Oh man. Massive price cuts at Tesla for Tesla vehicles across the board. What kind of price cuts are we seeing? What is this meme for Tesla's Pricing Power And what does it mean for Tesla's valuation? How does it change that? Tesla Spreadsheet Oh boy, hey, everyone meet Kevin here. Oh, let's get into this first.

we have to understand Pricing Power. I'm going to start by explaining what I Believe is Not a company that has Pricing power. Usually, a company that does not have Pricing Power is a company that in a recession sees demand for their product decline. But not only do they see demand for their product decline.

Because quite frankly, in a recession, just by the virtue of the definition of a recession, demand for everything declines, right? Remember what a recession is, It is a shrinkage of GDP relative to last year. So if last year people bought a hundred dollars from your hot dog stand and this year they're only buying 98 dollars, that is a form of an earnings recession for you. Or in Top Line references a revenue recession. Right when we talk GDP we talk about the entire economy shrinking.

That is, we're still selling hot dogs. We're just selling less than we were last year. And in recessions you have contraction. Across the board, everyone suffers.

But there are companies that suffer less than others and those tend to be companies with Pricing Power. see companies without Pricing Power lose growth. But not only do they lose growth, they also see their margins compress because costs can go up in a recession or they're operating leverage shrinks. Which means they're seeing growth go down, but they're still spending a lot of money on their Administration and their advertising programs.

And they're frustrated because they're advertising more. but they're seeing less growth that shrinks margins. And then you look at earnings per share and you see shrinkage. That is an earnings recession and nobody wants to see shrinkage when it comes to PP This, for example, would be a perfectly exemplified by in my opinion: Carnival Cruise Lines Carnival Cruise Lines regularly in earnings call after earnings call exemplifies their frustration over how their advertising more coming up with better advertising strategies, but they're still losing growth momentum while at the same time losing margin.

Carnival Cruise Lines, in my humble opinion, is a company that does not have a lot of Pp pricing power, whereas a company that is able to lower prices to induce substantially higher demand. first of all, takes demand away from other competitors, right? So in a recession, if we're saying okay, there's less of a pie for everybody to go around. but I Want more pie because I'm hungry. In, in the case of companies, you lower prices to take more of the pie for yourself.

and if you can maintain or grow profitability during that time, you can grow overall profitability, then you win compared to your competitors. Because maintaining profitability in a recession enables you to do what your competitors can't, it enables you to invest in your businesses. See, in a recession, most people just like companies turn inward. They say, you know what? I'm not going to buy a new laptop I'm not going to invest in a better Production Studio for my YouTube set I'm not going to invest in my startups like my real estate startup or whatever I'm gonna I'm gonna lay low I'm just gonna survive and get through right? And this is this is like the safer option, right? Because you don't want to go bankrupt in a recession.

But if you can maintain profitability, you have the opportunity to invest in a recession when others don't. And much like Tesla has announced not only the expansion of Giga Texas but is soon to announce either the building of potentially an Indonesia plant or a Northeast Mexico plan. maybe even both. Who knows? Also, still in negotiations on that phase three doubling of capacity expansion for Giga Shanghai These are things that companies can do during were sessions who have profitability and that is a sign of pricing power when you are able to take more of the pie and maintain profitability so you are able to invest more.

So not only are you taking more of the pie today, but you are enabling yourself to invest more in the company which enables you to take more of the pie again in the future. And so this is what highest relative pricing power means. Unfortunately, that is not as simple as what pricing power is often defined as in a boom Market In a Boom Market A bull market in a non-recession When the pie is growing for everyone, what you end up getting is froth. companies that have very bad margins or very bad businesses and business models make a lot of money.

but companies that are really great companies also make a lot of money and everybody feels like they can raise prices whether their product is good or bad. In recessions, the crappy products go bankrupt. That's the point. Recessions are like economic hurricanes.

They come through, blow everything around and all the weeds on the on the ground and the palm trees that have a bunch of dead fronds or the old trees that just can't hold themselves up very safely. all of that falls over gets. Blown Away blown onto the street and then washed out into the ocean and all of a sudden you come out after the storm and you're like this place looks a lot cleaner than it looked just a few days ago. It's weird.

