Model 3 long range and enters the performance.

Now what's interesting about the performance and I pointed this out the other day. Model 3 Performance is now priced at 52.99 and then you get a Y and Model Y's at 53.95 So you've got a thousand dollar differential for something that's clearly much bigger. Oh my gosh, much more powerful. Why would you just spend a thousand dollars and get a Model Y? So I can understand why Model X is not selling because Model X you don't get, um, the 7500 EV credit price is about forty thousand dollars more and you know all the effort to to cut price has been in Model Y.

Oh yeah, whereas Model X I mean they actually increase price I Guess A Week Ago by twenty five hundred dollars. Yeah! so I understand why Model Y is not selling Model Three I Don't know why Tesla is being so called stingy on cutting price on Model 3 Performance I Don't know why there's no Model 3 long range. Yeah, people say it's because because they're revamping into Model 3, there's going to be a, you know, there's this Highland project and they're going to introduce them. Maybe that's why And the Model 3 rear wheel drive really should be an all-wheel drive vehicle because again, half the country it still snows in.

Yeah, then again, that would be throwing in. Uh well, unless you moved it to the front, that'd be throwing in another engine to make it all wheel essentially or another motor. People get mad when I say engine electric motors, but you have the technology obviously The standard Range model Y is all-wheel drive. Yeah, yeah and look, most cars today are all-wheel drive so you got to be competitive.

If you know you're going to spend 40 000 on a car. Sure. I Think you would probably expect that it's going to be all-wheel drive. It's going to function.

It's by view. Yeah, yeah, exactly huh. Uh okay. so uh, what about um I mean cyber truck coming up this project Highland Are those just hoax for test lines? Yeah, and is that why potentially you've cut some of your position or are you going getting frustrated with Elon Musk's leadership or maybe lack thereof? No.

I think Elon is brilliant. He's a great CEO he's a Visionary and he's brought the company to where it is and there's always been naysayers with Elon Elon is going to, um, continue to drive the company forward with his great leadership and I I You know, sometimes I come across as a complainer, which I do. but but we still own five and a half percent of our portfolio is in Tesla it's our number two position Chipotle actually passed a little bit yesterday because it was up so much. but yeah, but you know we're we're We're still comfortable owning it at you know, five to six percent weight.

In fact, your original question, would we take it back up? Maybe if the price goes down a little bit more I mean it continues to drift down today is having a nice day, but um, what's the floor? What's the the worst case floor you see I think it's 150 and I've told people I think we're in a 150 to 200 trading range. okay and not back to 100 or 69 unless they bring margins down to zero. which again, he has not said they're going to do that. He said technically we could.

Yeah and I don't know if he was trying to send a signal to the rest of the industry that it's coming or but but he's I don't think he's going to do that. And so back to your question. We hold Tesla to the five and a half percent position because of what you just said before. Cyber Truck to me is the most important.

Catalyst I Have a cyber truck tri-motor on order I Can't wait to drive it around here in Chicago and valet as I told people in front of Nobu and I'll watch it from outside. You'll have all these crazy kids taking pictures of the damn thing because it's going to be different. It's going to be spectacular. It's going to be one of these things that when people it's going to be a walking billboard.

Is people see the Cyber truck in cities all over the country and hopefully they get it out at the end of the third quarter. you know, start deliveries. It becomes a draw to go to the Tesla website and go to the test store. You may not buy a cyber truck, but it's going to be a way to bring people to your website and be bringing people to your store.

that's an Apple with model white. it's an ad exactly and it's different and it's Unique Oh yeah so so well I'll drive mine because to me that's like the best truck best car truck in the world and I've I've always been an SUV person I went through my phase probably when I was. you know my early 30s where I had 911s and sports cars but you know as you get older you know it's not that you don't like speed anymore, but you like room. Yeah I like having an SUV or a pickup and I love just driving that thing around.

