How BAD is THIS for Tesla & TSLA Stock.

hey everyone meet kevin here tesla just

reported a quarter two deliveries after

the most challenging quarter in tesla's

history following some intense shanghai

lockdowns the likes of which tesla

hasn't had to experience before at least

not to this severity well folks delivery

estimates have been cut from quarter one

in quarter one we delivered just over

three hundred and five thousand vehicles

and this pacing becomes very important

because that's about 100 000 vehicles

per

month within a three-month quarter

now we delivered slightly less than that

i'm going to show you the estimates

versus the actual deliveries i'm going

to talk to you about what i think of

this as an investment as a potential

investment opportunity now of course i

want to be crystal clear this is

impersonal information and this is not

financial advice for you and your

portfolio but i will be reviewing some

examples of rates of returns that

someone might expect from tesla if

certain conditions are met but first

let's go through some of the delivery

figures so here we go we have vehicle

production and a deliveries adjust out

of this morning over

258 a thousand vehicles were produced

and there were deliveries of over

254 000 you could see that number right

here 254

700. the estimates came in slightly

higher than that and these estimates

really depend on which company or

researcher you look at for example

factsat came in at

263 000. bloomberg was closer to

268 000 and other estimates were around

255 000 along the lower end now folks

see this number right here the s and x

deliveries

this number i actually think is quite

fascinating and the reason for that is

in the last quarter we delivered 14

700 s's and x's and despite shanghai

being shut down it looks like we're

still able to ramp production of the s's

and x's this is likely because many of

these are produced the fremont facility

in california but i like seeing the

increase from 14 700 to 16

162. that represents an almost a 10

increase in the production for s and x

vehicles which these are higher margin

vehicles right even a few extra thousand

of these are going to help us push up

margins at the company and of course we

know that margins at tesla are the most

important thing it's one of the things

and one of the reasons that tesla has

the price to earnings multiple that it

does but remember folks this is not just

a car company and this is some of the

other information that we have to talk

about so if we go ahead and look at some

projections going forward because i

actually think hey you know what after

q2 that's probably going to be the

roughest quarter as long as we don't

have another crazy kind of shanghai

style outbreak where xi jinping decides

to shut down the country again he just

left the country for the first time

since prior to the pandemic and visited

hong kong uh which is saying that's not

really leaving the country okay he's

still open china but i understand that

hong kong is obviously separate it's an

autonomous region but we're not getting

into politics here the point is that

finally it seems like he's relaxing a

little bit on some of the crazy covet

zero policies although he's declaring

victory over kovid so maybe the argument

here is well if we see cases come back

so will his uh harshness and his

attitude right it's easy to declare

victory when cases are down after some

crazy lockdowns if those problems come

back we'll have bigger problems so there

are future risks to other quarters that

we could still have shutdowns in china

especially for tesla and so that would

be very bad but if we do look past this

second quarter now this second quarter's

eps its earnings per share is going to

be less than what we had in the first

quarter likely at least unless we had

some crazy kind of margin movement i

mean the 50 000 fewer vehicles were

brought in and we're ramping giga berlin

and giga austin texas it's very unlikely

eps is going to be anywhere near like

what we had in q1 but of course before

we get into some long-run projections we

would be silly not to address some of

the fun that's going on with tesla right

now first we've got investigations into

autopilot across pretty much the entire

world even here in america multiple

accidents are being partially blamed on

either the driver or on the autopilot

system especially in scenarios where

autopilot tends to degrade such as heavy

weather uh which could be heavy snow

heavy rain or whatever different types

of terrains right so these are problems

because in the future we could end up

seeing autopilot investigations lead to

limitations of autopilot features which

could potentially make tesla you know

autopilot software and it's sweet less

desirable for people to pay for either

as an a la carte option which tesla's

now option uh offering a few different

options one for six thousand dollars and

one for twelve thousand dollars for

different levels of advanced driving

assistance software or adas

uh but we could also see just the

limitation

