Ok a lot of people have asked what I actually went through.
People think I panic sold, but it wasn't quite like that.
In the past few years we have seen Tesla dip to low price levels before, and I had made
videos on them, and my strategy had actually been to sell at the bottom then too, except
I would sell the shares and use the cash to buy LEAPS and options on the dip, to leverage
more the recovery.
Every time it dipped to those levels it was FUD, the fundamentals were the same, I would
check them relentlessly, go over all the numbers, and make sure everything was going to be ok.
But this time it felt different, demand appeared to have dried up.
Interest rates are the highest they have been for a really long time, and it simply becomes
too expensive for many to buy a car.
Consumer confidence is down, and a lot of people are suffering financially due to inflation
and higher living expenses, meaning they have less discretionary income.
Not only that, it also looked like we were headed into a recession, and in such a time,
it might be hard to sell cars, especially if they are much more expensive than the average.
It looked like there was no choice, other than Tesla having to drop prices, and from
my estimates, it would mean that Tesla's price need to adjusted to a level that would reduce
operating profit by about half.
On top of everything else that was hitting Tesla at the time, if operating profits for
the year are about to halve, then I thought we may see the stock price go sub-$100.
This dip was different, the fundamentals had changed, demand was no longer there.
Then people saying that I was one of the Tesla bulls left, and I started to get paranoid
as to what everyone else knew that I did not.
Added to that Elon selling a large amount of his Tesla shares and then jumping ship
to Twitter, and seeming less focused on Tesla, this left me with even more doubts as to the
company, if the CEO who is telling us this will be the most valuable company in the world
is selling his shares and now spending most of his time working on Twitter.
Then we get the numbers for the 4680 cells and we see that they are only at a 4 GWh a
year run rate.
When we need them to be at a 20 GWh a year rate to hit volume production for the Model
Y in Texas.
It felt like Elon realized that they couldn't pull off the dry battery electrode, and maybe
FSD just isn't possible, and he has jumped ship to work on Twitter and somewhat given
up on Tesla.
Then other various bulls out there also changing their sentiment, and getting cross with what
Elon was doing, with his politics on Twitter, and actually hurting his biggest customer
base Tesla has.
The music had stopped playing for me, I had lost my conviction with Tesla.
It was the most sober feeling I have ever had, followed by one severe hang over, as
I felt I was no longer drinking the kool aid.
I felt the largest disconnect of my life.
A stock I had been holding for nearly 6 years, through all the dips and recoveries, and just
like that gone.
It was so ingrained in my life, I studied every aspect of this company, down to the
electron, bit, and watt.
Even studying the entire history of motion.
I realized that places like Twitter are pure echo chambers.
I went and talked to all the bears to hear out their thesis, and build a new idea of
what this company really is.
As a bull it is not easy hearing the bears or wanting to believe them, in fact psychologists
say it literally stimulates the same part of the brain as having pain inflicted on you,
when you suffer cognitive dissonance.
Equally confirmation bias releases pleasure.
So it is understandable that investors want to follow what feels good, and avoid any potential
pain.
In that community no one is ever allowed to doubt anything Elon says, or you will become
incredibly unpopular, despite how often Elon has been wrong, or done things he said he
wouldn't.
Instead they come up with platitudes such as "Elon Time", or "Elon will be be Elon".
But he hurt a lot of shareholders in his last sell off, it broke the dam, and then the institutions
left, the shorts came in heavy, and then people were margin called, a ton of FUD on top of
that.
Then Tesla missed the tax credit for the Model Y.
And as I predicted Tesla's prices had to come down.
On top of that, how I mentioned that the progress for 4680s is not going well, Elon then gives
his target guidance for the year, and at 1.8 million we basically see no growth in production
for the year when compared to Q4.
Q4 saw about 440,000 units, which is very close to 1.8 million annualized, especially
if you factor in the downtime we saw in Decemeber for Shanghai.
As I had stated, that Tesla have no way of increasing production in the new factories,
as they are limited on 2170 cells.
The only way, is more 4680 cells, which as we are seeing are not going well, and on top
of that the chemistry is not what we had been promised, and the energy density is far from
what we had expected.
