The Coming Disaster Facing Tesla Stock [Red Flag WARNING].

hey everyone me Kevin here we've got to

talk at Tesla there are four major red

flags that we need to discuss before the

next earnings well reports in Q3 and

four and two green flags that could help

us offset these red flags the very first

thing that we need to discuss is one

that isn't the most sexy but it has to

do with currency risk I'm going to keep

this as simple as possible the stronger

the United States dollar is the more

sales we want to see of Tesla's in

America because if we sell cars at a

higher degree in China or Europe or

Great Britain while their currencies are

falling relative to the dollar then we

are going to take a larger dollar

impairment on our next earnings report

which means a lower earnings per share

which means potentially less momentum

going forward this this has happened

before so this is no unique surprise

here take a look at just the last

quarter we had a foreign currency

adjustment of negative

421 million dollars to net income that

is in contrast to a 63 million dollar

gain in the prior year we know that

foreign currency fluctuations are going

to be a big deal in this next earnings

report not only because of what happened

in the last quarter but take a look at

the charts they've only worsened this is

the Euro relative to the US dollar down

17

year-over-year this is the Chinese Yuan

down 10 with a lot of that drop actually

happening in the third quarter which is

the next quarter we're going to see a

report from Tesson and the Japanese Yen

dropping 23 also with a lot of that

happening in the third quarter that's

that sort of right half of this chart

again going through those charts you

really see the pain in the right half

when the dollar has been strengthening

this is an issue because Tesla also

keeps a good chunk of their reserves in

foreign currencies where they are

conducting transactions in fact take a

look at this directly from Tesla's

statements balance is held in foreign

currencies had a US dollar equivalent of

5 billion dollars that means out of 18

billion dollars of cash that Tesla has

more than 25 percent of it is held in

foreign currencies which could have been

impaired in excess of 10

over the last quarter alone that's

devastating because that could be a 500

million to one billion dollar impairment

in currency Holdings alone if Tesla

hasn't moved these to Dollars this is a

real risk to the Q3 earnings report and

even though I really expect excellent

deliveries in Q3 it could all get

squashed under currency risk adjustments

where we end up getting a very low

earnings per share and it looks like

Tesla isn't as profitable as it really

ought to be solely because of currency

adjustments this will be very

frustrating because I actually think

that deliveries in China will slow going

into Q4 which means maybe the currency

issues won't be that bad but then we'll

trade those for a Chinese slowdown and

the Chinese slowdown is actually the

second big issue that we have the

Chinese slowdown is very very real in

fact when you look at companies and in

an earnings call CEOs or Executives talk

to you in an earnings call about how

they're trying to be competitive with

their pricing that means they lack what

I call PP also known as pricing power we

regularly talk about PP in my courses on

building your wealth link down below

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startup and I'd love to have you as a

