Are three critically important things we need to talk about regarding Tesla stock. Number one is Elon Musk and the Tesla lawsuit. Then we need to talk about what's going on in China regarding protests in stores, and we've got to talk about margin and pricing power because you all know there's nothing I love more than really large PP So let's get started. Hey, everyone meet Kevin here.

Tesla Stock obviously has underperformed a lot of stocks over the last year. You know when Dave and Buster's is basically flat compared to Tesla's negative 70 percent underperforming even Bitcoin You know you've got a bad day. Anyway, let's start with this shareholder lawsuit that's going on and some requests that Elon Musk is now making and how it could potentially affect Tesla stock in the future. So there's a shareholder class action lawsuit that relates to the tweets that Elon Musk made in 2018 regarding his suggestion that he was going to take Tesla private at 420 dollars per share, leading the stock to Surge up and of course fall after that deal fell apart.

Now that legal ruling suggesting Elon Musk knew he did not actually have funding secured References: a New York Times article where Elon Musk was interviewed and suggests that yeah, he didn't actually have a commitment yet from the public investment fund from Saudi Arabia Now that was a concern for this judge who ended up ruling hey, Elon you didn't actually have the right to make the comment funding secured Well, now we have a new lawsuit and that lawsuit relates to the implications around stock manipulation because Elon Musk suggested hey, we have funding secured which sort of piggybacks off the ruling saying nah, you really didn't Of course Elon disputes that ruling and because he realizes he's kind of been on the track to losing in California Now, Elon Musk and his team have filed a motion to transfer the venue of the stock manipulation lawsuit from California the Northern District of California to the Western District of Texas. That's because they believe that Elon Musk will be deprived of an impartial jury in Northern California. Specifically, they're asking for either moving to Texas or just delaying the trial because the Northern District of California is saturated with negative and biased news stories about Elon Musk making finding an impartial jury potentially impossible. Specifically because since October's act, well, Elon Musk's acquisition of Twitter in October, the local press has been publishing stories accusing Musk of encouraging and personally participating in the proposed spread of misinformation on the platform and that jurors might be unable to separate this Baseline bias from the facts in the case that led to Elon Musk's funding secured tweet, especially since there has been a prior ruling where a judge has declared that Elon Musk did not actually have the right basis for making that and guess where that ruling was of course filed in the U.S District Court of Northern District of California.

So Elon's been losing in the Northern District of California and now they're looking to use negative Publications to either delay the trial or move it to Texas Now I Think it's going to be a little hard to move this to Texas but maybe they can get a different area of California. But let me tell you this: I have been in court representing myself I Know that sounds crazy. you could actually find this video on YouTube or in my Twitter feed. but I fired my attorney.

Why? while I was in court of Zoom Court during my Governor campaign and I was defending myself and I was told by a council that wasn't representing me. It is almost impossible for anybody who is trying to fight establishment Democrats because I was running against the existing Governor to actually win a court case in the Northern District of California Because here's what happens: The Governor who's clearly of a very staunch Democrat uh, Gavin Newsom who you know I was I was running against in the recall election. Uh, he has the power to elevate not only the position of these judges to Appellate Court judges, but if he ends up running for president which a lot of people think he will in California and a lot of people in California think he could win to become president, then those judges in the Northern District of California could potentially get appointed by the president as federal judges. or maybe even even to the Supreme Court.

So you have Northern District judges that potentially are heavily biased towards the Democratic establishment in the Northern District of California. Therefore, it's not a surprise that Elon Musk is tempted to maybe move this to a little bit more of a conservative or at least politically, uh, more in the middle region like potentially parts of Texas. So even though I can't say with fact, that's what happens, but I can tell you with my own personal experience from what I'm told. yeah, it's tough to win against the establishment Democrats in the Northern District of California Oh yeah, uh.

Spoiler alert I lost not only the election, but my case anyway. Oh, let me also quickly say because I was running against the Democrat as a in the middle Dem I could not get any Democratic attorneys to represent me except for newbies and I couldn't get Republican attorneys to represent me because that would kill me in the election. It's like why do you have a republican staff right? So I was just like screwed by the system and it's like well, that's politics for you and it's okay. It's like you learn this stuff and it's like damn.

But um, uh. anyway, it does open your eyes up to what Elon Musk is potentially dealing with much at a much greater scale Of course for Elon situation. Now of course, when you reference the New York Times article, what's really interesting is in that New York Times story. It talks about how Elon Musk thought the value of Tesla at that time if they took it private was actually 419 dollars.

