Wow! We just heard a lot from Elon Musk and a Tesla regarding what the heck is going on with Tesla Thoughts on the Federal Reserve thoughts on future product announcements Uh, thoughts on margins demand Supply My goal is to summarize everything and my opinion in this video. Also, towards the end of the video, I will provide a little bit of an update on valuation numbers based on some of the new information that we got in this video. Remember that January 30th is just a few days away and that is the expiration of the last coupon code we were doing. That means there's going to be a significant price increase for those programs on building your wealth.

They give you lifetime access. If you want to bundle up, email us at Kevin.com Otherwise, check the bundles out at the website link down below or go to Metcaven.com join. All right, let's go ahead and get started. First, we've got to understand that as much as individuals and even Elon Musk in the call today like to say that Tesla has a lot of cash.

They actually don't have that much cash. And there is a reason. they just opened a revolving credit facility with Citibank and Deutsche Bank as partners. for five billion dollars, it's kind of like a home equity line of credit.

I Actually think it's good to open all up these kinds of lines of credit during recessions so you have optionality you can buy other companies, you can invest in factories. whatever. They don't actually have that much free cash as they make it seem. That is probably one of the most negative things I'm actually going to say about Tesla in the video, but I Want to get it out of the way up front because sometimes people think that's just pure fud.

But you can look at this number yourself Very very simply by just looking at the balance sheet of Tesla and the balance sheet of Tesla makes it very clear that yes, we have 22 billion dollars of cash here. But folks, we only have to move down the balance sheet a little bit to look at our current liabilities here. and to see that accounts payable are 15.2 billion dollars. and we have accrued liabilities and other current liabilities sitting at seven.

So literally the first two current liabilities wash out the amount of cash that Tesla has. That is of course. uh, of course Tesla has inventories, their inventories are going to be sold, which will generate more cash, but we consider that as part of free cash flow and free cash flow is also starting to shrink free cash flow in the last quarter down to 1.4 billion dollars. Still, an excellent amount of free cash flow, but certainly not that three billion dollars of free cash flow we had in the last quarter as 1.1 billion dollars of more Investments were made in the last quarter, so that's something important to keep an eye on.

In addition to that, even though we had two beats, we beat on the top line revenue number bringing Revenue in at 24.3 billion dollars and we beat on the EPS number with a buck seven Gap Buck 19 non-gaap We did end up missing on the Wall Street expectations for Uh Automotive gross margin coming in at 25.9 percent instead of 26.5 We do have minus vehicle credits Automotive gross margins hitting at 23.7 percent Tesla Has forecasted that they believe we're probably going to be at an average selling price per vehicle going forward of about 47 000, and it would be reasonable to use a gross margin of just 20 with warnings going forward about gross margin coming under more pressure, especially following these price decreases. So keep in mind Q1: we're probably going to see that Automotive gross margin drop to closer to twenty percent. That's just a red flag to keep an eye on right now I Don't necessarily think that's a bad thing. We had a lot of transparency in this report, including the forward guidance that maybe will have as many as 1.8 million vehicles uh, produced, uh, or delivered.

We're not exactly sure what number they're referring to here given that they didn't really tell us, but they believe I think they're essentially trying to align. Look, we want to produce and sell 1.8 million vehicles. That only represents about a 38 increase from the 1.3 million vehicles that were delivered in 2022. so we're short of that 50 compounded annual growth rate target.

However, Elon Musk did indicate on the call that hey, look, if everything goes perfectly in 2024 with or 2023, that is which we don't believe it will. but if it does, we could end up hitting 2 million Vehicles If everything goes really well this year and we don't have a crazy pandemic or whatever, keep in mind that a 2 million vehicle Target would actually put you at 50 four percent growth. So that compounded annual rate of growth could be somewhere between 38 to 54 just depending on how things end up going with Uh events that happen throughout the world Elon Musk Joked that look, we can have pandemics. We can have wars.

We can have four shutdowns. There are a lot of things that can happen uh, that could stand in the way of that. Uh, We of course heard on margin from Elon Musk that they believe they have the largest manufacturing competitive Advantage versus anyone else in the world. They can't see a competitor, even with a telescope who's close to them on autopilot or even manufacturing.