part of it folks when Executives tell

you they lack pricing power which could

be implied by saying we're trying to be

more competitive it's a sign of demand

going down in that region and take a

look what was literally in Tesla's last

report right here

for example these cost reductions in

manufacturing have allowed us to

competitively price our vehicles in

China this is straight from the Tesla

earnings report this is a sign that not

only are we going to face substantial

currency risks which hopefully hopefully

hopefully hopefully we move a lot of

that Chinese demand that might be

falling off to the United States that

could offset a lot of this pain right if

we get a lot more United States delivery

as opposed to European Delivery or

Chinese delivery fine maybe the currency

exchange issue won't be that big of an

issue that would be the dream and

hopefully we've converted a lot of these

foreign currencies into Dollars although

Tesla's not exactly known for currency

hedging that's because they pretty much

basically say they barely currency hedge

you can read the reports and you can see

that but anyway the point is we know

China's economy is getting crushed we

know Chinese demand is going down it's

going down so much so that in order to

try to induce demand in China they

actually gave away this insurance

subsidy in China uh to anybody who

bought a vehicle between September 16th

and 30th they basically gave people a

thousand one hundred and forty dollars

if they chose Tesla insurance I mean

that's like a year of free insurance if

you buy a Tesla that's basically a price

cut

even though it doesn't really cost

anything for Tesla to provide that it's

basically a price cut right you are

providing an incentive for somebody to

pay a little bit more it's like when you

get an EV tax credit which I think will

be a big boost to electric vehicles in

the next few years way too soon for any

of these uh you know EV tax credits to

to really be considered right now but in

the long term these will be phenomenal

especially for Tesla they'll really help

margin because basically what you're

doing is you're reducing the cost that

somebody has when they buy an EV while

allowing the manufacturer to charge more

right that means bigger margins that's

the inefficiency of the tax system you

would expect that uh buyers and the

manufacturer would kind of share in that

benefit right that's generally

economically how it works the buyer gets

a little bit of a cheaper price and the

manufacturer gets higher margins but

anyway

we want to see more Teslas sold in the

United States we need United States

demand to stay up now I'm a little bit

concerned about that and U.S demand for

a couple of reasons the first reason

that I'm a little bit concerned is that

United States demand has never been like

80 or 70 plus percent of the demand that

we're seeing for Teslas so it's unlikely

that we're going to see anything

different from this particular chart

here this chart shows you Vehicles

delivered in the United States China and

other areas like Europe or New Zealand

or whatever else right and let's just

ignore the three months ending June 30th

here because that's when Shanghai was

shut down for a moment let's look at

2021 in the summer

20 about 24 of vehicles went to China 32

percent went elsewhere like Europe and

43 went to America okay well this is bad

because the that means more than half of

all vehicles are actually sold outside

of America which means we take a foreign

currency hit and it's going to so look

okay the good news is in the last six

months we've trended more towards

America with now more than half of

vehicles delivered in America and while

Shanghai was shut down we had up to 57

of vehicles delivered in America but

still with Shanghai mostly shut down we

still only had 57 of vehicles delivered

in America so I'm expecting a big FX hit

for an exchange hit and it's going to

suck but it's not just historically what

Tesla has been delivered it's very

simply if you just go to tesla.com okay

I hate you sir but if you just go to

tesla.com and even though in the last

Earnings Report Elon Musk tells us oh we

have no problem with the man there's

plenty of demand we've got you know that

the issue is batteries and materials

those are the limiting factors not

demand that's fine but hey if I want to

buy a model 3 right now yes I'm not

going to be able to get the long range

because they're not accepting pre-orders

for that right now because the wait list

is too long for that particular kind of

battery set but if I want to get a

battery presumably a cheap one from

China and I just want to get a basic

model 3 right now my delivery window is

as little as one week from now all the

way into December

okay so but this as little as a week

from now is kind of scary because it

does mean that those windows have

substantially compressed and we know

that the order backlogs for Tesla are

starting to fall we know this because

Troy tests like on Twitter who's

absolutely brilliant about uh finding

this and conducting this sort of

research uh absolutely give him a follow

but but take a look at this this is your

Tesla backlog in units it's plummeting

well which makes sense because we're

going into a global recession like we

understand that at least we still have

the buffer I'm totally okay with this

backlog going to zero and then people

