If we keep seeing Tesla's stock price dropping, I am not too phased now, as I feel like I
see the real value in this company.
By which I mean what the market sees in it.
In the past I have been too focused on fundamentals, and more what is quantifiable, rather than
trying to place a value on future Tesla or Elon magic and realize that despite how far
away Tesla may be from significantly increasing profits, its not so important when it comes
to the stock price of this company.
This is very much a growth company, and like Elon said the fact they still have positive
free cash flow despite not only such significant capital investments but also the fact that
there is economic uncertainty, that it is affecting consumer confidence and they are
less willing to make large purchases like new cars, and then the fact that interest
rates are high and affecting car prices, and the fact that Tesla have still been expanding
their supply and demand, at high rates relative to the rest of the industry, and still able
to remain cash flow positive, is very impressive.
And means Tesla is able to self fund its massive level of growth.
Then there is more than $20 billion cash to help if necessary too.
Tesla's capex was over $2 billion in Q2, that is an enormous amount to spending in a quarter.
We are approaching an annual CAPEX of around $10 billion.
Although in Q4 this will possibly reduce somewhat when the Cybertruck line moves to COGS instead
of CAPEX.
However, whenever Mexico starts, Nevada expansion, or Megapack factory in Shanghai, we are going
to likely be seeing some further increases in CAPEX.
In fact we could possibly even see negative free cash flow at some points, especially
if Cybertruck COGS are high to start with.
But like we said, we have a large enough buffer to handle all this.
Now 10 billion dollars or even more a year, spent on CAPEX, is some serious growth.
Currently Tesla has $25 billion in property, plants and equipment.
We are looking at nearly 50% annual increase.
This is massive growth.
So perhaps this is why we may still end up seeing 50% CAGR at least some years.
This future CAPEX is being spent in areas now that Tesla has a better idea that will
work and provide a decent return on investment.
Tesla has learned so much from everything they have done in the past.
Some their previous expenditure and choices have not been as good as others.
But its a learning experience, Tesla is literally building a new industry, there are no set
rules, Tesla is working it out as they go along, and in theory all the other EV companies
should be able to benefit from Tesla's discoveries as they reveal the path as to how the EV industry
works.
Tesla's current path is to use LFP cells with a new parallel manufacturing process.
And have resorted to LFP cells, or perhaps a hybrid version, but not reliant on 4680
cells, which has been some of Tesla's investment that has not worked out to ramp as fast as
we hoped or promised.
But the parallel manufacturing line gives us as much hope.
And again it may not work as well as were promised, at leas initially, and might take
time to ramp too, but it has insane potential if it truly can get the costs down by as much
as half.
Then on top of the CAPEX we have R&D, which is mainly going into the FSD potential, which
can add an absolutely insane value to Tesla's business.
Elon saying the vehicles are worth as much as 5 times.
But like I have explained that would mean they are closer to 20 times as profitable.
But not everyone will want to put their car in the Robotaxi network.
So perhaps FSD solved makes Teslas worth twice as much.
Which is still perhaps 5 times more profitable.
Still a big jump.
And there is obviously the likelihood that Tesla may just make cars for themselves to
place in the Robotaxi network.
Then the advances we see in robotics, and the fact that Optimus may even be able to
do meaningful tasks at the Tesla factories as early as next year, this becomes basically
priceless if scalable, with again the whole infinite demand product.
All these amazing facets brings to the table, that if anyone hits, makes the company worth
2 to 10 times the value it is today.
And like we are saying is that Tesla are spending an absolute fortune on investing in these
potential futures.
They have incredible engineering talent, and a charismatic leader who has every single
global connection to the highest levels.
All focused on these objectives.
These are the stories that is Tesla.
These are stories that will become more believable at times, and less believable at others.
But as they go in and out of popularity, there are still non-stop improvements, leaving a
base of progress, which gives a more and more solid base to the stock price.
FSD was not ready as early as Elon though, but there is still a definite improvement
in its capabilities from those times.
As there will be next year, even if it is not solved, and the year after that.
Each time edging closer to being solved, making it more believable that it will actually happen.
This is just the evolution of Tesla's new versions, and data collection, on top of that
there is Dojo that will continue to improve and become more powerful, and make step changes
in training FSD.
Along with likes of NVIDIA evolving in processing power, with Moores Law.
I know lots of people like to talk about Wright's Law, popularized by Cathie Wood, but Moores
Law feels more apt when it comes to FSD.
Computers are going to continue to become exponentially more powerful.
This obviously benefits FSD.
All this progression will make noticeable improvements in FSD along the way, making
it more believable it can be achieved soon.
As the story becomes more believable, the stock price will strengthen with it.
On top of that there will progress in other areas of AI, and the market will start to
give more credence in how much AI will change the world, and Tesla is a big part of AI.
When we see these big jumps in AI, then Tesla's stock price will also benefit, as investors
don't want to miss out on the AI rush.
It's too late already, the market has revealed its true colors on how it doesn't want to
miss out on the potential of Tesla.
And this is when it has barely priced in the potential Tesla has when it is producing 5
million gen 3 vehicles a year, that cost half the price to build.
Maybe achieved in 2026, but either way big numbers.
And as soon as we start seeing Tesla bots working at Fremont or other factories, literally
replacing human labor, and Tesla showing how they can actually scale up production of these
bots, into the millions, with a cost of perhaps $10 to 15,000 per bot.
Then this story is going to be hard to ignore, and not something many investors want to miss
out on.
Elon is going to keep selling these stories, and reinforce the belief that they are going
to happen.
And over the next few years, invest perhaps something in the region of $50 billion to
back it up.
This is an insane amount of investment, and a very tangible way to back the fact these
are going to happen.
They do take time, and over that time the market will take a fickle view on Tesla, at
times when these stories become more believable, or show some big jumps in progress, along
with other external factors.
As they keep progressing though, there is a bigger base that Tesla is laying down.
Although these investments may affect profits and free cash flow negatively.
The growth cant be stopped when it comes to revenue.
As Tesla continue to expand with more products and services, then there will be more sales
reflecting turnover.
This is my view on the stock now, and there are always many other events out the blue
that just happen, that make investors think, that if that can happen, then the rest of
what we just discussed could happen too, and these stories become reality, and I they don't
want to miss out.
For example OEMs adopting Tesla's FSD, Tesla revealing a Gen 3 model, Tesla breaking ground
in Mexico, or launching a refreshed Model 3 with improved specifications that offers
even more range, and costs less to build.
This is the direction the industry is headed, to only further improve efficiencies, and
reduce costs, and more economies of scale kick in, and the bandwidth of the EV supply
chain expands.
Like I am saying though, it takes time, it takes years to see some of this to progress,
and the meantime the stock could do all sorts of things, as we have seen many times in the
past.
Like we almost just broke 300, but it's taken a bit of a hit now, and we have interest rate
rising potentially looming ahead.
But then it just takes a little bit of positive news to turn it all around again, like a confirmed
Cybertruck hand off date like November 22, I just say that date, as it was the date of
the reveal in 2019.
But I think any date confirmed would be good.
If the stock drops much more, I think I will probably even buy some options with the expiry
date around Q4 deliveries, as that should be a good result.
Also don't forget I will be on holiday for the next could of weeks, so wont be around
as much.