Uh, but he but but he says it would be better Karma to price the deal at 420 dollars per share. He also says he was not on weed. To be clear at the time, weed is not helpful for productivity. There's a reason the word there's a reason for the word stoned.

You sit there like a stone on weed. Uh, All right. So this the article then talks a little bit about how Mr Musk was referring to his potential investment by the Saudi Arabia Government Investment Fund. Extensive talks about 250 billion dollars in potential funding.

However, there there had not been any kind of commitment to provide cash based on other people who were briefed on the matter. There was also a consideration that maybe SpaceX and this is kind of an ironic flip, but a SpaceX would buy out. Uh Tesla. They also talked about how Elon Musk was flying around on his private jet to some of these meetings.

You know that's something the New York Times likes to do. uh is is reference that uh And of course that's a perfect opportunity for me to reference that if you'd like to Shadow me for a day in my jet as we go look for real estate, ask me questions. We can chat together, make videos together, whatever you want to do. We've got small groups we're doing this with.

Uh, take a look at the link down below and I'd love to have you. Okay, so uh, how does this potentially affect Tesla stock? Well, if Elon Musk loses his stock manipulation lawsuit, the likelihood is that there would be substantial damages that could have to be paid to shareholders and it's unclear if that would be all shareholders at the time or just those involved in the class action lawsuit. Either way, uh, the larger piece of damage would likely be uh penalties from uh, from from from any kind of uh liability abilities that a judge imposes on Elon Musk beyond the actual damage that the shareholders behold. So they'll be like damage, but then you'll get penalties on top of that.

And I wouldn't be surprised To make a point in California you'd get some really large penalties and personally, I think there's a risk that could lead to Elon Musk having to sell some more Tesla shares despite a suggestion that he doesn't see a need to sell any Tesla shares in 2023, potentially not even in 2024 going all the way out to hopefully not having to sell again until 2025.. this is something that he personally says, but then again, many times in the past he said I'm not planning any more sales and then he ends up planning more sales. So no, obviously things can change and and hopefully we can take him at his word. But let's just put it this way, retail investors would have had to buy 50 more Tesla shares in 2022 just to offset the selling pressure of Elon Musk's sales.

So don't kid yourself like volume doesn't absorb Hodler sales being sold when a hot cells it hurts the long-term share price. It's not actually a fundamental move, it's actually just an order book move. So Tesla's depressed price is is really more of an issue in my opinion of a depressed order book. But that then brings us up to this idea of price Cuts in China.

So obviously, uh, there there were some a second round of price Cuts conducted in China somewhere between seven to thirteen percent in price Cuts This comes after uh, the three to six percent subsidies expired in China from the Chinese government. At the end of the year, those government subsidies expired. Uh. and then they basically doubled those subsidies with a seven to thirteen percent price cut.

Total price is now for vehicles. after two rounds of cuts, the first at the end of Q3 in the beginning. Here at Q1, the second round prices for cars and Tesla or Tesla China cars now down 13 to 24 percent. That's pretty remarkable.

and so this has led to uh, you know, oh, the Q1 protest or uh, Q1 price Cuts have led to protests. Take a look at a couple tweets here where you could see uh, people walking into Tesla stores. Do keep in mind that you can order Tesla's online in China so you don't actually have to go into a store to order uh Teslas And so some people initially were thinking oh, this is a sign of demand people are so excited to go buy Teslas but what's actually happening is people coming are coming in with big posters and they're protesting Reuters broke down some of these protests. we've got another one over here Again, a lot of people saw these as uh as as actual like excitement like as demand.

but the reality was this wasn't excitement or demand, this was this was anger. Uh, and so protesters according to actually come on I'm on Twitter There we go. Protesters according to Reuters handed over a list of Demands to Tesla including demands like uh, lifetime subscription to self-driving Services three-year extension of car insurance and potentially 4 free electric charging at superchargers Reuters made it very clear that individuals were protesting Tesla lied to customers Tesla needs to protect consumers legal rights So a lot of negative press off of off of these price Cuts here which on in some sense you know people are like oh Tesla doesn't have an advertising department and even though this seems like a negative press, it's kind of like everybody hears about these protests and it's like oh Tesla cut prices. You know it's like it's like an ad in itself which is kind of remarkable.

but Tesla China responded to this and suggested that look, uh here The Tesla's Vice President for external Affairs said in a social media post on Friday that Cuts relied on quote engineering Innovations and said that we answer the call of the country to stimulate economic growth and unleash consumer potential. So kind of a little bit of an empty statement there, but there's a little bit of nuance that maybe we can pick up that. Oh okay, is this a suggestion that maybe margin in is actually better? To the point where uh Tesla can cut prices and still maintain profit margins? An interesting idea. and I'm going to look at margins in just a moment? but I want to reference this.