who have money being able to get a Tesla

right away as long as there are enough

buyers to absorb everything that Tesla

produces I'm happy I just need more of

those buyers to be in the United States

because the currency disaster is going

to suck I can't understate how bad it's

going to be let me give you a little bit

of research on this okay

this

is not what I wanted to click

this is a study that shows you the

relationship between Tesla stock and

what happens with foreign currencies

it sounds really complicated let me just

make it very simple for you when the

Chinese Yuan goes down the stock goes

down when the Chinese Yuan strengthens

them and Mindy when it strengthens stock

goes up well unfortunately the Chinese

Yuan right now ain't doing too hot

it's going down

so that's not a good heads up for Tesla

stock in the near term so we've got a

foreign exchange risk we've got this

demand disaster in China we for some

reason have Tesla holding 5 billion

dollars in foreign currencies which have

all devalued Now by at least probably 10

percent uh certainly at least five

percent just in in the last uh quarter

here uh the dollar has strengthened so

much and we've got this concern that hey

well maybe we could just ship vehicles

to America but if you ship vehicles To

America that cost you more money in

shipping and quite frankly even while

Shanghai was shut down we were only able

to deliver 57 of vehicles To America

that is not very exciting in terms of

thinking oh yay strong dollar this will

really help us now there is an

offsetting benefit to a strong dollar a

strong dollar does make it cheaper to

buy materials that could be good

assuming hopefully Tesla keeps most of

their earnings in dollars and not in the

Chinese Yuan like which you know they've

said we have uh you know five billion

dollars of Chinese Yuan and and pound

sterling and don't even get me started

about the pound sterling okay the pound

sterling the pound the Great British

peso I mean the Great British pound is

is basically a parody with the dollar

it's not like a bucko seven right now

it's it's insane uh it fell as low as

103. and this is really because the the

government wants to okay we don't have

to go into this I made a whole video on

this but basically actually I mean the

government's actually doing some really

interesting things in the United Kingdom

they're like let's cut taxes and let's

encourage people to keep more of their

own money so they'll get off their butts

and they'll actually go work and then

we'll have more people working and if we

have more people working we can bring

constant inflation down and then we

won't have this massive labor shortage

geez imagine that lowering taxes to

encourage people to work I I mean it

actually sounds great to me but you know

this is not supposed to be a political

commentary video this is a video about

Tesla so the next thing that we have to

remember about Tesla is this this

Commodities Factor right as as I was

getting started to you know talk about

here is that Tesla will or should

benefit off having dollars to purchase

commodities for example here's just a

comment from an article in 2016 where

the author wrote for example a stronger

Japanese Yen caused Tesla to suffer

higher battery component costs for its

auto manufacturing line I actually think

this was written in 2017 but but they

were talking about 2016. anyway and they

say here why because its battery cells

made in Japan by Panasonic had prices

dominated and denominated in the

Japanese Yen so what's interesting about

that is if battery components are

actually denominated in Japanese Yen

still today a lot of the batteries that

we then Source from from Panasonic or

whatever

well as long as we have lots of dollars

and hopefully not Bitcoin then we could

take those dollars and actually buy

Commodities at a cheaper level

and this is actually a grain flag for

Tesla I don't want to come across as

just a bear here because I think I think

of myself as a very realistic person I

think that's why hopefully you subscribe

to this channel is because if there's

news and it's bad I give it to you if

there's do's and it's good I give it to

you uh but uh this this is really

interesting because Commodities are

plummeting and this is a very very good

thing I mean this is the Bloomberg

commodities index and you can see that

Commodities are certainly more expensive

than they were last year but they've

certainly plummeted this is a one-year

chart by the way sorry I cut off the

very bottom there but it's a one-year

chart so the right side is where we are

the left side is one year ago and and

you can sort of see the peak there

around March uh the war you know

probably Feb to may-ish in the peak

there you can see Commodities have come

down uh to a level that's that's

essentially above slightly above levels

that we saw last year but it's nice to

see Commodities come down because that

help increase margins for Tesla so

you've got lower commodity costs which

help Tesla but then you have this

massive foreign exchange disaster that's

going to come to Tesla which is going to

hurt Tesla

not only that but you have Bank of

America researchers indicating that the

estimated raw material cost per vehicle

to produce a car right now is actually

plummeting which is very good because

with the exception of in China Tesla has

