I know the economy is concerning right now, it feels very unpredictable. The market has
already dropped so much more than we expected, and Tesla's stock price even more again. But
is all this doom and gloom making us overly negative so much so we are ignoring the deal
of a lifetime. People say these are the times millionaires are made, when you find the confidence
to still buy.
The stock market has inverse supply and demand, its much easier to buy when the prices are
higher, and harder to buy when they are lower. Although I suspect most of you are in the
same boat as me, and spent everything you could already on the way down, not thinking
it was likely the price would dip below $200. Hence why the stock market is simply so unpredictable
through the lows, and the highs too. The demand is perhaps there, but investors have exhausted
their resources in order to buy.
In the past when Tesla drops this low I have sold shares and leveraged up with options.
It was much easier then, we had internal company issues as to why the stock had dropped, combined
with FUD and market manipulation, all of which were clearly temporary and would mean the
stock price would recover once we navigated past these issues. And I was completely right,
and have it as proof, on the two occasions Tesla dipped so low I did that. I ended up
making $1/2 million in under 6 months as a result. Or at least on paper, at the peak.
I ended traded out of some of it with $300,000 profit still. Of which I have since reinvested
quite a bit of that, which is now at an obvious loss. And kept the remainder as a buffer for
just in case.
But nothing really changed with those new trades, they are still invested into what
the company will be like in 2 years time. And in my opinion, all that is required is
Tesla to hit high volume production with their 4680 cells, and I will still make a good profit,
despite what we have faced. And we were told Tesla would hit this rate this year even by
Elon and Drew, and although that looks highly unlikely that they hit that run rate this
year now, I still have 2 more years.
100 GWh of cell production is massive, its not far off twice what Giga Shanghai is doing
in production. Yet these cells perhaps carry 2 to 3 times as much gross profit per kWh,
and probably 4 times as much operating profit. This is a big deal. Anyway, this isn't meant
to be another video saying its all about the 4680 cells, most of you know the impact too.
We are trying to assess if Tesla is a bargain right now.
P/E So you need to assign some sort of valuation
to the company in you head. Which is most likely some sort of p/e ratio. What p/e ratio
should Tesla have around the current performance? For example I would guess that Q4 is going
to produce a net profit of around $5 billion, excluding any FSD deferred revenue that gets
released. Sure there are authoritative people suggesting just $4 billion. But I think we
will find that once again these same people will miss the earnings just like they have
almost every other quarter. Yet for some reason they still carry this authority, because they
are some fund manager or a billionaire, and people keep listening to them, and like to
stay conservative and not believe in the Tesla magic. But time after time we see this Tesla
magic, it's just not always where we expect. Like we expected FSD to be ready by now and
the stock to have jumped up 10x, but instead Tesla made a super popular, profitable Model
Y, and the stock jumped 20x.
Anyway, 5 billion in earnings for Q4 is 20 billion annualized. So what p/e ratio should
Tesla have even in this economy? At a run rate of around 2 million vehicles a year,
with likely a chance of tripling, yes tripling, total earnings for 2023 compared to the current
the trailing twelve months, as long as there are no lock downs. It is totally subjective,
and there are two ways to price it. One would be what you think is a good price for your
investment for yourself, and the other is to try and judge what the market would place
on it. The former is for you determine at what return you expect, and make your own
judgement, then as a long term investor you expect that the market will eventually catch
up to what you see. The other is more for the short term, as the market is fickle, and
you don't know what it will decide at the time.
Right now I still want to see some more progress with 4680 cells, I want to see them get to
an annual capacity of 20 GWh either this quarter or next, to really lock in more confidence.
Then I am probably at around a p/e of 60. Implying a valuation of 1.2 billion, or a
stock price around $400. That's my own valuation in this economy. However the market doesn't
understand the importance of 4680 cells. They don't realize how much potential and profit
they bring, but also they don't realize how much the future of the company depends on
them, and is sacrificing the stock price way more over Twitter than 4680 delays. Therefore
I would place a p/e of around 35 to 40 for the market. Or based on the Q4 earnings a
valuation of about 7 to 800 billion. Perhaps 20 to 30% higher than we are trading today.
