It may feel like we are going through a lot right
now, and it may be scary, but I thought we could just zoom out a little and gain some
perspective. Now most of us have these plans on holding Tesla shares for about another
5 or 10 years, and want to really see this through. Well thats a reasonably long time,
and a lot can certain happen over such a period. There was always going to be ups and downs,
recessions and booms, this should not be of any shock.
These are the times when the prices differ from their true values, but we plan on maintaining
the course no matter what price, as we see greater riches ahead.
And now the stock price getting low, this should be even more reason not to sell.
NOW Anyway, I don't think it's actually necessary
to be looking 5 or 10 years ahead in order to gain some perspective on what has happened
with Tesla's stock price. We knew things were going to be slow the first part of this year,
ramping up the new factories, except these factories didn't even come online until later
than we expected, and we aren't seeing the progress we hoped for with the vehicle production,
and on top of that the 4680 cell production, it seems to be taking longer than expected
and with energy density lower than the previous cell.
It's a bit of a do or die moment for Tesla really. Get these cell lines ramped up and
starting pumping out some of these new cars from the new factories. This is the direction
the future of the company has been invested, the future of these 4680 cells.
Q2 And although we did expect Q2 to not be amazing,
it was still meant to be at least as good as Q1, we didn't expect to lose so much production
with the lock downs in Shanghai. We lost a lot of production there, and they are going
to be felt severely in the financials. We aren't entirely sure what kind of earnings
Tesla is looking at this quarter yet, or what has been priced in, but it's not going to
be pretty. However, about the time of earnings report is the shareholder meeting, and the
stock split, so it may prop up the stock price. These lock downs are hopefully all over with,
but they have reduced some confidence in Tesla China.
END OF YEAR Of course the economy too. But Tesla are working
around the clock to rectify all these issues. Q3 shouldn't be so bad, and it sounds like
China really is coming back strong. Berlin is also starting to do some ok numbers, due
to Berlin selling the performance version, margins will be higher with that vehicle.
I think they are around 5,000 units a month now, I would say it wouldn't be far off break-even
at 10,000 a month, with the performance version.
We expect to see a huge jump in progress with the 4680 cell lines, which will equate to
more production coming out of Austin. The Austin Model Y is suddenly better value than
before, due to the price rises of the Long Range Model Y. I am sure it's going to sell
well.
Now I have already made a video on all the other things we can expect this year, but
most aren't particularly quantifiable. Instead I'm just going to take an estimate of Q4 deliveries,
and see if we can calculate the amount of profit that might generate, and then relay
it back to the current stock price, and see if we can use that to make a judgement on
the true value of the stock, which I feel has been somewhat lost.
ATH Also I say that everyone thinks Tesla's stock
price has dropped about half from it's all time high, whilst that being literally true,
Tesla's stock price today is a drop from Tesla's stock price today, not what it was last year.
As in, if it hadn't been for wars, oil, inflation, recessions, or whatever, Tesla's stock price
was on a trajectory to hit something like $1500 by this stage, what with all the progress
Tesla have made since the stock price was over $1200.
So I thought I should mention that, as it's something to bear in mind, if you compare
Tesla to other stocks, like Apple. Apple is a tech stock, and has lost about 1/3 of its
value, since it's high at the start of the year. Tesla has lost almost half it's value
since that time. But over that period, was Apple growing, and expanding, and doubling
their cell phone production capacity? No! Tesla has been growing an enormous amount
since the stock has crashed.
My point is, the market thinks they have punished Tesla, taking it to about 1/2 its value, which
is about the amount of punishment the market felt Tesla deserved. But it's not aware it
has punished it down closer to 1/3 of its value. My point is, I think Tesla has been
overly punished. The market is not taking notice of Tesla's future developments that
are going to be 20 billion dollars a year profit. The market is very impatient now,
and doesn't have time to value companies on what they may become, the market is more focused
on what they are worth now, and has become very short sighted.
LONG Anyway, not to worry, I have the ability to
look past all this short term noise, so I just did a quick estimate for deliveries for
Q4. Now I should point out, that Elon seems to think the number might be even higher for
deliveries than I have, judging by what he has said in the past. But I think it's all
close enough in the ball park really, just to gain some perspective as to how different
this company will be in Q4 from Q2.
DELIVERIES I have done my typical table with estimated
deliveries and ASPs for Q4. It's quite hard to estimate these new factory ramp ups, so
I think I am keeping it close to a conservative reality. But I get 490,000 total deliveries.
If you recall that is coming from 310,000 deliveries in Q1. In other words a 37% increase
in production from Q1 to Q4. Not a particularly massive increase especially given the increase
in capacity. So I don't think we are taking particularly extreme, overly bullish here.
MARGINS I am now adjusting each factory accordingly
for margin, as I am not sure what the average margin would have been otherwise. Instead
I am basing it as best as I can on previous margins from other factory ramps at various
stages. Of course I am trying to also best judge the new manufacturing techniques, and
the different models. Admittedly a bit of guess work, but based on the best reasoning
I could think of.
NUMBERS Anyway, that brings revenue up to $29 billion
and gross profit to $9 billion for auto sales. Once we add in FSD and likely regulatory credits
then we are above $29 billion. With total gross profit from autos close to $10 billion.
Giving an average margin of 34%, which does seem a little high, but this is related to
the new prices kicking in from the other factories, and the new factories are doing relatively
low numbers, so their lower margins don't affect the average so much.
Cost of goods might have risen somewhat from inflation, but we have some serious price
rises here. I think these are far more demand driven prices than inflation, hence why we
should see extra margin.
Of course nothing much to expect from the other sides of the business, or potentially
a little bit of improvement on services and other, with all these ex-leased Teslas being
returned. You see Tesla didn't allow the leases to be purchased, they all had to be returned
to Tesla. And over the last 3 years, the prices for these cars have actually increased. So
Tesla may even sell them for about the same price they did 3 years ago, which is beyond
crazy. Anyway, we might feel a little bit of extra
profit in there. Taking total gross profit above $10 billion.
PROFITS Anyway long story short, we are looking at
earnings of around six and a half billion dollars for Q4. That's the number we were
looking for.
If Tesla can produce that in a quarter, and we then multiply that by 4, to give the equivalent
of those earnings if annualized, then we are up to $26 billion in earnings. Currently the
stock price is giving a market cap of $662 billion. Now if I divide 26 into 662, I get
the number 25. As in it would take Tesla 25 years of earnings to reach that market capitalization.
Or what we also call, a p/e ratio of 25.
SUMMARY Now I don't think I have been overly bullish
in this analysis, possibly if anything the margins felt a little bit high, but that's
just what the math gave us. Plus FSD is going to have higher margins, and the cost of 4680
cells are going to drop significantly. In other words, if anything these margins are
likely to rise. Anyway, as usual I never tell you when I think
you should buy or sell. I just present things to you with all the facts I have, and I try
and extrapolate what they mean. It's up to you to decide what they mean to you. For me
the fact that we are at a price now that is possibly around the equivalent of a 25 to
30 p/e ratio relative to Q4, makes me feel confident about the company's future, it also
helps give me the conviction to invest in the company more.
Of course in this scenario we also have Texas and Berlin at about 1/3 their actual capacities,
and these new facilities should be responsible for over half of Tesla's capacity, and they
will have higher gross margins, and we know increased gross margins end up being felt
even more in net margins. Implying next year, there could be quarters that are closer to
a p/e of 10 at today's stock price. So I hope that helps you gain perspective.