substantially increased the prices of

their vehicles and if now the cost of

those Vehicles is plummeting well then

that means more margin and we like

margin we don't like when margin calls

but we do like margin when it comes to

looking at earnings reports so this is a

good thing so we've got again a negative

factor of currency risk big negative I

mean I'm talking 500 million to a

billion dollar negative here okay

Chinese demand will get absorbed

elsewhere but the problem is are those

shipping costs going to kill margins

right that's a potential issue a good

thing and a green flag so we've got two

red flags a good green flag is that

costs and commodities are plummeting

this is great but another red flag is

that actually we are potentially

entering what is being considered an

automotive recession uh and and that is

because take a look at this this is the

U.S seasonally adjusted annual rate of

uh car sales

and what I want you to do is basically

just look at the blue lines and you see

this blue line where my laser pointer is

over here and you see how kind of low

this area is if you kind of trace it

back you go all the way back to 2011

levels and the trajectory is down and if

the trajectory is down then we could

soon be in 2008 2009 Automotive

recession levels this is according to

Bank of America's Global Research by the

way on the automotive industry in

addition to that U.S consumer confidence

in U.S Auto Sales is I mean honestly

this should go without saying if if you

really needed a chart to know that

consumer confidence has plummeted to to

already basically the levels of the

Great Recession uh in in Auto Sales well

fine here you have it visually but it

seems like it should be relatively

obvious right so uh uh you know okay all

right so so we've got we've got some

some good and we've got some bad again

currency risk bad Chinese demand bad so

much so by the way on Chinese demand I

forgot to put this up I thought this was

very interesting

take a look at this chart again from uh

Troy on Twitter here take a look at this

one giga Shanghai appears to have

switched model y production to exports

on September 21st buyers from Australia

and Japan started uh reporting receiving

vehicle identification numbers on

September 21st normally they would uh

start occurring on September 26th so in

other words we're getting more exports

from Shanghai sooner almost almost an

entire well an entire five days sooner

five days out of a month uh you know you

know that's that's uh somewhere around

uh what 18 17 18 or something like that

right 5 divided by 30 equals 17 16.6

so 16.6 earlier a move to exports that's

because Chinese demand is getting

crushed

there's more evidence of this it's a

problem and that costs more money but

then you're also shipping to these

countries like Japan where now you're

gonna sell and you're going to receive

the Japanese currency

but I don't think we want the Japanese

currency that sucker lost 23 percent

over the last year it's Parable does

it's very bad

okay but again

not here to be funny currency risk fat

trying to demand bad Auto recession bad

costs and commodities plummeting great

but in addition to the cost of

Commodities plummeting we also expect

according to Goldman Sachs research that

vehicle margins

should substantially be increasing

because of the ramping of Berlin and

Austin you see it on screen right here

the ramping of Berlin and Austin will

help reduce the cost of goods sold cost

of goods sold is expected to fall to

about 36 thousand dollars per vehicle in

2021 from an average of over 70 000 in

2017. obviously that's when they were

producing more of the S's and X's but

the point is uh this is incredible I

mean a thirty six thousand dollar cost

per vehicle uh it it you know and that's

an average since since you've got more

expensive vehicles and longer range

vehicles or whatever this is phenomenal

but the more Berlin and Austin get

online

the less of Tesla is actually being

produced at Fremont which as they say

here is a converted Ice Factory that

means it used to com basically produce

internal combustion engine Vehicles

which is much less efficient of a

factory than something like Berlin or

Austin we should continue to see margins

go up so so there's more good news here

right so we've got this Balancing Act

here of good news and bad news in

addition to that Martin or the head of

investor relations

was at an event and Goldman Sachs

reported and that he suggested that the

long-term demand environment is still

strong for Tesla and they still had a

record month of production in China do

keep in mind though they're talking

about production in China not about

deliveries in China and while China is

slowing as they mentioned here they see

Tesla China as an export Hub that's

great you can manufacture Vehicles

cheaply in China crank them out just as

long as people are buying them elsewhere

and the best case scenario is that the

people buying these chinese-made

vehicles are Americans I want Americans

who are spending money on cars right now

which is the stupidest thing you could

do if you're buying a car right now I

feel like you're an idiot and I'm sorry

if you're buying a car right now it is

just stupid you should take your head

and like hit it against the table and

hope that like the little uh you know uh

like as they said in uh in in Germany in