Okay, I grew up in South Florida I Had that experience a lot. a lot of hurricanes in South Florida But anyway. Tesla cutting prices in the case of Tesla is an example of inducing higher demand in a recession, maintaining profitability and higher margins than competitors. Meaning, they have the ability to take more of the pie and still grow and still invest.

Consider again. Byd in China has a net profit margin of 1.45 Tesla has a net profit margin of 14.5 percent, which company has more capability of reducing prices while still maintaining profitability. Byd Cuts Just a bit. You're negative.

Now, you can't invest as much anymore. You're losing money. every quarter or every car you sell, you're losing money on net. If you have 10x the margin, you have much more pricing power because you could drop your prices.

You could drop your margin 50, sell a lot more, still have cash flow, still invest a lot, and actually come out as a stronger company on the other side of the recession. The best investments we could ever make, in my opinion, are the Investments that we make during a recession. But don't get me wrong, it is hard. It is painful.

People will think you're an idiot. People will hate on you for investing in a recession because they're too afraid to do it themselves. They're too afraid to invest in a recession. They're the kind of person that will read you quotes, Be fearful when people are greedy, and be greedy when people are fearful.

Yet when everybody is fearful, they're the ones cowering in the corner crying. Everyone will look at a stock market chart and they'll look at the Dow Jones over the last hundred years and they'll see just this in a logarithmic curve going straight up. Uh, over the long term. It looks exponential, right? But logarithmic as in trying to scale it because otherwise it looks ridiculous.

But anyway, the point is, you generally see the stock market just going straight up into the right. But what people do is they look at the recession points and they're like, well, if I were to invest I would just invest in 09 in O3 in 2020 of March And at the end of 2018, that's when I would invest because I'm going to be a perfect investor. Nobody is better than me. That's what people who don't actually do anything in life think.

But in my opinion, real investors realize the best time to actually make recession Investments is when it's hard to do so. And that's now and the way you can really do that. The only way you could do that is by working harder to increase your income. So that way you are able to win when you escape a recession that applies to companies and individuals.

Tesla for example, has to work harder. They have to cut the froth. They have to lay off people they don't need. They have to put higher demands on the existing employees they have.

They have to limit wage growth to keep margins at least survivable. They have to cut prices to keep growth going, so that way they can keep investing into new factories and r d whatever. And that is how companies grow. They make hard decisions during hard times and they do what's hard during hard times rather than going crying in the corner.

You get off your ass and you work harder. It is a hard thing to do, but it's the best thing to usually do unless your product sucks and you don't have any pricing power because even if you work harder, but your product sucks, you'll still go bankrupt. So what do we know about Tesla After my little lecture, usually I only do lectures in the courses on building your wealth linked down below. We do have a big pricing change coming up uh, on my birthday.

so make sure to check out the programs on building your wealth linked down below. And if you like the way I explain things or I'm about to explain things whether it's fundamental analysis, technical analysis, you want to learn about finance and actually building your wealth during a recession, check those out. Whether it's real estate stocks, building your income, these programs are phenomenal. I Am extremely confident you are going to love what you see.

Okay, so these are new model Y inventory levels and this is the Tesla data.matjung.net website. A lot of people have been using this referencing this on Twitter Uh, this individual is uh, so gracious to to provide this uh, this sort of data tracker and a lot of folks have gotten very nervous. rightfully so that look, we had a we had a massive increase to the Tesla vehicle credits that Tesla's offering at the end of December 2022 and so what did we see? We actually saw not only a plummeting of inventory after new pricing incentives, but as soon as the first of the year came and those incentives disappeared, we were subject to the government's unclear Inflation Reduction Act credits. What did we see? We saw an explosion of vehicle inventory at Tesla.

In fact, we saw some of the lowest registrations for Teslas in China that we have can I seen in recent history. It was. It was not that great. Uh Tesla registrations were in the neighborhood of 2 000 Tesla vehicle registrations.