They think they are a very strong uh and have a very robust moat in their manufacturing capacities. And of course, on full self-driving they believe they have a huge competitive Advantage Keep in mind that they bought a robot manufacturer in Germany Uh to manufacture their own robots at Uh the Giga Uh, the Tesla gigafactories. They also then apply that manufacturing company additive advantage to their batteries. Despite this though, Lithium costs are going up and even though they're hoping to get back to 30 percent gross margin in the future, they don't believe they're going to get there this year.

However, they obviously hope that they will approach that uh in the future, maybe a next year. In the meantime, they're going to work on continuing to reduce costs. However, yes, because they reduce prices so gross margins are going to decline probably to roughly 20 percent. They also indicated that because interest rates on cars have moved up so much in the last year, we have seen the affordability for a car declined by about 10 percent.

However, with a 20 roughly percent reduction in price and we'd have to kind of map this out because the 20 reduction in price was relative to the highs of last summer. Whereas that 10 affordability change kind of maps out year over year or prices were actually lower, we potentially really just see Tesla offsetting some of the damage of higher rates. here. Though we'll want to pay attention to Tesla a relative to to what other companies are doing.

Is this going to force forward and GM Neo Byd to reduce prices? Keep in mind Tesla's still bringing about 17 of every 100 of Revenue to the bottom line. Byd is only bringing about a buck 40 to the bottom line and most other companies are bringing nothing to the bottom line. In fact, they're paying to produce Vehicles even Ford can't produce a profitable electric vehicle yet So there was some blame on China for some production snarls this year that was written into uh the the shareholder deck and uh, hopefully those issues will go away. However, they did also indicate don't expect too much more capacity increase at Giga Shanghai it's pretty much at capacity this year did Mark the best year while 2022 did Mark the best year ever for Tesla Despite crazy for shutdowns, high interest rates, delivery challenges, uh, they started off by saying they want to put to bed the issue that there is a demand, uh, problem.

After having reduced prices, they are seeing twice the number of orders right now as the same time last year. Uh, or actually, I'm sorry, Let me clarify that they're currently seeing orders at twice the rate of production at the moment. Hard to say if that'll continue, but that's at least the kind of ordering they're seeing now. and that's actually why even though they reduce prices, they ended up raising the price of the Model Y by about 500.

Again, because of the strong amount of demand they're seeing right now. They believe that their internal vehicle production is closer to 2 million. Vehicles Suggesting that yes, maybe we could see two million vehicles uh, produced and sold in 2023, but we'll see as far as the Cyber truck. don't get too optimistic while it may go into limited production in the summer of 2023, we're really going to expect a negligible impact from cyber truck sales in 2023, and you're more likely to expect cyber truck sales in 2024..

Average selling prices. again, expecting to be somewhere around 47 000. that's actually being helped by the fact that more traction is trending towards the model Y, which sells at a premium over the Model 3.. Personally, I believe that the model Y is is absolutely the best choice of Tesla that you could choose.

I think the S and X are too expensive for what you get, and I think the model Y has a lot more space than the model 3 where it makes it much more desirable. That's just my opinion, even though I've never owned a model Y. Full transparency. Have the S Had the X Been in the Y? Been in the three multiple times? So just my opinion.

Uh, in terms of Uh funding needs, Uh, they argue that uh, they they're probably pulling this credit line. Uh, A Because well, they don't have as much cash as they're really implying, right? We already talked about that at the beginning of the vehicle, but they want to continue to be able to spend on battery. Investments growth and storage. Next Generation Vehicle Platform: Even though that doesn't necessarily imply new vehicle, we know that Tesla is building a robo taxi uh, that doesn't actually have a steering wheel.

We know that Tesla is at some point in the future probably going to announce the sub 25 000 vehicle though. Elon Musk Did not want to give away any kind of future product announcements, so when he was asked about a sub 25 000 vehicle, he said I don't want to give away any future product announcements which kind of implies that they're still thinking about that 25k vehicle. And it certainly doesn't help that Elon Musk sees the potential for substantial deflation This year, he says I think we are seeing deflation and if you consider the rate of d deflation and add it to the rate of treasuries, you're kind of at the point where it's like, why would you buy stocks He did say that pretty clearly. This is despite the fact that Tesla stock is actually rising in after hours, up about 4.5 percent after the earnings call.