My biggest worry is will it you know fit in the garage across the street where I live I don't know I hope I hope it does. but I think that's a huge Catalyst for the whole franchise, not just the you know we're assuming you know there's a million three pre-orders we're assuming I think three or four hundred thousand of cyber trucks delivered next year 2024 which may be high, but that's our assumption. and then the other big callus is the 25 000. EV Back to your question I wouldn't be bringing model 3 down to 25 Grand I would really try to step up.

uh, bringing out We always used to call the model too. We've been talking about this for a couple years because you expand the Tam you know you you you increase the the the the the pie of people who can afford a Tesla So at twenty five thousand dollars, you're expanding the pie by at least 40 or 50 percent from where you are today. And I wouldn't wait for Mexico a quick reminder to check out my wonderful programs on building your wealth linked down below I regularly add content to them I Go live every single day with course members providing not only my commentary, financial analysis, real estate analysis but I answer your questions. There are multiple different Avenues you can check out.

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Link down below. Okay Mexico they're saying you know it won't be ready and cranking out these 25 000 Vehicles till the end of next year I would build something right now in China and you know because that's where it's the most competitive reviews? maybe share China is up to 22 percent, get a model two over there. In other words, yeah and get it out. So you can compete with Byd which is super aggressive at bringing out you know these 20 to 25 000 cars and I'm not sure what the reason is that they can't do that.

I mean China They got that whole plant up and running in about nine months. Yeah, why can't you get a you know? uh, we'll call it an M2 Factory a dedicated M2 Factory up in China You know in nine to 12 months and so at least you can compete and get an affordable car out to the masses in China which is the most competitive market in the world. What's your price? Target Going forward 24 25 long term? Yeah, so longer. Maybe you know and we've taken our numbers down but we didn't take our out your numbers down because it's cyber truck because of the 25 000 vehicle because we think Tesla will be able to solve FSD at some point we don't We don't add Robo taxes and we think that's foolish but having a we'll call it level four autonomy.

Um FSD will sell more Teslas You know it's it's a reason to buy a Tesla And you know the question that I always says why are you charging fifteen thousand dollars for FSD which is adding you know 250 a month to your car payment if you roll it into the price or you can lease it for one 99 if you want. So to answer your question, we're using 320 dollars as a price Target which we use. we serve in the next 12 months. And the way we, it's a theoretical number.

and when when an analyst gives you a price Target No, it's not where they think the Stock's going to go in 12 months. it's based on some discounted earnings or discounted cash flow. We go out to 2030. So we take a long-term view, which is what.

Seven years from now, we have earnings of about twenty four dollars a share. Um, you know this year earnings estimates are down to 350. Yeah, down 11 12. Next year you know the streets at about 510.

So we're 24. We're 24 in 2030 because we have 10 million Teslas being sold in 2030. Which again, the way I do this: I look at SAR I look at EV adoption and I look at that dreaded Tesla EV share which you know that he talking about. but that's the way people model.

Yeah, of course. of course you try to find a 24 bucks though in 2030 at even a 20 multiple volumes 30. so you're at 600-ish bucks 720 right? and then I discounted back I use a three and a half percent 10-year treasury. there's a, you know, a six percent equity risk premium versus bonds that's a 60-year average and then we we risk adjusted Tesla still got a 1.6 beta.

might even be higher now, but it's up there so you know you basically have to risk it. Just so if I'm trying to figure out what the discount rate on Chipotle is, it's a much lower number. because you don't have a 1.6 beta, you got like a one One beta or Apple or you know any any of the picture pulley is going to keep up this pricing that they have. I mean I mean when you look at being able to raise prices and still sell Yeah, but I mean that's impressive.

I mean how do you? why would you are you? I mean you're now more heavily weighted into Chipotle than Tesla No, not intentionally. Yeah, we we we've kept Tesla as our number two position and we actually after yesterday I mean you'll see this in our the nice thing about ETFs every night you can see what we do transparent. Um you know we you know when when a stock is up as much as Chipotle was yesterday and it was up again today we took our position down by about 50 basis points. but but I do believe that Chipotle has great pricing power and they continue to.

