The Tesla Stock Explosion is about to Begin.

well Tesla short sellers are up 17

billion dollars Tesla hit a low of 72

percent down year to date with a 42 drop

alone in December however is it possible

that now

the stock has hit a bottom take a look

at this here this is uh Tesla stock

hitting a rough Bounce Around the 106.82

level which is an interesting one

because it comes from a Fibonacci

retracement line from us going on the

weekly all the way back to the low of

March of 2020 however it is not the zero

percent FIB line it's our next unit up

so does that mean Tesla has another leg

to go down or is what we've seen with

Incredible volumes here on the right

just a sign of retail capitulation in

the face of short Sellers as well as end

of the year tax loss harvesting which is

potentially now near or already come to

an act well

nobody knows

but what we do know is that in my last

Tesla video I talked a little bit about

the valuation of Tesla the future

evaluation of Tesla and when we looked

at the future evaluation of Tesla there

were some folks who were a little bit

angry with my opinion and I'm going to

provide you an explanation of why they

were angry and where they might actually

be going wrong so here is that

spreadsheet we talked about how if Tesla

sold vehicles at an average revenue per

vehicle of forty seven thousand dollars

which is about five thousand dollars

less than what they get per vehicle now

and you produce 4.2 million Vehicles so

we get a certain valuation that we spit

out it's worth noting that 4.2 million

vehicles in 2025 isn't too extreme it

assumes somewhere around 1.25 million

vehicles in Shanghai which I expect that

once China opens up again the next few

years could be a stimulative boom time

for China so having a company with

exposure to China right now sucks

because you're going through covet

shutdown owns lower registrations lower

vehicle sales lower Subway ridership

obviously because everybody's sick

and then Tesla Fremont in California at

about a million Vehicles Tesla Austin 1

million Tesla Berlin and a million you

get to 4.25 now if the company stopped

growing there you wouldn't be able to

pay as much for Tesla stock because

everything with Tesla stock is about

growth it's a growth company so when we

compare companies we have to compare

growth rates for various different

companies and so Tesla can't stop here

and we don't expect they will in fact we

expect that soon they're going to

announce their gigafactory in Northeast

Mexico which could in the future receive

Investments of at first a billion

dollars but in the future up to 10

billion dollars as Tesla potentially

takes advantage of lower labor costs

somewhere around 350 to 4 bucks an hour

hopefully raising those wages in Mexico

but still way less than what you see in

California and maybe even produces a

Model A two or a 25 000 vehicle smaller

range maybe two-door smaller battery

pack smaller costs but still takes

advantage of that potential full

self-driving Revenue which that full

self-driving is getting pretty dang

awesome in fact if you just consider a

30 take rate of full self driving by

2025. oh boy it changes things pretty

nicely but we'll remove this in a second

because I do like to be conservative and

that's why I purposely put in zero for

semis Insurance Tesla bot uh third-party

FSD sales we don't want to get too

carried away we'll stick with the 30

expense margin although this kit in the

short term get hammered down to maybe 26

27 as commodity costs and contracts

still lag High even though they Trend

down it takes a while for those to

actually those lower commodity prices to

get built into contracts that Tesla

negotiates and on FSD we could really

assume maybe what a 10 expense ratio

this is really where you get high margin

Revenue but anyway in this example at a

31 p e ratio we're sitting at 423 bucks

by the end of 2025. now in my last video

that's not actually the p e ratio I used

in fact in the last video I took out FSD

here and what we did is we actually had

a 50 times multiple showing about a

future value of around 585 dollars which

would give you about a 69 rate of return

every year for the next three years if

you bought around 120 bucks a share and

people just about lost it with this p e

ratio of 50. but what they fail to

realize is growth growth is so

critically important when it comes to

valuing a stock in fact an easy thing to

do is to show you the following take a

look at these various different

companies that happen to be part of an

actively managed ETF that has almost a

25 allocation to Tesla which name of

course we won't mention uh in this video

at this moment but let's just say these

are some of the Holdings in it uh

actually not all of them some of these

Holdings are actually removed but anyway

um let's take a look at some of these

companies so if you look at a company

like apple you might see that Apple

trades for a p e ratio of about 20. and