My dad had the majority of his retirement in Tesla, yes, you might think that is not
clever to put most of your retirement into such a volatile stock, but he didn't.
He only put about 20% of it into Tesla, but Tesla went to the moon, and it became the
vast majority of his wealth, and no he didn't buy on margin, and only a small proportion
of it was LEAPS.
But I didn't want him to lose any more, if this company was no longer looking like it
was promised, and might end up just being another car company.
If the market ends up valuing it as a car company, in a recession, then there was no
telling just how low the stock price would go.
This might have been the toughest decision of my life.
In reality though, despite Tesla now looking like their profits will be half this year,
due to the lower demand and lowering prices, the stock price had already been destroyed
so much, that an outlook of profits being half was beyond priced in really.
And then as we have gone over countless times, Tesla have the margins to remain profitable
at such lower prices.
However, they do need to increase their supply in order to gain market share.
I have said many times before, that my channel aims to be as objective as possible, and is
not solely for confirmation bias purposes and to pump the stock, it is to follow the
fundamentals.
For me the fundamentals had changed.
I felt the ethical thing to do was let all of you know at the time, that I had changed
my opinion.
Of course everything went the other way, the market decided that that was the recession,
and we were already seeing so much deflation, that the FED was likely to pivot, and the
market suddenly priced in rate drops.
On top of that we were suddenly inundated with good news from Tesla, and then an earnings
call that seem to have put everyone at ease, despite a target for just 31% growth for the
year, Cybertruck volume production being delayed, and 4680s being delayed.
The market didn't care.
Well the retail investors didn't, the money poured in, as they also heard that perhaps
2 million vehicles might be produced too, and figured Elon was just sandbagging.
Then Jerome Powell the other day announced the rate increases as 25 basis points, which
the market had already priced in.
He then said there would likely be two more rises still to come.
But also spoke quite dovish about seeing inflation actually come down.
The market was so trigger happy, it almost didn't matter we he said, it just wanted to
run.
They know the FED can't keep hiking rates, as the government is also subjected to these
high interest rates, and have to pay interest on the massive amount of debt that they built
up.
So the market called his bluff.
On top of that he even said there is a probability of a soft landing, which the market also inferred
as very likely, despite the inference coming from him being more likely we will see a market
downturn.
Anyway, now Tesla has lowered prices, and are still likely profitable, although I am
not sure Q1 will be as good as many hope, it will very likely be below Q4 when it comes
to earnings.
So we are potentially dealing with a company that has earnings going down, no growth in
production for the year relative to Q4, the core component of the business, 4680s, pushed
back another year, and the major product, the Cybertruck, also pushed back until sometime
next year.
Yet the market still rallied.
But Tesla have lowered their prices so much, and started a price war.
However, this may just be an EV price war, and Tesla can likely win at that, due to the
fact that no one can produce EVs, like for like, for as low a cost as Tesla.
And Tesla have a massive amount of cash on hand.
But so do legacy companies too.
I was happy to ride out the recession with Tesla, if you recall I had made many videos
telling people to prepare for the recession at the end of 2021, I had even showed you
how I was selling shares and LEAPS when the stock was above $1100 pre-split, and I had
put aside $1/2 million to cover me in a recession, and to buy on the dip.
But I could only ride it through if I still saw progress on 4680s coming into fruition.
I can't see how Tesla can grow without them.
They need to get costs down, and cell production up to a massive level.
With the new Model Y factories, when they are at capacity, it would mean about twice
as many Model Ys to sell, which means prices have to come down even further, which eventually
means there is much less room for margin.
Of course demand is being affected right now by such high rates, but soon it could also
be affected by a recession, and if that is the case, then Tesla really would have to
be selling at a loss.
Which, yes, does make it that much harder for the competition, but it also means that
Tesla's stock price could really get crushed.
Anyway, I have been dollar cost averaging my way back into Tesla, but I am still keeping
the majority of my funds in cash.
I think it far more likely that we see a crash, than a trip to the moon at this stage.
On the other hand fiat currencies are in big trouble, there just doesn't seem to be any
safe place to invest right now.
The central banks are trying to take it off everyone, whether cash, equities or property.
Stay vigilant through these tumultuous times.