Germany they would always say uh does he

have them yeah you don't have all your

glassware properly organized in your

cupboard you know maybe that'll help you

reorganize your brain a little bit

because I don't understand why you would

be wasting money on butter in the depths

of a recession when you should be saving

money to buy real estate and stocks but

hey maybe you're not a member of my

courses on the psychology of money and

you're wasting your money on a stupid

car meanwhile here I am heavily invested

in Tesla telling you not to buy a Tesla

maybe I'm the one who needs my

psychology and my tests and checked but

I'm just being honest

uh anyway so uh okay this is actually

good news though right uh so like

Goldman actually bullish they've got a

price target of like 335 on Tesla that's

great I mean we're at 285 right now

please I'll take I'll take that because

that brings us back to a thousand bucks

you know I've stolen kind of like

pre-split numbers here

what look folks if we end up getting any

kind of reduction in production or the

copy and pasting of gigafactories we're

gonna have to lower our 2025 projections

and I hate to say it I hate to say it

but that's exactly what I'm going to do

right now is I'm going to lower my 2025

projections all right

20 20

protections end of 2025 unchanged is my

expectation of an average selling price

per vehicle of around 52 000. however

folks dun dun I have reduced from 5.8

million Vehicles expected in 2025 I've

reduced that to 4.9 oh that's 900

000 or sorry 900 000 vehicles of a

reduction in production that I am now

estimating because of what I believe

will be a very dirty Global recession uh

that the United States will actually I

think fare quite well through but other

countries are just going to get reamed

through it's going to be a problem by

the way I did an interview today and I'm

like you know what Tesla should do

just got the money okay

Tesla should build factories

in the like hardest places or the

hardest hit places in the world right

now

economically

I believe Poland is actually an

excellent choice it doesn't have the

disastrous regulate a regulatory

environment of Germany where there was

just like a whole new York Times article

about how like the German police go

around and round up people for leaving

social media hate so if you leave a hate

comment and you're in Germany you could

get your house raided by the German

Police Department

that was a crazy article it's true story

too uh somebody called um a politician a

penis and they had their house raided

up

um I kid you not that's what the story

said I mean maybe we don't believe the

New York Times but that's what the story

said uh okay

I really have no idea where I was going

with this uh but uh now I'm gonna have

to pause the video and try to understand

what the hell I was going to say because

this is actually oh Poland they should

peel the factory in Poland because the

ukrainians who were replaced in Ukraine

and are not trying to be like an

idealist here I'm trying to be a realist

like you have less regulation in Poland

go build in Poland you're still part of

the EU you've got the buffer land of

Ukraine that sounds terrible but it's

true uh and you just had a crapload of

people flee Ukraine looking for work

in Poland you have a captive Workforce

in a very recessionary environment in

Europe

go build factories there the same thing

is what you should do in China China is

it has started tens of thousands of

infrastructure projects they will

deliver you despite the drought they had

water electricity they will give you

whatever you want if you just go build

in China right now you could get land

cheaper because real estate's plummeted

like 30 you could build gigafactories

cheaper in China you've got another

captive Workforce because the Chinese

economy is slowing down and I'll tell

you the Chinese are smart freaking

people okay that government is

like them or not they are smart people

if if Elon Musk is like yo

give me three sites to build some

gigafactories on they are going to roll

out the red carpet right now and provide

electricity power and people for Tesla

to build vehicles and if we can build

them cheaper there we can ship them

around ideally not sell them in China

because uh you know the currency issues

you know sell them in America great no

wait times hey instant delivery you know

what a 24-hour delivery for your Tesla I

mean probably not that'd be really

expensive but you get what I'm saying

fine but the point is that's what Tesla

should be doing in my opinion right now

but in the meantime we I think are going

to see uh estimates for growth slowdown

for Tesla so unfortunately that does

mean that I believe that Tesla's growth

in 2025 well actually slow to about 40

percent uh vehicle delivery uh

production rate that is unfortunately

below the the 50 to 60 percent that

we're aiming for in 2023 and four and

now

but unfortunately I think that is

um that is likely

uh we will see however however however

however despite all this foreign

currency disaster and negative EPS

impact which I am actually just to make

my life simple building into a softer

margin that's not what you're supposed

to do it's just what I'm doing to make

my life freaking simple okay uh I

believe that Tesla's margin despite

everything that I've said in this video

I believe Tesla's vehicle margin will go