You know, if that's let's call it, you know, Six percent a year? Yeah, um I think the uh, the comps Were Ten and a half for first quarter I think they're guiding to mid to high single digits. The rest are. so let's call that seven. That's great.

If you can get six percent pricing and one percent more transactions, they can do seven. Yeah, and if you can do seven in in comps, you can do 15 earnings growth. And then the question is, what do you pay for a 15 earnings grow or long term? Yeah. And so one of the jokes I made yesterday and I posted this was that Chipotle now has a higher PE than Tesla Yeah for earnings? Yeah, no kidding.

and you know, is it deserved? Probably not. because unlike Chipotle Um, which is getting a lot of its growth through pricing, Tesla is getting all of its growth through volume. So do the math. I Just said I'm using uh 10 million is my forecast for 20 30 units I take SAR which is about 85 million in 2030.

I take a sixty percent EV adoption and I give it what a CV shares now which is 20 percent so you take 85 times, 60 times 20 you get about 10 million units. Okay, and you can do it by country. You could do it U.S Europe China Rest of the world which is the right way to do it. But I think you're going to come up with a number that's close to that and one of the challenges is that you know Elon and his team are telling people 20 million units by 2030.

but I don't know how they get to that number to be honest with you right? it's EV share growth and they don't like TV show they like total share but you know to me you take the you know the most, the smallest, most measurable metric that you can find and do the research on it to figure out what and it's got to be something you can monitor every quarter and I can monitor review share every single quarter. So if I have 10 million units and then you have to make some assumptions about your average selling price which I have mine coming down although cyber truck's going to bring it up but model uh, 25 000 vehicle is going to bring it down. and then the real question is gross margins. Yeah, do you want to take gross margins up from if it bottoms at 16 in the second quarter, where do you want to have it be by 2030 and I'm going back to you know, low 20s and in energy which we haven't talked about.

energy is going through the roof because of Mega packs I can get to 24 in earnings. So the question is how quick is the growth rate going to be from 20 30 on right? And so at this point you're at 60 percent EV adoption. You only have 40 left to go. So law of large numbers, the growth has to come down.

It's not like going from 10 to 60. where if you figure out the math on that over seven years, that's about 30 percent growth rate going from 60 to 100. You're not going to get 30 volume growth anymore, right? So I bring my uh, earnings estimate. You know now I'm doing back of the envelope.

uh, from 2030 on to about 15 to 20.. So putting a two times growth rate which is kind of what a big cap company like you know a an apple or Microsoft Trader two times growth put 30 on it. That's how I get my 720 discounted back. That's how I get to answer your question from 10 minutes ago.

That's how I get 320. Chipotle You know it shouldn't trade it the same multiple as Tesla because they're getting a lot of growth in pricing. you're not getting, you know, thirty percent volume. But that's high quality growth when you're doing it through volume, right? So to me, Tesla should trade at a much higher multiple.

The reason it doesn't is because people are afraid that Elon is going to keep taking gross margin down, right? And that's why I go back to it. You read what he actually said. Um, on the conference call he didn't and a lot of people give me grief about this and I but I know this. He didn't say he was going to take the margins down and I fight with PMS about this all day long.

He said technically we could do it. we're the only ones who could do it. Technically he's right. The question is, will he do it and this.

This is the heart of the investment question. If volumes don't respond which I don't think they will right because what we talked about low elasticity of demand, people may be worrying about a future recession. Lots of competitors out there. You know, ubiquity when everybody's driving a Tesla You know, and you're driving through the neighborhood and dropping off your kids and everybody's doing the same thing and they have a Tesla You know you may not be as likely to own a Tesla because Tesla's still an expression of how well you're doing.

and if you're just doing as well as everybody else, you may not drive a Tesla You may go back to your Porsche especially if they're electric or something. That's a sort of flip on this side of oh I See so many Teslas that company must be doing well. You're actually suggesting there's this level of it could be doing too well. Think about it, if you had a I don't know a special watch Texas this is still a luxury.