like what we've seen in europe where

vehicles teslas can have a navigation

route set and if you have it on navigate

on autopilot the vehicle will drive on

the highway overtake vehicles that are

driving too slowly change out of the

fast lane drive as a human should on the

freeway with reasonable safety and care

maintaining distance to other vehicles

and it will actually move to an exit

lane and exit the highway for you

without intervention europe now wants uh

individuals to verify that the car

should do so by you know hitting the

blinker again or whatever and sort of

this extra step has been layered on but

it's interesting to me that a lot of the

fud that we see around autopilot implies

that the whole thing is just going to

get scrapped when i think the reality is

these investigators deal with so many

auto accidents they realize that the

death rate of someone in a vehicle

driving under an autopilot system is

somewhere around a 10 x fewer than the

death rate of someone just driving

themselves in a regular vehicle so i

actually personally think regulation for

the autopilot industry is great and it's

wonderful that tesla can be a forerunner

in this field now of course this has

brought up thoughts about hey but what

about the layoffs on the autopilot team

yeah well from what we know these are

labelers who have been laid off and

there's an idea that tesla perhaps has

gotten to this level of advanced

computer labeling to where they actually

don't need humans to tell the computer

anymore this is a stop sign this is a

ballard they can now use computers and

process tens of thousands of images per

second rather than labelers processing

maybe one image a second going yep stop

sign

bullard traffic light right this is good

this is all part of the advancing nature

of uh tesla's autopilot now some folks

are wondering hey but

what about this argument that elon musk

makes fun of them and says well the

investigators are the fun police well i

mean this has to do with the fact that

the fun police says we can't have a

boombox as our horn for when we honk so

okay all right i understand it was kind

of entertaining for while it lasted i

used to drive by um cops who were kind

of just hanging out at the side of the

road and i'd i'd play my horn

this is wonderful okay these are

probably not things you should do these

are probably things that are going to

get you in trouble anyway or just

distract other people so i get it of

course elon musk in a recent interview

suggested hey but you know uh we're the

only auto company other than ford that

hasn't gone bankrupt in america and uh

right now we've got these furnaces

they're like money pit furnaces of giga

berlin and giga taxes and if you listen

to insider reports from these factories

they're chaos these factors are complete

chaos but honestly chaos is what you

would expect at a new factory in fact

most startups are quite frankly chaos uh

i am starting a massive real estate

company with a little slice and hint of

sass which more details to come on that

you could actually sign up for more

information by going to kevin.com series

a when we have more information we'll

send it out

we're very excited about that expecting

to launch somewhere around august uh

first for course members only

for about a 30-day window as sort of a

first round so if your course member

you'll have an opportunity to jump in

there uh but anyway

so this bankruptcy argument looked

tesla's got over 17 billion dollars in

cash and we expect that each uh a

factory giga berlin gigatexas could take

somewhere around five billion dollars to

fully build and and uh potentially up to

eight billion dollars to fully ramp uh

and uh we're not expecting that tesla's

going to run out of cash because they

actually are a positive cash flowing

company they make money every quarter

now we expect they're going to make less

money this quarter because they

delivered less vehicles but see the

beautiful thing about tesla actually

making money is every single day that

goes by more cash is going in than is

leaving now we'll take a look at the

cash flow statements this quarter when

they come out on july 20th to see if

anything has shifted how much are these

companies or these these factories

really burning at this point where we're

in the ramp phase so there is a

potential that if we start seeing a

negative cash flow there could be a big

adverse reaction on stock valuation

because folks do believe that if tesla

has negative cash flow tesla's going to

have to raise money by maybe doing a

bond offering or issuing stock if at

tesla is positive cash flow or cash flow

positive then maybe we don't have to do

that we just need to deliver more cars

which is what the trajectory is is

delivering more cars

in fact one of the most beautiful things

about the numbers release that we got

from tesla this morning was they said

that in july tesla produced more

vehicles than they have ever produced

before well in the first quarter we were

on pace of delivering 100 000 vehicles

per month then that means maybe perhaps