Uh, in in the week between January 2nd and January 8th. That's very, very low. Usually we're somewhere around 8 to 12 000 14 000 Byd was kicking Tesla's but it was ugly. Uh, and so there were quite a few signs and indicators that oh, things are becoming a little bit problematic in terms of where Tesla vehicle pricing sits right now.

and fortunately, Tesla has done what should be done during such times. in such cases of, uh, lower demand for vehicles and they have decided to reduce pricing. In fact, take a look at how prices have been reduced. Here's the chart from Bloomberg I'll go ahead and hide myself for a moment.

you find this on Bloomberg.com but you can see here that uh, we've got some large price. Cuts Model 3 down 6.4 percent, Model 3, Performance 14, Model Y 19 and 20 Model S 15 and 9 model X 9 to 14 This is some pretty large price Cuts Right now, it is worth noting that relative to March of 2021, these price increases uh, that we've seen since uh, March of 2021 still leave the vehicles priced higher than what they were. So take a look at this again. We'll go back to this Bloomberg chart here for a moment and what I want you to do is pay attention to the model there this way right here.

like the Model 3 up there. So the Model 3 right now sells for about forty four thousand dollars that was selling for 38 490 back in March of 2021. So it's worth having a little bit of perspective that uh, you know, 43 990 divided by what it used to be is still 14 more expensive than what this car was in March of 2021 And arguably Tesla has actually become substantially more efficient. Now, we have had substantial commodity price increases and we are slowly seeing some of those come down, not all of them, And this is where we've got to kind of scratch our heads a little bit and look and say, okay, well, how is this going to impact margin? Because sure, the vehicles are still priced more than what they were priced back in 2021, But now we're in a situation where uh oh, only some commodity prices are actually falling and not all of them.

Let me give you an example: We have aluminum down 14 to 19 depended on the grade of aluminum. We've got the Bloomberg commodity and this is year over year. The Bloomberg commodities index is down 20 year over year depending on the type of Steel you're looking at, You could end with When you're making your comparisons, you could see that regular rolled steel is somewhere down between 12 to 18. But if you actually go a little bit deeper and you look at very very specific types of Steel, you could see substantially greater plummets.

In fact, an individual was nice enough to send me a spreadsheet with some some price indices specifically for steel. Big shout out to this is oh, where's where to go I'm pretty sure it's Tommy uh Anyway, yeah, Tommy Big shout out to Tommy on Twitter thank you so much Tommy on Twitter I'll go ahead and uh, share this screenshot here. Uh, Tommy on Twitter sent me an example of a few different Uh spreadsheets for steel pricing and one of the examples he gave is he suggested that C-r-u-h which is a thicker steel usually something that you would see in framing for Tesla vehicles. Uh, has come down substantially.

In fact, if we were to just look at to simplify the spreadsheet, the pricing for structural steel January to January so 2022 is January to January. Now the Uh pricing that you would see would be on screen here. A little small there. let's zoom in a little bit.

January Sitting at about 1490 as sort of an index price down to 712. so about half this January that's a 50 drop in steel now. Uh, we've seen similar prices like that for thinner steels for things like doors and hoods. copper down eight to nine percent year-over-year very important inside the motors for electric vehicles.

However, and unfortunately, Lithium is substantially more expensive Tesla just unfortunately doesn't uh, you know, take advantage of Contracting and a lot of their Lithium pricing at least per Bloomberg. They tend to pay for their Lithium based on when it's shipped, and that's not so convenient when all of a sudden you see Lithium hydroxide, which goes into making the Lithium-ion batteries up 156 percent year over year in. December that's uh, one and a half X I'm sorry. Well, it's a double, right? and then more so.

so when you're up a hundred and fifty six percent, you're up about two and a half. X So let me let me translate that. if it was a hundred dollars. now, it's about two hundred and fifty six dollars.

So it's gotten quite a bit more expensive. Nickel, which is also a component of at least some of the batteries. Tesla uses up 23. So much like what Elon Musk said in his Q3 earnings call.

Some prices are up. Some prices are down now. remember Elon Musk and Tesla last raised prices in June of 2022. So it actually hasn't been that long since we've had a large and massive price increase.

The price increases were insanely high in June 15 to 20 percent and now we're seeing a give back on that and a little bit more. Some parts are becoming more expensive or so. for example, Fsds up to 15 000. The take rate for FSD is about 19.

Keep that in mind. That'll become very important when we're about to go into our analysis and we'll do some spreadsheet work. Midnight silver a color for Tesla paint didn't used to cost money, Now it's a thousand extra dollars. Destination fees are up 190 dollars and now you have reports.