Good do you want to be wearing the same watch as everybody else? Do you want to be driving the same cars there? But did you want your house to look like everybody else's And you know people say, what about iPhone iPhone is not. You're not. You're not expressing how you're doing in life by using an iPhone. You're using an iPhone Because it's functional.

it's easy. You know you can use it quickly. I Think a Tesla is still an expression of how you see yourself doing with life And that's why you know the ubiquity factor I Haven't yet figured out. Is it good or bad? Yeah, yeah, it's to me when everybody owns it.

Yeah, and it's the most popular corner and you've only got four models. That's why you need some more models. Maybe you need six or seven or eight. I Just worry that without, um, you know, more models, your cars look too different.

That's why I like the Cyber trucks so much. Yeah, that's why. Yeah, even when Cyber truck came out, there are a lot of people saying shouldn't you make it look more like a model y or a model 3 and I don't think that's true I Think having the Cyber truck look very different is the right strategy. And then you know, maybe for all the you know, we'll call them baby boomers Who want a pickup truck that looks like a normal pickup truck? You bring out a more traditional looking truck one Cyber trucks out there.

But I don't want them getting distracted again? Yeah I want that cyber truck out. and I want the 25 000 vehicle out. And if you know they want to bring out a traditional looking pickup truck for you know people my age, let them do it. Then What about this This mention that you made about quality growth being volume versus just price.

Is that a way of saying hey just because you can raise price like a Nestle or maybe a Chipotle That's not a way of actually growing your your market share and therefore it's not as as quality or or you can clarify that as an analyst. Yeah, you know when you look at elements of growth, you've got to decompose into volume, pricing, margin. and then I look at cash. You know what do you do with the cash? Sure.

Okay, sure. build more factories or dividends or whatever. So you look at some marginal return on invested capital and you know those are the components of your growth rate. The most high quality and most correlating with stock price performance is growth that comes from volume People prize unit growth.

When you see a company that's growing units, that and units can be. you know Subs units can be um, you know traffic. For instance, like Disney subscriptions or Google searches Subs is a normal one for you know, like um, you know Google or uh, you know, some tech company? um but but unit growth is the most prized because you can do that year after year after year if you've got a really good position with a good moat. High Entry barriers not that much competitive intensity.

All the you know strategic stuff that they teach you that you're supposed to look at. Pricing is the most fragile because if you raise prices too high at some point the consumer says no, I'm not going to do it. Sure, there's another option, there's a substitute and I learned this because I used to cover the the cigarette industry back in the day in the 1992 and you're not old enough to remember this. but there was a time called Marlboro Friday very famous in consumer lore.

it was April 2nd of 1993. this is I'm dating myself and Philip Morris after taking prices up eight nine percent a year in the stock price would go up, they finally decided they would have to cut price because the consumer finally said no. It was during a recession, but it was also once. the price of a pack of cigarettes got above is way back when two dollars a pack versus the cheap generic cigarettes were like 80 cents a pack.

so it's two versus one and Philip Morris took prices down and I think everybody learned a lesson that time You can't just raise prices at eight or nine percent a year because at some point the consumer is going to say no and I don't know where that price point is on. Chipotle If you go into Chipotle today, your average check is above ten dollars and so well above ten dollars now is like 17 bucks for a burrito. I Don't know right? Avocado? Oh my gosh, or the guac. So they get you so so I believe.

And you know, back to your question about quality of earnings growth. You want to find unit growth. That's why Tesla is still very compelling to me. but you got to be willing to put your neck out and say no.

Margins aren't going to, you know, have a downside of 10 gross margins. Or you could look at operating margins too. You know you've got to be able with great confidence. If it's going to be your number two position, say here's the bottom of what I can see on margins and I don't have that confidence right now I'm not so sure what Elon's going to do.