july could be somewhere at let's just be

let's be let's be very generous here

let's say tesla produced 150 000

vehicles well at 150 000 vehicles in one

month potentially this could be 120 it

could be 125 and quite frankly it

probably is but at 150 000 this would

put tesla on pace

for

think about it

1.8

million vehicle deliveries falling off

the board there 1.8 million vehicles

per year right 1.8 million per year the

current projections have tesla

delivering somewhere around

1.4 million and so if we can ramp to a

pace where wow we're actually

exceedingly coming out of q2 with a

substantial and successful ram

then

we're gonna have good things coming to

tesla yeah but what about layoffs i mean

why would a successful company one

that's ramping lay off 10 of their

workforce well here's the thing if we're

going into an actual recession then

companies need to pivot and they need to

pivot early in fact if companies pivot

too late then they suffer and what that

means is if there are early warning

signs of a recession coming companies

coming out of a boom time should be

trimming the fat they should be laying

off for workers whom they really don't

need that might mean increasing worker

productivity at those who remain but

it's very important to do this in fact i

felt this in my own business in december

i hate to say it but in december we felt

uh oh we're getting a little bit too fat

we have too many people for the workload

that we have right now i'm a big fan of

trimming expenses i don't like having a

lot of expenses so we had to

unfortunately lay off three of our

workers

now i wasn't expecting this but in april

two additional workers went on to an

opportunity in another area and whether

or not that worked out for them doesn't

matter it's not the point of this video

but what the point is is that we now

have a very lean staff

and this is really important because it

makes it a lot easier to survive going

into a recession to invest in new

technology in the business and to also

launch new companies and new business

ventures or new products which are

really important especially if you could

do those with fewer people so i'm a big

fan of this because you want to see

companies with increasing earnings

during a recession not decreasing

earnings this becomes critical for tesla

because

there are real expectations that we are

going to be going through what's known

as an earnings recession an earnings

recession is both when top line revenue

year over year comparing quarters is

negative like we've already seen at nike

we've seen negative year-over-year

growth of about negative one percent

over at nike

earnings tend to also then decline in

fact earnings over at nike are down

about five percent year over year and

when we see these sorts of negatives

what do we end up getting well we get a

reduction of multiples because what are

you no longer doing you're no longer

actually growing both revenue or

earnings you're actually contracting and

this is miserable for for example your

peg ratio which takes the combination of

your pe and your growth but don't worry

so much about that what's important to

know here is that layoffs are actually a

good thing to prevent

some of the pain of going through an

earnings recession so with that said we

should now get to some of our

projections for tesla and decide okay

well do we think there's the potential

for tesla to actually be a good

investment uh in this uh in this sort of

environment well let's take a look if we

project out to 2025 this would be uh

ramping obviously tesla vehicles from

about a 1.5 let's draw right here from

about 1.4 million vehicles which is

estimated for 2022 to

a substantial ramping of somewhere

around in 2023 will probably have to be

if we grow this at 50 percent maybe even

60 percent no more shanghai lockdowns uh

then then we could be somewhere around

2.2 2.3 if we get to 2024 we could do

that same kind of 50 growth rate

hopefully we could be around 3 point i

don't know 8 9 let's go with 9 here

going for a little bit more than fifty

percent uh and then another fifty

percent on top of this is almost two

right and so that's how you get to 2025

of about 5.8 million vehicles deliveries

i've delivered obviously we have to have

demand for this which right now it

actually does seem like there is demand

for tesla's in a substantial degree one

of the things that uh folks do say

though is oh but why then are people

buying hyundai's you know bloomberg was

just reporting that a bunch of hyundai

evs are being bought that they're

outpacing ford's ev sales and they just

launched their vehicles well one of the

problems you have right now that's quite

ironic is there's so much demand for evs

that people are actually quite impatient

for them and therefore they're just

picking up a legacy vehicle rather than

waiting for a tesla because they don't

want to wait the three to nine months

they decided they want a new car and

they want a new car this weekend and

historically that's always been

something that somebody has been able to

do especially older demographics