There is an old video clip in in which Tomsu, the Tesla China boss who's now helping over with Austin Giga Austin scaling that commented on uh Tesla's price Cuts in the past and and suggested that quote. As long as the optimization of supply chain and the Improvement of production efficiencies brings down costs, we will pass on the savings to Consumers. This principle has not changed and this, uh, it kind of makes sense because if you go, jump on over to what's been happening with commodity prices. We've actually been seeing commodity prices in a pretty solid decline.

Here's an example of the Bloomberg Commodities Index in Decline from its Peaks around March roughly in line with the levels that we saw at the beginning of 2022.. Uh, now this is going to have some really interesting implications for margin and we're going to look at uh, at, uh, the earnings reports that try to have some some projections here I Do want to remind you that if if you like fundamental analysis and you want to learn more about fundamental analysis or just watch me do fundamental analysis, live almost every single day in our course member live streams. Whether it's live or as a replay later when it's convenient for you to watch it, you can join any of the programs on building your wealth link down below. You could use coupon code Jet You could use that coupon code on either the Shadow Kevin for a day or the programs on building your wealth.

It's the only sponsor for the channel, so I'd encourage you checking those out. We've got some great programs on either Real Estate Investing Stock Investing Uh, being a real estate agent making YouTube videos Being an Elite Hustler which is basically a way of suggesting increasing your income, right? So their courses on Investing and courses on increasing your Income which is the Elite Hustlers group. Whether you're an employee or you are employed, there's some great tax benefits you can take advantage of and and some great breaks for increasing your income. So I'm so excited to share those with you.

Check those down below and remember everyone gets access to the course member live stream. So now let's go ahead and talk about PP This is my favorite thing to talk about. and that's Pricing Power for Tesla. So first it's it's really worth.

maybe depicting this on on paper here. Well, digital paper. But a lot of folks believe that pricing power basically means okay, price goes up right? That is, Uh, very very true. In a macro cycle that is increasing, right? So as the economy improves and increases up, it makes sense for pricing power to imply increasing prices and increasing margins, right? So price is up, Margins up.

So let's write that down. Macro up, Prices up, Margins up. Okay, that really needs to be contrasted with when we're in economic decline. Should have really inverse these colors here.

But oh, when we're an economic decline, what you could see is a typically prices. Well, let's do Macro Down Prices Down margins, Stable margin stability. while prices are falling to compete, is a form of relative pricing power. Now, obviously, if while Macro is going down, there's a company that can raise prices and increase margins.

Oh boy. Okay, well, they obviously have more pricing power than this. But if everybody is reducing their prices, which company is able to keep their margins stable or higher relative to others, it's all a game of Relativity right? That's what pricing power is. It depends on where in the macro cycle you are and eventually the fundamentals of pricing power, in my opinion, win out over short-term Trends Short-term Trends are like going from uh, you know, oh, going into recession.

Okay, let's go from growth to you know, uh, energy and uh, and Consumer Staples that is. it's totally devoid of fundamentals, that movement that is a trend movement. And so what I like to do do is I like to look at the earnings forecasts and the earnings reports. So uh First, what I think is remarkable is we want to try to understand what we expect for margins in Q4 And the last set of margin that we got for Tesla was in Q3 and a Q3 margin actually came in below expectations.

Here's the Q3 earnings report: So in Q2 we had Shanghai depressing the Shanghai closures, depressing margin to 27.9 percent. Note: this does include EV credits, but it's a big decline from what we saw in Q1 where prices were at the highest for cars and material costs were still on the Lower Side Here you had Shanghai shutdowns reducing margin because Shanghai has very good efficiency. It's probably one of the cheapest places to manufacture these cars next to like, maybe India where labor is even cheaper than in China but Tesla doesn't manufacturer in India yet. All but anyway, then in Q3 we were expecting Tesla to come in with a 28.4 margin, but we actually got 27.9 and so that was a little disappointing since Shanghai was up again I called it Chang hell here.

Uh. and and since Shanghai was open again, the fact that these margins stayed stable suggested that really commodity prices hadn't yet really come down to help increase margin again. And so there's hope. And remember, Hope is not an investing strategy, but there is hope that maybe just maybe some of the relaxation and commodity prices May finally flow through to Tesla in Q4 Remember that Bloomberg Commodity Index right? So if you look at Q3 August September October you're really looking at sort of this this bump there in the middle of the screen coming off of the high on the left and there is a lag for when commodity prices fall.