Uh, after these price cuts that demand is returning. You look at the Cnev post Chinese uh website. Uh, there are reports that Tesla potentially received 30 000 orders within three days of their price cut announcements late on January 6th. Uh, which my assumption is we we haven't seen any increase in registrations yet because there's probably some kind of two or three day lag time before you see registrations actually get processed and when vehicles are actually sold.

so vehicles started selling on the seventh and 8th. I wouldn't actually expect to see those Insurance registrations show up yet until the following week. If in the following week in China we're not actually seeing a big spike in Insurance registrations for Teslas, it's gonna be a problem. Uh, now.

Uh, There's also some talk about Tesla potentially having delivered 10 000 Vehicles the first day of price. Cuts in China day? That's insane. Think about that for a moment. If let's say you were delivering 3 000 vehicles per day in China Now, you're doing ten thousand dollars initially, even if that's just the initial surge.

If that drops to say seven thousand or six thousand a day, that's still a lot more than the 3 000 a day we were doing before. Big Boost Uh, now when it comes to Tesla, we have to remember that Tesla in the long term is trying not to be a luxury vehicle. Vehicles are relatively expensive. When you're looking at the Y's the S's and X's the model 3 has almost always been less than the cost of the average price of a new car.

The average price of a new car in America right now is forty seven thousand. Six hundred and ninety two dollars. Now, do be careful. averages do skew up.

But if we go ahead and compare that average price to what you can pay for a model 3, right now, you're at three and a half thousand dollars less for a model three than you are the average price of a new car. And back in 2019, the Tesla Model 3 was selling for within 500 of the average new price. So if you use that as sort of a comparison, the Tesla is becoming substantially less expensive relative to the rest of the vehicle industry. And yesterday we were on.

uh, we we went on a very short flight, but we went on a very productive flight and uh, we in the jet we were with my jet my my baby jet I call it we were talking uh with our team and the shadow War who was with us and we were talking about Tesla specifically. and one of the things uh, that uh that I spoke about was this idea that I expect in the future Tesla is going to have a twenty thousand dollar vehicle and most people think I'm absolutely crazy when I say that. but I think I have a very competitive thesis about this and and I encourage you to hear it out. I think it's fascinating.

So the thesis of the twenty thousand dollar Tesla is actually that Tesla would sell the twenty thousand dollar car for no profit, no gross profit at all. Now you might think to yourself, that's insane and this was yesterday. Uh, and that's an important context because we discovered something this this morning that that Elon had said that it really aligns with this idea, which is pretty remarkable By the way, if you ever want to chat with me in person on the jet, you can join me. Just use the link down below and schedule a shadowing experience where you can follow me around as we explore real estate and we can dialogue together.

I'll answer any questions that you have. Uh, well, you know we can take pictures, do video, whatever you want together. In between some of our commutes and travel hang out with us and the team, it's really a great experience. Check that out via the link down below.

It's next to the link for the courses and you can use the coupon code for that before the pricing changes by my birthday. So uh, what? I Talked about was this idea of the twenty thousand dollar vehicle and the Twenty thousand dollar vehicle. What's so incredible about this is not having any profit. You might think this is a terrible idea, but watch this.

Let's jump in over here and let's draw a Twenty thousand dollar vehicle. Let's go ahead and assume this twenty thousand dollar vehicle is a vehicle that only has about an 80 mile range, right? Maybe it's a two-door 80 mile range? You know, maybe it has a a 20 KV battery. Uh, kilowatt hour battery generally. Here in America we call it uh and uh.

You know, maybe it's more efficient because it's lighter and that 80 mile battery is actually more like a 100 mile battery. Plenty for people's daily commute going to the grocery store, whatever. Most people drive an average of 30 minutes one way, which is probably somewhere around 20 miles in. One Direction Assuming it's not all just straight highway, but even if it was, that's 60 highway miles and you've still got room in the battery.

Uh, so what's incredible about this is if you take this smaller vehicle and let's say in the future, you sell it for twenty thousand dollars and your gross profit on the vehicle is Zero. Literally Zero. Well, first of all, you are going to cannibalize a substantial subsect of the vehicle. Market Because other manufacturers won't be able to compete, Hybrids will not be able to compete.