it has an EPS or growth rate of earnings

per share of around eight percent well

that means apple is selling for about

2.53 times Peg and all I did to get that

number is divide 20.23 by 8 percent

that's it so in other words how many

times earnings am I paying for the stock

right p e ratio is very simple earnings

are six bucks and 23 cents times 20

equals 126. really really simple

and now if I divide that ratio by how

much their earnings are actually growing

or expected to grow over that extra

years I get a ratio of 2.53 very simple

apparently in people's very very clearly

forget uh forget all of uh how you have

to Value growth when it comes to growth

companies and if you don't like growth

companies then you might not like the

PEG ratio because this is all about

investing in growth companies look for

example here if Nvidia grows earnings at

38 which looking at this now might be a

little bit high but their p e ratio

sitting around

32.19 they might be at a PEG ratio of

just 0.85 ignore the dollar sign this

isn't really a dollar it's just a

multiple look at AMD

0.68 and so if you just look at the

companies that are low right now you'll

see companies like solaredge AMD Nvidia

look really really low whereas companies

that look high or companies like Taiwan

semiconductors right now Apple a little

bit on the higher side

cloudflare quite much or quite well here

on the high side and even potentially

Etsy a little bit on the higher side at

about two point two five whereas the low

ones are companies like Embraer at point

four three percent Tesla at point four

four percent even trade desk at 1.65 not

bad or Generac at 1.14 this is just a

way of valuing companies based on how

much we expect them to grow in this case

for Tesla we would expect EPS growth to

be somewhere around 45 percent to arrive

at this kind of PEG ratio now that's

different from what Wall Street is

estimating so what I've done is I've put

together a spreadsheet of what Wall

Street is estimating and I'll give you a

little bit of an idea of how this

Compares and then how it could actually

play out so the following are the

Bloomberg consensus estimates for

various different companies you can see

Toyota over the next four years is

expected to only grow at 1.6 that's it

that actually puts their PEG ratio

pretty high at 6.67 times very expensive

Ford GM and Tesla actually all look much

cheaper and as much as I hate to give

credit where credit's due Ford and GM

don't look that expensive when you use

the Bloomberg consensus estimates but

watch what happens when we change these

a little bit so Bloomberg thinks that

revenues are actually going to collapse

7.2 percent next year for Ford and 17.1

percent for GM however they think that

during these times Ford and GM will be

able to grow their EV Biz and actually

end up coming out in 2026 with some

pretty big growth numbers here 47 25 and

if you believe the Wall Street analysts

who in consensus believe these targets

four years out which is always very

difficult to project four years out then

yeah maybe that's a good deal maybe that

means these companies are actually at a

decent price right now with PEG ratios

sitting around 0.6 to 0.7 not too far

off of what Tesla's Trading for based on

even the Bloomberg estimates which

suggests 30 earnings growth next year 24

then 24 then 14. however let's change

things here a little bit and let's just

assume that we take out 2026 let's say

that's too far out and we don't want to

look all the way out to 2026 and let's

clean this up a little bit by just

making this a two decimal item here

there we go and now let's uh let's

compare all of a sudden the peg ratios

here now for the next three years at

Ford you actually have a company that is

fully it is a company that's not only

not growing but it is losing revenues by

an average of three percent per year

which makes its PEG ratio negative it is

so close to being a shrinking company

kind of like Toyota sitting at that

average of 1.6 growth crazy GM would

grow at maybe one percent per year over

the next three years which gives you a

PEG ratio of five very very expensive

whereas Tesla still sits here at .81

very very low and that's taking out 2026

which takes a lot of forward-looking now

if you really believe in Tesla you might

say wait a minute Kevin we don't

actually expect the earnings growth to

stall for Tesla in 2025. we think Tesla

is going to easily be able to grow

revenues or earnings rather at 30

percent per year well then things just

start looking very ridiculous for Tesla

now you have a company that's growing at

30 percent relative to other companies

that are growing on average of one

percent of course Tesla deserves a

substantially higher valuation because

if you think about it if you use a 50

times earnings multiple and a company is

growing earnings at 30 percent and you

divide these numbers here by taking this

little cell formula we just divide 50

divided by 30 and what do you get you