Now what he means here is he's basically saying, look, if you, uh, have treasuries yielding four percent and deflation of two percent is occurring, your cash is basically becoming more valuable, more powerful From a purchasing power point of view or a pricing power point of view, by six percent, you could add those two together. It's just like if you invest in treasuries at four percent and inflation is two percent, you would subtract inflation. In this case, you add deflation. He is correct in that analysis.

He does, uh, see substantial cost decreases coming. However, Lithium is a significant headwind to margins for Tesla Now regarding autopilot. Elon Musk Made it clear that he was with the autopilot team last night, clearly indicating that he's not only working for Twitter even though he's been tweeting pretty actively. But hey, you know what? I tweet actively as well and that doesn't mean I don't pay attention to other businesses.

so I'm totally okay with Elon's work over at Twitter though I Know a lot of people are optimistic about a new CEO announcement uh, in the future. but anyway, Elon Musk did indicate that the trend is very strong towards full self-driving That enthusiasm seems to increase every time. There's a software update that didn't really give us too terribly much. Insight What we did see is that Tesla did unlock 300 million dollars of incremental revenue from Full self-driving in their earnings.

Which basically just means they kind of propped up revenue and earnings per share by 300 million because they did a wide release for FSD and then that way they're able to sort of prop up their earnings per share. They do think they have up to another billion dollars of full self-driving Revenue that they can still incrementally unlock every time somebody buys about the seven thousand dollar or six or seven thousand dollar enhanced autopilot package. they do recognize that in full Elon Musk suggests that's basically free money is essentially realized at 100 with really no incremental costs. and then they take some additional immediate Revenue recognition for the rest of the full self-driving expenditures.

though some of that is put aside for the future until they release more features regarding the AI team. He again doesn't believe that anybody is anywhere close to Uh Tesla in terms of AI However, that may be if they had to guess a Chinese company would be the next to be closest, but they don't have anyone in mind at this point. Uh in full transparency I Want to be very clear that I am also an active ETF manager I own Tesla myself my ETF uh, you know could hold a Tesla right. These are these are important things to know: I Don't want to make any kind of uh disclosures in this video I Just want to make it very clear that when you look listening to a Tesla related video here I always want to be very clear with biases.

So uh, regarding uh, new models and you could go to my just my website meet Kevin.com and there should be a link for you to learn more that way. That way that's covered. Anyway, regarding energy storage, they see a continued acceleration in energy storage I Wish I could actually impressed to see that solar panels and energy storage deployments were actually positive quarter over quarter. It is very typical for us to see an increase in uh uh solar deployments towards the end of the year.

solar deployments up to Uh 348 megawatts at the end of the year. here only one percent greater than last year. but quarter over quarter we did have a nice boost. storage deployments up 64, so it does look like we're probably seeing a little bit of a Slowdown there on the solar.

Biz but quarter over quarter still did very well when we looked at quarter over quarter charts. so still a nice move there on solar. I Don't expect that to last. Not a big deal regarding Tesla Insurance About 17 of their customers in states where Tesla insurance is offered, adopt it.

Most of the adoption is done at delivery, suggesting a stickiness for insurance. and they do suggest that because their costs are lower for Tesla insurance, they notice that other insurance companies are actually lowering their insurance costs for Teslas Which actually helps them make Teslas more affordable, right? Because if all Insurance costs are coming down, the Tesla vehicle itself is more affordable. They also enjoy the feedback loop of look. Even though the best accident is no accident, because you don't have a repair, you don't have a potential for injury, right? That's uh, the best repair is no repair says Elon Musk They do have a positive feedback loop where they see oh okay, when people get into little fender benders.

if we improve the manufacturing process, it could actually make it easier to replace certain parts. so they appreciate that positive feedback loop. They have one out of four: Giga Texas lines open 4680 line opening in 2024 Recession: This could be a difficult year for a recession and Federal Reserve should stop raising rates. Optimus should be I'm sorry.

Uh Dojo The supercomputer at Tesla should be competitive with Nvidia Next year, Elon Musk believes that Asics will replace Gpus in the future. Regarding Uh, the Optimus Elon Musk suggests that uh, the Opto, even just honestly, releasing full self-driving in full once it's out of beta, could incrementally increase the asset base value of all Teslas by an increase that has never been seen before for assets. Uh, and that the Tesla is basically a robot on Wheels And when uh, Vision AI gets solved as it already has been quite substantially with Uh with with Autopilot uh, when that is translated into the Optimus robot, Elon Musk does personally think that a Tesla will end up becoming the most valuable company in the world and that uh, Tesla will be worth an order of magnitude market cap more after the Optimus becomes a success. Of course, that's just speculation at this point.