Hybrids will die because you can't compete with somebody who's willing to sell you a car for no gross profit because you'll go bankrupt if you have no gross profit. Once you consider operating costs, you're massively negative. But how could Tesla actually still have a glorious gross profit well through full self-driving See, the beauty is with full self-driving today. we're at only about a 19 take rate, but full self-driving hasn't actually been widely available until Christmas where now, at sort of a wide release, more individuals are actually able to get full self-driving beta.

and my estimate is that the FSD beta signups are probably going to take up pretty quickly to 30 to 40 percent. but let's assume that by the time a twenty thousand dollar car comes out, almost everybody takes FSD But when I say almost everyone. I'm still going to take that down to 50 percent. so we go to a 50 take rate on FSD.

That would give you gross profit of seven thousand five hundred dollars. The incremental cost of one more person having FSD is zero. In fact, we're going to consider that any of the FSD costs for Tesla are already built into their operating margin. So the more they sell FSD the bigger operating leverage they have because you've already spent the money and you're making more money with money you've already spent, there's really no margin.

There's no expense. there's no extra cost for turning one FSD on. It's literally software that you did like the user themselves enables. They don't even have to call anyone to enable it.

So let's just make math simple and say it's 100 profit realistically probably accounting wise to put in you know, a 10 cost or whatever for it. but it's not necessary. So take rate of 50 the additional cost zero. Now do keep in mind that in the past I've always considered FSD as a bonus.

but for this zero margin car, in order to actually have a functioning business, you have to assume that FSD is part of the core business model. So now what you do is you're going to add seven thousand five hundred dollars to twenty thousand. That's your gross revenue is twenty seven thousand Five hundred dollars. And now your profit on twenty seven thousand Five hundred dollars is 7 500 bucks.

Which means your margin is actually twenty seven point Two seven percent. So you could literally sell a cheap car 20 000 bucks, make zero money on the car, but just sell FSD to fifty percent of the people who buy and still be nearly at a thirty percent profit margin. Now that's incredible and it's really critical for considering in terms of the Tesla valuation because boy oh boy, the FSD is getting good and at this point, you've got to start at least assigning some value to FSD because it's getting to the level where it makes sense for people to buy and it's available. So what is interesting about this conversation that we had on the jet is that there's actually a reference to Elon Musk suggesting something that is a little bit more on the aggressive side.

But it reiterates this now while we talked about this on the jet yesterday. I Just this morning saw uh Omar post this tweet uh, that's because he posted like 11 18 last night. but I thought it was incredible because it really aligns with this story. Do you want to grow unit volume? in which case, uh, you'll have to adjust prices downward? Um, or do you want to grow at a lower rate or go steady is sort of a choice there? Um, you know my inclination would be to still grow.

you know, as I might might. My bias would be to say like, okay, let's let's grow as fast as we can without putting the company at risk. Um, which would mean you know in that in that scenario profits would be low to negative during a recession provided the cash position is okay I think that's still the right move long term and the so because there's also something that Tesla possesses that other car companies do not which is extremely fundamental that is that the cars are upgradable to to autonomy and so and arguably an autonomous car is worth many times what a non-autonomous car is. So even if your modules are extremely low uh in selling the car, if the subsequent upgrade to it being autonomous uh is worth a lot.

So and that's just that's something that no other car company can do is it only tells it can do that. Incredible! So some things to break apart from this. First of all, what we talked about regarding FSD in the 20 000 vehicle aligns very closely with what Elon here said in his Twitter spaces. Uh, call about this idea that you can sell a car with little to no profit margin and as long as there's some essentially take rate on FSD you could still make a lot of money, you could still actually have phenomenal margins.

Now I did not like that Elon Musk suggested in a recession you could potentially go to no profit or that was that was more okay because the the FSD portion. but the part that's a little concerning is he said or negative profit that doesn't exactly send uh the the good feels out to individuals betting that Tesla's going to be great for earnings reports going forward, right? There used to be a lot of excess demand for Teslas you'd have to wait six months and uh, at least my thesis originally was that Tesla's excess demand wouldn't be absorbed as quickly as it was. The excess demand was really quickly absorbed uh, by by more production or canceled orders because of the recession and fears about people's wealth going down or whatever. Uh, and so unfortunately, the backlog has evaporated for Tesla right? And so you are in a situation where what Elon is suggesting here could be a hint of the future that hey, look, we're we're just we.

