After another record quarter for earnings, we did see the stock shoot up briefly, only
to crash back down. Obviously the main reason for the latest Tesla crash now, has been Elon
selling more shares.
Elon is rumored to have sold an further $8.4
billion of stock to finance his purchase of Twitter. Which has resulted in crashing the
stock price over 10% just in a few days. Elon does say however that he appears to have
stopped selling. But a lot of investors are not happy, and some have even been margin
called. A lot of these investors are quoting what Elon initially told everyone.
How Elon used to claim "just as my money was the first in, it will be the last out."
Anyway, it will leave Elon with enough cash
to take his total share of Twitter to around 25%. Elon does need to purchase 100% though
obviously, I assume he is going to use a leveraged buyout for about 50% of the Twitter, and maybe
taking on some other investors too. Anyway, it looks like Elon has sorted Twitter
and hopefully not at the cost of Tesla's stock price any more.
But we have to wonder, how much of Elon's
time is Twitter now going to consume, and was this at the cost of Elon focusing more
on Tesla? Elon said every minute he spends thinking about Tesla, adds about 1 million
dollars on to the value of Tesla. Therefore there will now likely be minutes Elon will
use to think about Twitter too. Or could this be thought of the opposite.
Elon is so confident on Tesla now, and the roadmap, and all the people he has placed
in there, he knows can do a great job, that Elon can now move on to other things. In general
I am referring to Elon feeling confident about the 4680 ramp. Presumably if it wasn't going
well, Elon wouldn't be buying Twitter, and would be back to sleeping on the warehouse
floor. Which is what we expect from Elon when things aren't going well, not him to be acquiring
social media sites, with shares he said he would never sell.
Anyway, this sell off has started a wave of
decline now, along with people getting margin called, resulting in more sales. And you can
bet the shorts are out in full force, and perhaps Gates even doubled down on his position
against Tesla too. Even after Elon announcing he has stopped selling TSLA shares, the stock
still dropped the following day.
We are also hearing the economy shrank in
the first 3 months of this year. In economics we have a definition of recession, if growth
in real GDP is negative for two consecutive quarters. Right, well we are half way there.
The economy might enter a recession, although it's a really strange environment. We are
still recovering supply chains, and have a war on top of that. Yet we also have an insane
money supply at the same time, which could spiral out of control with inflation.
There are a lot of signs pointing to more inflation on the way. However, this may not
affect Tesla's sales so badly. In fact perhaps Tesla can demonstrate it's a company that
can handle inflation. Tesla really don't make many vehicles yet, still not even half as
many vehicles as Mercedes make. The quantity that Tesla produce is still relatively small.
In that Tesla can't meet demand. Now in a recession we think that demand will dwindle
somewhat. Tesla has about a 12 month waiting list on some vehicles. All Tesla would need
to do is make sure they have enough orders to get through the recession, which generally
lasts about 18 months. So I think Tesla can still do well in a recession, the stock price
will likely take a hit though.
There also aren't many events around the corner
to boost the stock. We only really have the split, which may not be for sometime, and
a potential S & P ratings improvement. Of course at any time Tesla could announce a
new event, like a Robotaxi reveal, a new battery, or a new master plan, which could always bolster
the stock price. In other words, the stock could get bashed and beaten around for a while
down at this price for sometime. Perhaps trading between $900 and $1000, then even getting
beaten down into 800 or 700 from time to time.
Now I have been warning people about this
second quarter for sometime, and potentially some of Q3 too, if things don't start to improve,
by which I mainly mean 4680 production. These new factories will have some serious additional
running cost, which won't be made up for until they get closer to volume production. My guess
is the new locations will be having a negative effect on EPS until they can reach about 15,000
units a month, perhaps at around 22% gross margin per new factory. But that needs further
modelling to get better accuracy.
It will take sometime for the new factories to hit these run rates, at best likely Q3,
but possibly not until Q4. If Q3 isn't starting to show signs of growth, then the market might
crucify Tesla for getting up to Q3 and still no volume production from the new facilities.
But this year might be similar to last year.
Everyone looking at the progress of these two new factories, or complaining about the
delays like last year. Meanwhile I was making videos on how much China was ramping up, to
levels far beyond what we were told. I thought the fact that the Model Y factory has over
double the capacity we were told, was a bigger deal than Berlin being delayed another 4 weeks
because of some red tape.
And I feel this year could be the same. China will likely carry this year's progress again.
However, Shanghai has faced many set backs already so early in this year, and lost a
lot of production time. It sounds like Shanghai is seriously chomping at the bit to show us
just how insanely quickly they can actually make cars in those factories. Along with CATL
working equally hard to provide China with the majority of their battery supply required.
I believe CATL is the bottleneck there. And that all Tesla is, is somewhat of a placeholder
company to just consume all the batteries CATL can produce.
The partnership between the worlds largest battery manufacturer and the worlds largest
EV manufacturer is brilliant. CATL can just get on with making as many batteries as they
possibly can, including scaling up with 2 new fabs this year. And Tesla has these incredible
production lines, that move so much faster than we are being told. It might be this month,
May, or perhaps June, when we discover just how fast China can really spit out these vehicles.
This extra production will definitely be felt in the earnings, but if its enough to compensate
for the losses from the other 2 factories, well I would say unlikely. Shanghai would
probably have to do an addition 70,000 units in Q2 to make up for the losses of the new
factories. And Shanghai lost almost a whole month in order to achieve that, so its not
happening. However, Austin hasn't even started advertising the new Model Y for sale, so if
they don't start delivering from Texas, then there won't be all the associated costs of
running the factory in cost of goods sold.
Anyway, China won't hit that run rate in Q2,
but could pick up in Q3, given that China delivered around 180,000 units in Q1, an additional
70,000 would take China to 250,000 for a quarter, or an annual run rate of 1 million. And I
am actually expecting Shanghai to hit that run rate in Q3 sometime. Therefore the extra
costs the 2 new factories are creating, should be covered by the additional expansion of
China.
Meaning I think we expect to see a dip in the EPS for Q2, but I would expect to be back
where were in Q1 for Q3, in fact slightly improved even, but from there, we are at the
mercy of 4680 ramping, to have a potential blow out Q4.
I am definitely aiming to buy this dip, but
I just want to make sure I catch it down the bottom, in case it does drop much lower. Personally
I think anything under $900 is a good price to be buying the stock. But I want to try
and catch it cheaper, I am going to be waiting for a sub $800 price tag. Now this isn't me
saying I think its going to go that low, I am just trying to get it that low. It got
close too, down to $820 the other day. I don't feel like the market sentiment is overly optimistic
right now. I mean the almighty Amazon crashed 14% in single a day.
In fact opening up my stock app the other morning, after the market closed, I just have
notifications saying Coinbase, Spotify, Roblox, and Rivian have reached all time lows, and
Amazon at it's 52 week low. It's starting to look like blood in the streets.
I have about 5 LEAPS purchases I intend on
buying, and will buy them slowly on this dip. But my feeling is this will likely not be
the last dip we see this year, and it may not be the lowest we see the stock. I was
saying a similar thing all last year, how there will be a lull through the middle part
of last year, as China ramps. Well we will see the same this year, as the Berlin and
Austin ramp. Now I can't predict the future, this is just the future I think is the most
likely, and I am betting money on this future happening.