get a PEG ratio of 1.6 well if you

compare to the peg ratios that we

currently see for various other

companies on this chart 1.6

for Tesla in 2025 if it's growing

earnings at 30 percent is not that

unreasonable at all so the only way you

could be a Tesla investor in my opinion

is by believing in the growth story that

the problems that are happening

currently are problems related to

Twitter they're problems related to Elon

Musk they're problems related to

temporary shutdowns in China and their

problems related to short-term Short

Selling short-term mindsets and tax loss

harvesting it has nothing to do with the

fundamental growth story of Tesla unless

of course you believe it does which

maybe you think you know what that's it

nobody's going to buy Teslas anymore

let's just say I finally have FSD and I

could never see myself leaving the Tesla

ecosystem after living FSD for a few

days full self-driving is remarkable but

remember we don't even necessarily have

to put that into our projections we

could use in my opinion relatively low

projections like forty seven thousand

dollars a vehicle 30 margins and still

get to 585 but even if I drop these

margins by a couple percent you know

we'll drop them three percent let's go

to 73 expense 27 margin we're still

looking at an over 500 stock

and this I think is why you have

companies like Morgan Stanley saying

look

we are still overweight Tesla in fact

the average price target for Tesla right

now is over 250 on Wall Street we're

sitting at the largest spread right now

between price Target average Wall Street

price targets and where the stock is

actually trading for the stock could

double just to hit the average Wall

Street price targets and usually price

targets plummet after stocks plummet and

that is happening uh to some degree but

price targets are not falling anywhere

near as fast as the stock has been

falling because the company actually has

really dang good value at these levels

in my opinion hashtag not personalized

Financial advice for you even though I

am a financial advisor so what do we

have here we have Morgan Stanley saying

that they believe that two years of uh

that the EV Market has gone through a

sort of a Down rating because we've gone

through the last years where demand has

substantially exceeded Supply you had to

wait many months to get a car but we're

finally seeing that demand come into

balance and Morgan Stanley thinks that

Tesla can be a winner specifically

because they are self-funded and not

relying on external Capital not relying

on a lot of debt like companies like

Ford and GM are whereas Tesla is sitting

on an over 18 billion dollar War chest

and in just the last quarter alone had

free cash flows knocking on the door of

3 billion dollars in just one quarter

Morgan Stanley believes these are

conditions that could create a company

as a relative winner compared to other

companies and this is even before

considering the inflation reduction act

now they do have a base Bull and Bear

case which I'll provide you that right

over here you can see their bull case

brings Tesla to 10 million Vehicles

produced by 2030 bringing to about a

price Target at Morgan Stanley of 440 a

base case of 7.7 million vehicles at 250

and then for you to hit this bear case

in 2030 of 80 they don't even provide

how many vehicles they think will be

sold but you could simply divide uh the

auto section here by roughly two and

assume that basically Tesla stalls out

and never produces more than 4 million

Vehicles it becomes basically a niche

luxury play and then it collapses so if

you think Tesla is going to become an

everyday car boy you're probably looking

at the base to Bull case this is like

the future new version of a Toyota right

if you think Tesla is going to be a

niche luxury automaker sure it would

make sense that at some point they'll

cap out a cap out at maybe three four

million Vehicles a year and yeah you'd

be probably looking at the base case

from Morgan Stanley again I'm not trying

to tell you what to think I'm just

trying to say if you think that Tesla's

going to grow earnings at 30 30 a year

you take out most of the margin of

safety that you have for Tesla stock

that is Insurance semis FSD Revenue per

vehicle you take all this stuff out and

you really go conservative on a

conservative basis at 30 percent

earnings growth

a 50pe multiple is very reasonable

you're looking at a 500 plus dollar

stock in three years now people here

50pe and they automatically shut down

thinking oh my God 50 so high but again

you have to compare to growth yes a 50pe

ratio is not sustainable why because a

30 earnings growth rate per year is not

sustainable forever maybe Tesla could

actually grow at something like 45 in

2023 4 and 5. then downgrade ho ho

downgrade to 30 growth in 26.78 where

you could easily have a 50pe ratio then

maybe in 29 and 30 the things only

growing at 20 and then what you're