A stock price of around 220 to $240. If the economy is about where it is today then, and
Tesla hit this $5 billion in earnings for Q4, and Elon hasn't sold any more stock. Then
yes, I think it's possible to see Tesla trading above $220 again. Which let's face it isn't
great, but a lot more tolerable than we have seen lately.
This does however also imply that Twitter is not taking Tesla down any more, and that
Elon is excited about Tesla again, and has stopped selling the stock. This was just an
additional factor hurting the stock price. That would have been hard to foresee as an
investor. You never know what Elon might do. However, in the long run he seems very confident
about Tesla and the fact we will all get a good return, as long as your ride it out with
him. I remember the painful crash in 2019, my first experience when Tesla had dropped
more than half, there were investors complaining on Twitter to Elon about how they had lost
their life savings, or similar sentiments, all very upset. And Elon just said, very cavalier,
something like Tesla will be alright. Elon knows better than us, he knows the real value
of 4680s or FSD along with the actual chances of them becoming a possibility.
I almost think at times that Elon wants you to have faith in him, and trust and believe
him, no matter what he does. And you will be rewarded, for your loyalty. However, I
do not advise this as an investment strategy. I am looking at numbers and battery progress.
Although I have no more funds to invest in it. I do it just to make sure my investment
is ok, and to make me cope with how many millions I am down. But if I am completely honest,
I do wonder what it would actually take for me to ever consider selling my shares. But
that's the thing I did all this due diligence before hand to make sure this was a really
solid company and why I felt so confident investing so much in the first place.
We had these massive buffers like waiting lists and margins. Except now in some markets
we have exhausted the waiting lists, and even eating into margin by lowering prices, just
a fraction. And people are freaking out, because Tesla are using the buffer they had, to make
the investment safer. This is what it was for, to make sure Tesla don't have to worry
about the bad times, because they can get through them. And they will work. And it's
only even a small price drop, in a market that isn't as big for Tesla as people make
out. China is still a developing nation, despite so many people there, and so many cars sold
there, there amount of people who can actually afford a Tesla is likely not as big as people
think. For example China is only about 20% of BMW's market, and they are running at market
saturation. Tesla still aren't finished ramping, and they
are still selling every car they make. We are only about 1/2 way through Model Y production
run rates, there are plenty more people to buy Teslas. And China is the export hub, for
Europe, Thailand, Korea, Japan, Australia, New Zealand, Singapore, Malaysia, Hong Kong,
and many more markets, maybe even South America.
In fact Australia are just passing a new EV subsidy which takes the price off a new EV
as much as about $9,000. There are almost a million new cars a year sold in Australia.
And I would bet that a lot of people who buy Teslas are not even new car buyers. In fact
everyone I know in New Zealand and Australia who bought a Tesla, it was their first new
car purchase. And with higher fuel prices in these markets, it makes demand that much
more elastic, so when you get these sorts of subsidies its huge. In other words I think
Australia alone could probably buy 200,000 new Teslas a year. Or about 20% of China's
production. Tesla just need to work on the logistics.
Anyway, like I say, valuing Tesla is subjective, but my estimates have me at around triple
earnings from the current trailing twelve months, which is currently giving a p/e of
56, and you divide that by 3 it becomes 19. I.e. if Tesla triple earnings, then in January
2024, when we get the earnings report, at this current stock price Tesla would have
a p/e of 19. That's based on deliveries of around 2.3 million. Which in my opinion isn't
very good. Based on a slow 4680 ramp, and excluding any more LFP growth. Yea, do you
think Tesla are going to suddenly stop purchasing the exponentially growing LFP supply? That's
a thought to leave you on.