they don't like to wait for cars they

want their car now which is ironic

because usually people make fun of

millennials for being impatient but uh

yeah you check out you check out the

older demos when it comes to buying a

car it's like i'm shutting them on a car

i'm going now anyway so look at this if

we have revenue per vehicle of about 52

000 here

in uh 2025 which is absolutely possible

especially with the separating of uh the

two different eight ass levels six

thousand price option twelve thousand

price option that might even get more

expensive in the future there are some

real opportunities here at 5.8 million

vehicles we're going to have revenues of

over 300 billion

dollars in revenue now i'm going to take

about 2.7 percent in leases i think in

the last report we were closer to about

4

that's okay though we'll go with about

2.7 there we've got uh servicing revenue

which is usually a break even energy

revenue and total revenue is somewhere

around 355 uh billion now the reason i

put a bunch of zeros here and i want you

to see this right here okay see all

these zeros right here uh i call this

actually my personal

margin

of safety okay this is a very uh warren

buffett approach although i we know that

warren buffett isn't into tesla

a margin of safety is a way of saying

hey

i know a company can face i know that a

company might grow faster than i expect

but i want to be conservative in my

analysis and even though i might match

tesla's growth estimates of 50 to 60 in

their deliveries going forward let's be

conservative and just say tesla makes

absolutely zero money and by 2025 in

insurance semi trucks robo taxis

tesla optimus robot or third-party fsd

licensing any of these extra things

we're just going to call that part of

the margin of safety and we're going to

call that bonus i'm a big fan of that

and i think anytime you do a fundamental

analysis you should always include a

margin of safety if you do a fundamental

analysis and you get to the point where

you're having to include absolutely

everything

then uh

and then you're still trying to stretch

the valuation it's a red flag that maybe

the company's a little overvalued in

fact i did a fundamental analysis on a

square in our course member group about

a year ago and i'm like oh my gosh even

using like generous estimates for

revenue and generous multiples i can't

justify this valuation it's hard like

i'm stretching to justify this valuation

when you're stretching to justify

evaluation you could be setting yourself

up for a big old fall and obviously we

saw uh square took a nice little tumble

so uh okay let's uh now get to a margin

so these are expenses here the most

important thing obviously we know this

over and over again that we want to

watch for is right here it is the

30 percent uh margin gross margin on

vehicles or 70 expense ratio critically

important we actually have projections

now that this could go as high from

their wall street projections that this

could go as high as 32 to 34

should be remarkable and and again

seeing the s and x deliveries go up

gives me some optimism

for for some higher margins and then of

course if we can sell more adas or we

sell vehicles at higher premiums then

that's great see remember

right now there are maybe not so much

right now anymore but towards the end of

last year and still to some degree we

see it this year there are auto

manufacturers that will sell and deliver

a prius to let's say dch toyota okay so

dch toyota this is an auto group right

like a private equity kind of a group of

investors who run a company of uh

vehicle uh sales departments and repair

departments service and sales right

those two big things this is going to a

dealership right and you might see that

the toyota

prius

is

selling for an msrp of let's say 38 000

msrp

but what happens is the dealer puts on a

markup of ten thousand dollars last year

maybe this year it's it's uh two

thousand dollars or whatever and they

call it the dealer

markup okay so the dealer markup this

extra money is money that is going to

dch toyota

unfortunately toyota

themselves this right here is not

benefiting from that dealer markup and

so that means even though

dealers can charge more money because

they have fewer volumes and maybe they

need to charge more money to survive

because again fewer volumes you know you

make five thousand dollars on one

vehicle or 500 on 10 vehicles but you

don't have 10 vehicles right now you you

charge a dealer markup because you have

to survive you gotta pay the bills you

gotta have the showroom going right

tesla doesn't have this

this this extra layer and this is

something that's easily forgotten over

at tesla that extra ten thousand dollars

in dealer markup that goes straight to

tesla and this is why they're raising

prices right and that's going to help

margin i suspect quite substantially

because we've had quite a few increases

on these now so let's now talk about

rates of return what if tesla which

currently has a 66 price to earnings

ratio maintains that going into 2025.