Yeah yeah, I believe he will keep margins kind of where they are now and this then becomes a catalyst because I think he's going to realize that he's pushing a little bit on a string that when you take Model Y low price is now 46 9 in the U.S To say 45.9 he's not gonna that doesn't drive affordability. The people who are driving model wise are not going to say oh wow, maybe I should go get one or the ones who wanted to buy one that doesn't really do it that much. especially if they're saying I'm going to wait for one. What drives affordability is the 25 000 RPM And you've got to differentiate between the two.

And even if you read Master Plan One, two and now three, when when he talks about um, you know, driving affordability, it's always about new products. Yeah, called flanker products. Sure. Okay, so you know Netflix understands this.

Netflix now has a tier. If you don't want to pay, you know, 15.99 or you don't even want to pay 9.99 you could pay 6.99 That's supported them and that's that's a flanker product and you've seen through the history of you know, luxury goods and you've seen a new automotive industry. Oh yeah, you have. You know Mercedes and BMW have practiced it for years where you bring the a new product out and to me that's consistent with Master Plan one.

Master Plan one was Roadster to Model S model S to model three. Yeah and now we're going to bring out model Two. Well it's like BMW they go, they have the five and seven series first, then they bring the three, then they bring the one series now. Exactly Yeah, Yeah, so okay.

Well now you mentioned you don't want to include any kind of Robo taxi. Revenue Uh Brett Winton from Arkhamvest was a little upset the other day on Twitter because he called it dumb not to include at least some Revenue because his argument is you have to assign some probability to the fact that there will be Robo taxis and if that probability is 25, then you should give 25 of the revenue to your number. What do you think I mean is Robo taxi If it happens great, it's icing on the cake or or should you look at it that way I can't I can't I can't model it Kevin I can't I can't put a number on it And if I can't put a number and I can't put it into my evaluation model, how do they do it? They make it up. Let's just assume it's like you said, they just assume it's going to happen.

But you know? Look, we've had Elon promising Robo taxi since 2019. it's next year it's actually And they did it again on the first quarter coins as well by the end of the year. Yeah, and it may happen. And if we can get to the point where where and let's define what it is.

you can sit in the back seat and from a liability standpoint, you're willing to put your neck on the line and say we're going to be a level four Autonomy product. Where we're going to, we're going to assume the liability if the car crashes which I don't think Tesla's willing to do that. No, no, they won't do that. So if you're if you're willing to put your neck out and say we're level four autonomy where it drives itself and and they do that, then I would be willing to put it into my model.

But then you got to say okay, who else is going to get there? Yeah, and you know what the we'll call them the Uber Bowls The Uber bowls will say, well, Tesla's the only one who can do it because they have a general solution that works anywhere Vision versus mapping, right? Yeah, as opposed to you know, if you look at Queens you look at Waymo, they're geofenced and I get it? I Get it? You know? And they're trying to connect their geofenced areas. But in China That's not how it works And you've got you know, three or four competitors that are all spending as much as Tesla on trying to solve autonomy with vision, then with anything I mean with anything? Yeah, some useless, a combination of vision and lidar. some use as Tesla's doing vision and radar. you know they all have HD mapping and they're all spending a lot of money on this to try to get there.

Sure, a lot of using Nvidia as well. Yeah, like I think uh, Neo that's why that's why Nvidia it's one of these besides IA AI Yeah, the Nvidia has done so well, but I'm not smart enough to know who's going to be the winner in three to five years. When Tesla's willing to put their you know, live their liability neck on the line and say okay, we're willing to assume the liability if this thing crashes, right? What about? That's what? That's what's protected them, so that's a good point. What about positioning though? Is it possible that today people are just very bearish on Tesla Like maybe they were about uh, Facebook at eighty dollars? uh is.

And and now everybody says, well, the food ones, uh, the Staples are doing well like McDonald's I Think they're flat out here every year. Yeah, so say so. you got McDonald's Chipotle Nestle Ulta These some of these companies are doing absolutely phenomenal. Is it possible that this is just a partly or a lot cyclical War People are moving into the Staples because they're worried about recession.