We're gonna have to sacrifice margin at least during a recession. And again, on one hand, that's good because you're potentially taking a larger portion of the pie you'll uh from other manufacturers while still making Investments Elon Suggested: as long as you've got the cash position to do that, he's been reluctant to buy back stock because he wants to make sure they have that cash insulated buffer to make sure they don't go bankrupt during a recession, right? That's worst case scenario. Instead, they're able to continue investing like we talked about. with the gigafactory expansions and the new gigafactories, That's great.

In fact, in a video that I posted uh for maybe uh, two or so days ago and somebody actually sent me this I forgot who it was but whoever was thank you. so somebody sent me this they said Kevin you kind of tease these price Cuts coming and it's like, well, yeah, I mean it's logical, but let's listen to it for a moment. Is this video right? At about 8 minutes and 40 seconds really is double and tripling down on these capacity expansions. It makes you think that Tesla must clearly have a path for so much demand in the future or new pricing strategies that are going to induce that new demand in the future in order to keep these factories busy.

Expect, there you go. The new pricing strategy is here. Uh, so now how do we build all of this information into evaluation model for Tesla Well, that gets a little bit more challenging. We're going to do exactly that, but it does get a little bit more challenging.

So what I've done is I've now run a low margin scenario for Tesla and I've built in a 30 take rate for FSD which is up from 19 as the average in 2022, which I believe is reasonable to go from 19 to 30 specifically because you have Tesla actually authorizing the wide release of FSD Keep in mind I have had full self-driving on my model X since 2017 and on my Model S since 2021 and haven't actually gotten it on the S until Christmas of 2022, right? So it was a year of waiting before I actually got it despite the fact that I paid for it a long time ago. That actually frustrates a lot of people because you know, in America we pay for stuff and we want it right away. If you just have every day this button dangling in front of you, that's like, hey, you know if you just pushed this button, you get FSD Great. Now there is a risk factor to this and it has to do with the payments modeled.

Talk about that in just a moment. Uh, that does require some base cost expenses though. but again, I'll explain that. So there there are a lot of assumptions.

uh here, and a lot of these: I Want to be clear are going to be very blurry for probably the next couple years, which that's what happens in recessions. Right In recessions, the the data becomes more blurry Things become less obvious. One of those is actually going to be what is our average revenue per vehicle. Right now it's sitting around 52 000.

But what if that average revenue per vehicle is down to 47 000 amongst all these price? Cuts Uh, Well, that's entirely possible by 2025 that that's the average revenue per vehicle. Uh, it's also possible that this number of vehicles is grossly understated under a new pricing regime. Now, that's remarkable because we've actually reduced this from about 5.2 million to 4.2 for 2025. But you make some huge changes to this formula when you actually sell a lot more cars at a slightly lower margin And that is possible if we end up with the phase 3 expansion for Shanghai to 2 million vehicles and then we get an Indonesia and maybe even and a Northeast Mexico plant.

4.2 million Vehicles Could be laughable. We I mean we in 2025 If we are back into sort of a a you know, more of a bull market environment, we could be at seven million Vehicles Nobody knows, right? But let's just run the numbers with 4.2 for a moment. Then let's keep pretty much all things consistent with the exception of what we're going to do is we're going to throw in a 30 take rate on FSD And so the way we're going to do this math is we're going to take number of vehicles times 30 percent times fifteen thousand dollars. Now there is a a risk with that math and I will explain that in just a moment.

But that brings you to about 19 billion dollars of incremental Revenue Keep in mind I'm still only sitting at about one percent for energy. uh Services mostly Break Even nothing for insurance or semis or Tesla bot or any of that kind of stuff right? What I've now also done is I've reduced the margin uh, that Tesla takes from about 27 profit to about 15 gross profit. and so you can see here: I've reduced that margin substantially by going to 85 expenses on the vehicle you're sitting at about 15 gross profit. However, I also put FSD in here which I Peg just an incremental increased FSD cost of two percent in for margin again I Think most of this is going to sit in the operating expenses for Tesla Uh, which we expect is going to be somewhere around 14.6 billion dollars.

Uh, this is not cost of goods sold right? It's not like the factories and the assembly lines. it's the people. It's it's your general Administration your website, your R D, right, your advertising. which there really isn't much.