now first of all why would it well maybe

today's price to earnings multiple is

depressed it's 2022 price to earnings

multiples about 60 to 66 what if that's

depressed because we're in a recession

well that means it could be higher in

the future what if we end up proving

that elon musk can ramp shanghai its

expansion berlin and texas all at the

same time as building a plant in

indonesia and mining for lithium

and potentially planning new

gigafactories in texas or florida or

even expansions in china even beyond

shanghai well then folks the 66 price to

earnings ratio could actually be quite

reasonable but i think everything's

going to come down to how well tesla's

able to prove that it's going to get to

20 million vehicles per year which

sounds quite lofty and in 2025 we'll

know are we on that trajectory or not

now that multiple is not going to last

forever at some point it will converge

to 30 at some point it'll converge to 20

and and then sit around maybe where

google and facebook are which is closer

to 14 to 15 right

so multiple is everything here but at

today's price of 690 dollars for tesla

if you have a multiple of 66 in 2025

folks

tesla stock price should be 2

200

that represents an annual rate of return

of 33.57

in four years every single year for four

years you would probably exceed the

return of the s p 500 by over 25

compounded annually for the next five

years

now there are a lot of folks who make

fun of people who say why would you only

be in tesla that's so stupid that's so

stupid to only be in tesla and i'm not

saying i'm only in tesla i'm just saying

there are people who are like why would

i pick any other company and there's a

rationale behind this

uh er that is to be in in tesla in this

type of environment and it has to do

with something known as an immature

company effect and now we're going to

talk about the immature company effect

in a moment but what i first want to do

is i want to take this earnings multiple

here and i want to slash that in half

okay i want to see what these numbers

would look like if we were only able to

get a 33 times multiple in 2025

so here we go

33 times multiple

which is not par with today i forgot to

take that out that is not par with today

with a 33 times multiple in 2025 tesla

would actually be selling for about

eleven hundred dollars which is funny

because that's what it sold for in

december of 2021 but we can't think

about hindsight we have to think forward

the the point is if you're buying shares

at 690 today oops a little above that if

you're buying shares at 690

today

then uh then whatever shares you're

buying in the 690 dollar region you

could potentially expect a rate of

return on those shares of

12.3

over the next four

years

that's pretty dang good even with these

low estimates you'd probably be

exceeding wall street uh

and quite frankly uh

the s p 500 or the indices of course in

the short term you might underperform

but that's what happens when you don't

diversify towards the indices shorter

terms you'll underperform so what is an

immature company well an immature

company is a company that it has so much

excess demand so think about it like

tesla right let's say that this is a

representation of all of the pre-orders

for teslas and tesla is only able to

provide deliveries up to this maybe

third of the box over here because

remember people might be tempted to buy

other evs right now because they can't

get their hands on a tesla even though

they'd otherwise be a tesla buyer well

right here this

represents

uh

untapped uh

sort of production growth right

production growth and the only way to

actually tap it is by growing production

more

the issue is you can only ramp at a

certain level so even though next year

we might be you know able to ramp this

by 50

we might still only be here and the cool

thing about that is with an immature

company if we say oh but wait we're in a

recession we're actually going to stop

demand at this vertical line here and

this demand is going to get destroyed

this could represent let's say 30 of

demand over here that gets destroyed

tesla can actually still be growing and

ramping at a rate of 50 to 60 percent

growth

even without that 30

because of the nature of it being an

immature company

anyway if you found this information

helpful please consider subscribing

check out the programs on building your

wealth down below and we'll see in the

next one goodbye