When do you actually realize those in your supply chains? Because you've you've signed up for a lot of contracts at higher prices, right? There is a belief that maybe just maybe in Q4 we're going to be able to realize that sort of July plummet in pricing because we'll just have. We'll just start hitting that four to six month delay or lag in when we start seeing those material contracts roll over and we renegotiate them at lower prices. And now maybe we could see that margin push through pushing margin for Tesla up at that next earnings report. So very, very hopeful obviously for that.

Again, Hope is not an investing strategy, but there's a lot of Hope For That So uh, if if if if that is true, that Tesla's going to recognize some more of that a margin productivity uh, we're operating leverage uh, then we could actually have a very good earnings report for Q4. Now do keep in mind you had price Cuts in China at the end of Q3 and the beginning of Q1 beginning of Q1 is not going to affect Q4, but the September price cut in China will. But if those were maybe the first six to ten percent price cuts and commodities are down 20 percent, who cares? The same is true for that three thousand seven Hundred and fifty dollar subsidy which then ended up turning into a seven thousand Five hundred dollar subsidy towards the end of December in America. Now a three.

If the average revenue per vehicle is about fifty two thousand dollars, a three thousand seven hundred fifty Uh dollar subsidy represents about seven percent. But the cost of a fifty two thousand dollar car uh is is actually for Tesla Take off about twenty five percent is actually about thirty nine thousand dollars. So a thirty seven hundred fifty dollar incentive uh represents about nine point six percent of the production cost of a Tesla. So you're taking about ten percent off a margin there, right? But if input costs are able to fall twenty percent on Commodities and maybe the Commodities represent about half of the input costs, the other half being labor.

potentially, maybe maybe you could have a stable margin with that form of subsidy. Now, if commodity prices fell more or we had more operational efficiency because maybe Shanghai was online more. Maybe exports or exporting Vehicles was cheaper because we've seen like, for example, the cost to ship containers plummeting over the last six months. Maybe just maybe that could give Tesla operational boost to margin.

And so that's where we can look at the current forecast provided by Wall Street The current forecast provided by Wallstream are that we will sit at margin of 28.4 which is interesting because it's exactly the same as the estimate we hit last quarter when we actually missed and got 27.9 Uh, 27.9 Now that we're sitting at 28.4 again, people are scratching their head going. Maybe we can beat that number this time. we're also expecting about 2.826 billion dollars of free cash flow in this quarter. If Tesla can beat on free cash flow and on margin.

oh boy, Tesla might might be able to prove that in a recessionary time. it has the pricing power we've all been waiting for Tesla to prove it has. we'll see, but it comes on the backs of even deeper cuts into the trust and safety team handling content moderation at Twitter Dozens of more cuts at Friday night this Friday night here uh, in Dublin and Singapore offices. And those Twitter fears do create more fears that Elon Musk is going to have to sell more Tesla stock to keep Twitter afloat.

Keep in mind he pays somewhere around or needs to pay somewhere around 1.3 to 1.5 billion dollars in debt per year. Uh, in debt service payments just to keep Twitter afloat. Speaking of keeping things afloat, the real estate market is suffering. and I think there's going to be a spectacular opportunity to invest in real estate coming up.

And that's why if you want to diversify away from stocks I Highly encourage either you check out the programs on Zero to millionaire real estate investing or learn about my real estate startup. Househack Househack.com will teach you everything you need to know about House Hack my real estate startup, How we plan to take advantage of the bottoming of the real estate market when that time comes. We're patiently waiting for that time to come. But if you're an accredited investor, you can invest now at a one-to-one valuation, which is pretty incredible.

There's some details regarding that valuation and everything in the private placement memorandum, so keep that in mind. And obviously no, this video is not a solicitation. That private placement memorandum is that offering is open to accredited investors at the moment. Then in the future, we'll be opening that to non-accredited investors.

Hopefully, within the next couple months we'll be publishing at the same time our audit once we do the reg A and then you can see exactly sort of how the valuation works out. But it's It's pretty dang close to one to one minus a cup, a few reimbursements. Uh, but we're very, very excited about Houseac and so, uh, we can't wait to have you along and we think it's going to be a great opportunity for building a phenomenal company over the next few decades which is going to be sick I Really hope to IPO that company at some point in the future, but obviously that's not guaranteed. Anyway, Keep out.

Uh, keep an eye out for companies with pricing power I Really think that's what's going to help survive this recession? Thank you so much for watching this video and folks we'll see in the next one. Goodbye.