So anyway, that's about I I have this set to about 14.6 billion. So now what we get to after taxes and everything is about earnings per share of about eight dollars and 81 cents in 2025.. that's reducing margin to just 15 growth, but including a lot of FSD Revenue 30 of new vehicles taking that FSD Okay, Watch What Happens here. Price: Target assuming a uh a uh, 50 times P E ratio Again, this is assuming 30 growth PEG ratio at 1.67 brings you to an end of 2025.

reasonable price for Tesla of about 440. compounded annual growth rate if you buy it at 120 of about 54.2 percent. Now you can play with this as much as you want and what I like to do because I do believe that a reasonable PEG ratio for Tesla is 1.67 and I believe that it's reasonable for them to grow earnings by at least 30 percent. Uh, per year with this sort of growth strategy.

and FSD So what I'd like to do I mean you could play with marginal. You could play with the multiple on this. If you're like no, Kevin we're gonna go with 40. You're going to see price change, right? obviously.

But we'll We'll keep it at 50. But what we are going to do is we're going to change some of the assumptions here because you have to keep this in mind. When you previously were able to say hey, average revenue per vehicle was 52 000 and we took thirty percent gross, your previous Revenue uh or or gross per gross profit was somewhere around fifteen thousand, six hundred dollars, That's great. But now if you just take 15 on a lower Revenue per vehicle, forty seven thousand dollars and then you, uh, add uh, some FSD in here, which we're going to assume a thirty percent take rate, right? thirty percent take rate on FSD and then we're gonna take off two percent for costs or whatever.

So add that in, you're only now sitting at gross profit of about 11 460. So even with a thirty percent take rate and low expenses on FSD, you're still substantially looking at less gross profit than what you had back in the Glory Days Now the way that this can increase is commodity prices could come down substantially, but we're not in that environment yet. certainly not in a recession. Your buffer for Tesla and a recession is FSD.

That's it. So you're still seeing a cut of about what is that? 24ish percent or something like that, you're still seeing a cut so there's some options, right? You need the take rate for FSD to go up to really increase profitability. If you have that take rate at 50 like I said on the 20 000 car margins start looking nice again. or you reduce the price of FSD to push that take rate up.

Not so ideal though. or are you installment it which they do. If you have basic autopilot, you can actually pay 199 bucks a month to go to FSD capability. If you have enhanced autopilot which these have base costs, obviously, you can get FSD capability for just 99 bucks a month now.

Unfortunately, now you're stuck valuing SAS company with a time frame to recognize all of this income which lowers your cash flow that's less ideal for Tesla I'd rather see Tesla get the fifteen thousand dollars right away, but they're probably only going to get somewhere around maybe five thousand dollars plus a monthly fee. All right. So go for example, to Tesla.com which by the way, you can play around and see how the incentives work out. You can view more to learn about the incentives.

uh from the Inflation reduction act. Uh, now that the Tesla Model y by the way is Uh, in basically many cases many regards less than fifty thousand dollars. or at least the model uh, Long Range model is, they actually qualify for the 7 500 credit for now. although we're still waiting for more treasury guidance on the batteries.

So so there's a potential red flag there. But what I want you to do is go over here. look at this to add Enhanced Autopilot You have to pay six thousand dollars and so it shows you that you know there is this potential of you getting a Tesla And then you have Basic Autopilot. Uh, would cost you 199 a month to get to full self driving.

From basic to full self-driving no extra upfront cost other than the vehicle. Enhanced Autopilot would give Tesla six thousand dollars of Cash Plus 99 a month to get to full FST I Hate to say it I mean I Think for most people, the monthly fee makes the most sense, especially during a recession because think about it. 199 times 12 is 2 388 dollars. Fifteen thousand dollars divided by two thousand three hundred eighty eight dollars is six point two years.

Most people don't keep their car for about maybe seven years on actually no houses or an average of seven years. Most cars are like three to four years. Uh, However, you could make the argument that well, I'll be able to resell the car for a lot more if I have FSD especially if the cost of FSD goes up. but I'm not planning on the cost of FSD going up anytime soon.