When the worry about recession goes away, they go back into Tech and growth. and and then these look really undervalued like Tesla looks underground right now. Investors are pricing, pricing power. If you can show you've got PP yeah, you're paying extra in multiple points for that.

To me, that's also a sugar high because you can't And I say remember Marlboro Friday And if you want to look at Philip Morris Ticker Ammo back in the 90s, it was great. Every year they took eight or nine percent pricing, Every year they made their numbers and then every quarter or at the end of every year they would buy down the inventory and you know it was all a mirage. Sure. And they finally had to pay the piper on April 2nd 1993.

that's going to happen with all these companies Taking this access person, you can't take eight or nine percent pricing every single year and expect the consumers just going to stay with you. So so so I would say about Tesla Tesla's definitely you know on its butt right? the the sentiment on Tesla very low I I've not seen it this low in a long time. Gordon Johnson's very happy. yeah his and he's he's out there I See him tomorrow by the way of good luck with you I hope I hope he doesn't You know like you know, go crazy on you if you're bullish because he's a little bit out there.

and I'm not gonna say I'm bad about court I've done Gordon a long time but I would just think that if Tesla can come to the realization that hey, we've got to Edu if we want to grow our volume, what we need to do is convert more of the 90 who don't drive EVS Right in the world to to choose EVS How do we do that? We can either keep taking pricing down until the 25 000 vehicle comes out in 24 25 or we could try educating on why they should want an EV versus a traditional car right? and I don't think that's that hard so challenge question then who in the short term if let's say Chipotle has more pricing power today, who would you say has more pricing power in 10 years? Tesla versus Chipotle I would say Tesla does because I think what's going to happen is Elon is going to discover how great advertise and funny and you know, intelligent and educational and he's gonna he's gonna get into it right? I mean I've done advertising, You know what he should do. He would just love doing it if you tried it. Ryan Reynolds Mint Mobile ads Ryan Reynolds did all of his own in front of a green screen or what a super low-cost production ads. but because it was Ryan Reynolds and he had some wittiness to it, people loved it and he just sold Mint Mobile for I Want to say about half a billion? No, it might have been over a billion dollars.

somewhere between 500 ml to a billion bucks to T-Mobile I mean remarkable. He did all his own ads for it. see I I Had an idea where I would let the Tesla Twitter Community which you know it's you and I both belong to it. We both have a lot of followers.

just come up with a 30 second order. We'll say 60 second commercial. Maybe you come up with both and whoever comes up with the best commercial by the Twitter you know is judged by the Twitter Community gets a Tesla plan you know Tesla S plan has exports. It's good motivation and I'm telling you you first of all you get great PR because everybody'd be fascinated by it.

Sure you get these intense competitive juices flowing and then Elon and his team could pick the best one and then you know they could shoot it professionally instead of you know we're doing it in you know some makeshift Studio I just think I've seen CEOs and I bet Tim Cook is like this when they put an ad out and then you know the Ad Agency comes in and they show them their you know their their their work you know everybody gets excited and they all you know say well this is what this is going to accomplish is what that's I Think it would be really exciting for Elon to do that and it's a very different side of him than what you know. the engineering side. yeah he worries about today. Well I thought he would really get into it.

What about the side of Twitter What's been your take about uh the Twitter uh ownership? Is this a distraction for Elon is I mean obviously we know he overpaid for Twitter he knows that himself. It's not a secret, we knew it at the time too. That's why he wanted to back out. But I think the biggest question that looking forward now is is he distracted is I don't know I and look it's it's it's hard to know because he's always had boring gnarling SpaceX and he's got CEOs who run those firms so to me he invented those.

He put the management teams a place they are made after his like this with the lack of a better word Twitter is different he is in Linda Yaccarino coined a phrase at this event. this advertising event I went to Miami two weeks ago and she asked Elon this your other companies you invented something Twitter you're Reinventing it ah and you're you're dealing with the cards that may not be so good and you have to fix them as opposed to build it from scratch and I think there's an element of Truth to that Twitter you know he's gotten rid of I don't know 70 to 80 percent of the staff but he's got a woo the advertisers back for this to make money from And to your point you know if you paid 44 billion he just put a valuation of 20 on. It is because a lot of the advertisers have not come back and he should look to Apple and Disney who's he's mentioned have basically stayed with them through it. So yeah and he brings up good points is they must find it working or they wouldn't keep advertising.