up to 31 that means the expense margin

would be a convenient 69 percent

okay but I this becomes very important

because when I show you the price you're

going to see a huge difference that just

two percent in margin can make and it'll

show you how important it is to pay

attention to margin but anyway despite

the currency issue I think we'll be

somewhere around 69 as usual I give very

very little credit to Robo taxi income

full self-driving income Insurance

income uh semi trucks uh robots I don't

give a crap about all of that right now

all of that is icing on the cake all of

that is my Warren Buffett margin of

safety and so if you want to debate me

about these vehicle numbers

I'm game let's go but don't talk to me

about all the speculative stuff because

that's just the margin of safety

anything positive coming out of that is

just going to help contribute to this

and give me some safety in these numbers

but I'm not going to rely on those right

now instead I'm going to rely on the

fact that right now with these

projections that I've just given you I

believe we're going to see the following

numbers for Tesla uh of course there's

no guarantee and even though I am in the

process of becoming a licensed financial

advisor I can't give you Financial

advice I uh and this video is certainly

not Financial advice I believe that with

the tax rate probably going down to

about 19 with new credits and Factory

build outs and depreciation that we'll

be getting from Austin I believe that

with 3.4 million shares outstanding we

can expect to see earnings per share of

somewhere around 10 and 33 cents which

actually creates a forward price to

earnings ratio of

27.4 now now that's actually pretty dang

good for Tesla because that while that

is forward to 2025 there are a lot of

folks who like in cash to sell over

value it's got a price to earnings ratio

of like 180. yeah well if you're saying

that you're literally looking at

trailing 12 months and you've probably

never looked at an income statement in

your life okay so if we're looking at

forward p e ratio tests like for 2022

we're probably sitting somewhere around

55 to 60. and quite frankly that roughly

matches their EPS expected growth rate

which gives them a PEG ratio of close to

one maybe one and a half depending on

how you look at it and in my opinion

that's actually a really good deal right

now unless of course you compare to AMD

which looks like an even better deal

unless also you're looking at trailing

12 but then again you need to look at

some statements and do some math but

anyway so

the p e ratio that I am now going to use

for 2025 to come up with a future

valuation of Tesla by taking the

earnings per share and multiplying it by

the p e ratio is now reduced from 65

to 55. I blame the recession it is true

I blame the Slowdown

in the valuations market but I believe

Tesla will or could trade for a 55 times

multiple with the growth I expect them

to have in 2025 in 2025. that creates a

per share price of

568 dollars

568 dollars represents a compounded

annual rate of return for the next four

years of 19 percent

if however margin comes in two percent

lower whether it's because of commodity

prices or because they have to reduce

prices to get demand to come back up uh

or it's just uh you know EPS is lower

because of Foreign Exchange issues which

is entirely possible if EPS ends up or

or just margin ends up two percent lower

so that is the expense margin is

actually uh or the profit margin is 29

of these vehicles All Things Considered

instead of uh 31 like in my other truck

the price would actually potentially

only go to 500 which represents a 15

percent uh compounded annual return so

you see an almost two percentage Point

return on your compounded annual return

the next four years for every one

percent in margin we see at Tesla that's

huge that's like you write that down on

a post note that shows you how important

margin is but it's not just going to be

margin it's going to be I promise you it

is going to be foreign exchanger this

time now again I can't make guarantees

my promise is worth exactly what you

paid for it which is literally zero you

paid no money to watch this video maybe

you had to sit through some ads maybe

you had to sit through me saying that I

have a coupon code that expires at the

end of the week and that if you want to

wire money for house hike you should do

that before Friday so that way you get

the most amount of warrants yeah maybe

you had to go through that but you also

got to experience me saying when Tesla

comes over here

and tells us that they have an income in

the quarter of 1.1 billion dollars last

year Q2 and 2.2 billion dollars this

year Q2 with the Shanghai shutdown this

by the way considering about a 421

million dollar currency adjustment if we

end up getting

uh one billion dollar currency

adjustment we could actually end up

seeing this number here go to something

like two bill because maybe it would

have been 2.7 but we get it this massive

currency adjustment and people are going

to go oh my gosh EPS is declining so

I don't know I hope not I told you I'd

give you an update but I still hold

pre-split over 26 000 shares of Tesla so

I want this sucker to go up

but there are definitely some potential

headwinds I hope Tesla and Elon have

figured out

thanks for watching and good luck