Uh I think if anything, that's more potentially likely to go down rather than up. So anyway, uh, that gives you a little bit of a of a you know another consideration here when it comes to FST But something we can also do over here uh is watch this I just want you I want to play around with this I want to show you what does this look like if we now increase this to 5.2 million Vehicles by 2025? Okay Enter on that. The only thing we did was is we added an extra million Vehicles What do we end up getting to watch this look at that price Target goes to 545 right? So let's just say you're like I think it's only going to be a 30pe company? Okay, fine still 327 bucks for this sucker and what if we go over here and again we at only 15 gross margin we go to 6.2 million Vehicles Boom but you've got that 30 take rate on FST Okay still at almost 400 bucks and it's interesting how you can play with this now you can also uh you know, say Okay Hey Kevin they'll make they'll make 6.2 million vehicles. but what if their margin, you know goes down to 10? Okay, well it's gonna be a hit and you're at a 30p.

Oh 286. it still is a ridiculous value. At 120 bucks a share, right? it's still 33 compounded growth. At a 30pe ratio, you go back to 50.

Which how I get to 50 is a 1.67 PEG ratio I Think that's a fair PEG ratio. You go 1.67 fair for companies. Anything below that deal deal, deal, deal, deal, deal. In my opinion, go back to 50.

even at that low margin, it looks great. So you can do ink around with the numbers all you want. obviously. Uh, you know, if you go to just now now, this is a problem.

You go to a take rate of just 19. we go back to 15 gross margin. That take rate is going to be a big deal now that take rate 19 is what it was in 2022. people maybe had more money in 2022, but you weren't guaranteed to actually get FSD right? But uh, well.

Wow. Actually, wait a minute. with the take rate down 19 percent. Uh, and the margin here, but 6.2 million vehicles and a 50p, you're still at 539.

That's actually incredible. Like I don't know. Either way, you slice I mean I think you just have to go so nasty to make this not a good deal. Like take it down to 30, take this down to 10 gross profit and leave that at 19.

What are you at now 219. you're still almost a double like I I Don't understand when people are like oh, Tessa doesn't have any pricing power When we look at the relative pricing power for Tesla at these valuations, it's absolutely insane how much potential pricing power there is. So I Personally am a big fan of pricing power and this is why I believe the best investment that you could make not look I cannot legally provide you personal financial advice I am a financial advisor like I want to be able to shake you and go do this but you know then we'd have to sign some paperwork I'd have to be your personal financial advisor and and I just I just don't do that. Okay I can do that.

Uh, but this is why I Personally think if you can allocate your Investments to an actively managed ETF that focuses on pricing power stocks, you can do some really glorious things Because what you can really do is you could look at. uh, you know here I'll just draw on a quick little sheet. Here we can look at uh, something that maybe has a 25 allocation to Tesla and if Tesla doubles all of a sudden it becomes a 50 allocation in your portfolio. Although you would assume that if Tesla doubled by, then the other things would go up as well.

So maybe it'd really only be a 40 allocation in your portfolio right? At some point, it's going to make sense to lower the allocation to Tesla And if you're going to go from 40 to maybe, let's say 10 allocation to Tesla and you're going to sell 30 of your Tesla stock. That's a lot. You're gonna pay a lot in cap gains and it's going to suck. You don't want to pay a lot of money in capital gains.

Beautiful thing though is if you hold a ticker, you know ticker. ABC Let's just say, and it's a pricing power ETF or an actively managed ETF that has a big allocation test on this example. Well, if within the umbrella of that ticker, the active manager takes you from 40 Tesla because it's now run and doubled or whatever back to 10 teslan rebalances for you and they go from Tesla and they trade that to maybe end phase is a better deal and Apple's a better deal at that time. Let's just say right? Well then what you actually have is a trade, not a taxable event.

Now that's very interesting because you can only do that under the wrapper of an ETF So you cannot be exposed to capital gains by moving from one stock to another. That's crazy like that's it's like the greatest tax hack that I've ever seen in the stock market. I Think it's so cool I think more people should take advantage of that? Uh, you know. Of course they should always evaluate their own personal finances and figure out what's best for them.

But in my opinion, it's very, very exciting. So here's my thesis. If you want to chat more with me as uh we uh we brainstorm join me on my Jet and Shout Out me as we go look at real estate I'd love to have you Thank you so much for being here for this extended video on Tesla I I don't know I Don't know if you found this uh, more extended video style useful. If you did hit me up, let me know in the comments down below.

Thank you so much for watching and we'll see you in the next one. Goodbye.