So you know to me and this is the number one question I got because I wandered around this conference. there were 800 advertisers there And I talked to people at dinner and talk to people during the conference. Number one question I get is why does Elon think we should be advertising on Twitter When Tesla doesn't even believe in advertising, Nobody knows that everybody knows they don't advertise. Sure, Yeah.

And so the question is, if you don't, if you can't tell people why advertising is great, if you don't do it yourself, you don't do it yourself. how are you going to convince these people to come back. Funny. So so here's here's here's what: I Believe Yeah.

I Believe he'll figure out an answer for that and I do believe and this becomes a catalyst for me. He will realize that the the price cuts are sugar high, they're not getting a much and he will try advertising my my prediction by the end of the year. Wow. I Don't know if it'll be 5 million 10 million 50 million but it won't be 500 million which is what it cost them.

He cuts prices by a thousand dollars. Oh wow and if it's three thousand dollars, it's a billion and a half. Wow! and so I believe he will try it. And then I think he's going to get Twitter people to come back to him because he's going to discover what.

you and I both know that the power of advertising is immense, especially as you go into an election year and you go into Olympics here. that's true and I mean he's got the platform. Twitter So I think you know and it's funny because you know Linda Yecker, you know where we're talking about this. he loves Twitter I mean you can tell he's just it's like his baby and as much as he complains about it, he loves the CEO of it.

So so back to your question: is he distracted I think with Twitter you know he he spends maybe a third of his day maybe on Twitter and maybe spends two-thirds of his day on Tesla and the other companies. but he really doesn't have to spend that much time in the other companies he spends a lot of time on SpaceX because they're run by CEOs that he's put in place. That's a good point. so he's distracted a little bit.

But look, the guy is a machine. He works 24, 7 and I don't know when he you know goes on vacation or eats or sleeps or yeah, you know, has time for a relationship I I don't I don't know what he does, but he seems to have time for his kids. you know? So what do you say about uh AI Then you know a lot of people have linked Tesla with the dojo supercomputer and thought, okay, maybe there's an AI future Are people just looking for too many places to try to make some money out of Tesla or is is this whole AI thing just a fad and a bubble? Uh, what's your thing is a fad? I Think Metaverse is a fad and I think you know Zuckerberg is learning that and you know you if you watch his tone. he's talking more about AI than he is the Metaverse now.

Oh yeah, in the conference call, uh I guess it was last night. Yeah I think with Tesla you know they've always gotten the best engine they can hire great Engineers They can hire great. Uh, you know people who think you know about autonomy and think about AI because it's Elon Musk and everybody wants to work for Elon Musk and you know it helps that they can put them in San Francisco which is where a lot of people are in Palo Alto which is where a lot of people want to be so they can attract good talent. Yeah, I don't want to build like bot though into my evaluations because I Again, I can't model it because I don't know what it's going to look like and I don't know who's going to be competing with them in four or five years? Well, I think that's such a big question too, even for companies like Google or Microsoft is who's actually going to profit off of AI Is it the companies that are providing the bot or is it every business that is using it to make their employees 20 more ingredient? AI is an ingredient.

So if you think about Google and Bing and know anybody who uses Bing as a search engine I mean I just don't. I mean maybe it's there, maybe recently a little more maybe. And look, what's interesting is Microsoft said under conference call that their market share went up, but they didn't give any details. No, they didn't They were very optimistic about AI But I think that I mean their company Though almost all of their segments except for Windows OS was up substantially and the clouds up like 28.

they're doing very well. They're doing well, and I give them a lot of credit for taking a business that was kind of sleepy and nobody was that excited about. And now you know people are