Uh, but then again, you know he knows a little bit more about the Optimus than we do anyway. Uh, he does suggest that uh, when he's asked about his popularity and his political commentary and maybe the desirability of Tesla's going down because of his political commentary, he made fun of the Yougov poll that was asked about and uh, instead he says, look, I've got 127 million followers on Twitter That suggests at least I'm reasonably popular, so my follower count speaks for itself is what he says. okay A little conceited, they're real on, but you know what? Okay, you do say some crazy things so people who don't like you do follow you too. but hey, then again, that goes with everyone I support it.

look I like Elon but you know we get we got to call them out sometimes. Okay, uh. anyway. so uh, we're getting tax credits.

They're really only expecting to realize maybe 150 to 250 million dollars per quarter from the tax credits of, uh, from the inflation reduction act. They think that'll actually help them build in, uh, better pricing for their vehicles. Although they dodged the question of whether they would reduce pricing again in the future. which makes sense because they don't want to affect sales in the future.

So that makes a lot of sense though. Again, remember they do warn of a margin impact in the future. So when it comes to 2025 and valuation for Tesla I think it's reasonable for based on all of this new information for us to go ahead and update the Tesla spreadsheet. So I think the Tesla spreadsheet was actually very accurate with a forty seven thousand dollar average selling price per vehicle.

I Think we are pretty right on with this. I Do think 4.2 million Vehicles is decently accurate if we take 1.8 and then increase that by 40 and again by 40. we're only that would be 2023, 24, 25. That would only put us at 3.5 million though.

So we really need to see that 1.8 million for this year, maybe be like 1.9 and then probably see the growth be closer to what? 43? Now let's go with 45 maybe percent for Tesla Nah, you'd have to be closer to that 50 probably? Yeah, yeah, in in order. Unfortunately, you'd have to yep to get to 4.2 million. Vehicles You'd really have to beat this year and be closer to 50 growth for both of next years. So uh, you know, maybe to just to be safe, what we'll do, or to be a little bit safer I should say uh, why don't we go jump in here and reduce this a little bit to 4 million so we'll drop this to 4 million a bit.

Uh, let's go ahead and leave the take rate at 20 for FSD but let's only recognize uh well. I mean because the take rate could be higher I Was gonna say we could reduce how much we're recognizing. Let's let's you know what? Let's say the take rate because some people can just pay for it monthly. Let's just leave it at a 10 percent take rate full.

Fifteen thousand dollars I Think that's that's very reasonable and conservative. Six bill from over here quite reasonable. Uh, annual revenue from insurance is sitting at about 300 mil. Maybe that'll go up to 500.

I Usually don't like including the insurance. Rev over here, especially since there are costs. So I'm not going to change any of that. so I'll just reduce this a little bit.

We'll put in a very reasonable FSD Revenue over here. Uh, we're gonna go back to dropping this. We could go to 80. However, by 2025, we should be off of 80 in terms of cost structure.

So I'm actually going to go with 76 here. In terms of cost, that gives us that brings us to about 24. I Think that's quite reasonable for 2025. Relatively safe I Do have a two percent expense margin here on FSD for the incremental I Think that's fair.

Uh, operating expenses at one point or at 13 bill I think are relatively reasonable once we hit these levels. Uh, so that would bring us to roughly a A with a 30pe ratio, it would bring us to about 293 dollars for a fair value 2025. From today's pricing at 150, that represents about a 25 compounded annual growth. I Do think that because Tesla with these assumptions, would actually be growing closer to 47.

I Really Think it's reasonable to use a PEG ratio of 1.67 which would mean a Uh P E ratio of about 50. That brings us to knocking on the door of 500 per share. Uh, closer to 50 percent compounded annual growth rate by 2025 as relatively reasonable from today. That's my thesis.

That's my take if you like my analysis. If you like my opinions, join me in the course member live streams I'd Love to have you there. Thank you so much for being there here and we'll see you in the next one. Thanks Goodbye.