really doing is you're hoping that Tesla

comes out with some substantially

awesome new product like Robo taxis or

Bots or whatever but those are decisions

that you can make a few years down the

road in my humble opinion so it's really

important that when you consider

earnings companies or or companies uh

based on their earnings you consider

them based on their earnings growth as

well this is where also you have to look

at companies that in my opinion are kind

of sitting at crazy valuations right now

but they're sitting at these valuations

not because of fundamental bases but

because of the fact that when the

economy goes into recession people like

to move their money into staple type

stocks for example look at McDonald's

the thing is down 1.29 percent this year

that's it McDonald's folks is selling

for 265 dollars per share it is expected

to have earnings next year

of

10.47 at 265.11 divided by 10 and 47

cents McDonald's is trading for

25.3 times earnings

and do you realize what the growth rate

for McDonald's is

well over the next four years it's

expected to be 2.7 5.5 5.4 and 6 percent

well if I average that out and I give

McDonald's a four and a half percent

growth rate and I take a 25.3 times

multiple what it's trading for now

divided by 4.5 average growth rate

McDonald's is selling for a PEG ratio of

5.6 it's ludicrous

absolutely ludicrous what the company is

trading for especially again when you

look at this chart of Peg ratios why

would you pick the high Peg ones when

you could pick the low Peg ones to

position yourself for 2023 I don't know

I'm not here to tell you that we're

definitely at a stock bottom we could

continue to see capitulation and I would

expect that we would see some fear

before the next earnings report on the

23rd of January

I think it's the 23rd of January uh

Tesla earnings called

earnings Q There we go we'll see but

anyway

uh yeah oh it's the 25th of January okay

but anyway you have to ask yourself how

do you want a position for next year do

you want to be in the companies that

have done really well in 2022 but are

now substantially overvalued or is now

the time where you go damn sure the

stocks could go down a little bit more

who knows maybe even a loved one but

look at those valuations based

especially on growth and consider this

we haven't even talked about this yet

inflation reduction Act is probably

going to benefit

the biggest EV player in America the

most that's not going to be Lucid

arivian who probably are knocking on the

door of bankruptcy with how terrible

their cash flows are although Lucid just

bought some extra time by raising 1.5

billion dollars to looting shareholders

more whatever

it's probably not going to be Ford and

GM though they're going to try although

guess what they're doing

because Ford for example loses money on

their Ford maches

they're likely in a recession to

actually scale back EV production in my

opinion other people believe differently

but I believe that during a recession

companies like Ford and GM are going to

be forced to scale back on money losing

products that actually means they're

going to take a smaller percentage of

the EV Pi relative to a company that's

actually printing money during a

recession

like Tesla which means Tesla can

actually cannibalize its competitors EV

market share grow EV market share and

take and hoard even more of the EV tax

credit

and then you start thinking about

Network effects of Tesla the more people

drive a Tesla the more people are like I

gotta have a Tesla I showed Lauren okay

my my father-in-law and my wife are

Tesla Skeptics okay they're not big fans

of Tesla they're they're they're they're

not the greatest fans of Elon Musk uh

you know I balance it out for them

uh but anyway I took both of them on

rides on FSD

my father-in-law actually paid Tesla a

compliment he didn't go as far as saying

he wanted it but he did pay Tesla a

compliment which that says volumes

already

but then Lauren is like

oh my gosh I think I want a Tesla after

seeing FSD her words don't mind so super

exciting now again obviously the stock

has gotten beat to crap and it's tough

the way I personally look at it is the

shares of Tesla I have I kind of see it

as a free option on all of this amazing

future for Tesla that hopefully comes to

fruition hey and look remember hope is

not an investing strategy but I believe

in it right I believe that from a

fundamental point of view this is not

hope I believe this is like obvious

but who knows could be wrong things

could change maybe Tesla becomes that

Niche auto manufacturer and then yeah p

e ratios look high uh because if growth

stops then that's when companies look

expensive just look at McDonald's for

example

anyway

Tesla for me is a free option on the

future I do believe that for new money

uh that I invest it makes a lot of sense

to buy an actively managed ETF that has

a large allocation to Tesla because at

some point in the future when and if

Tesla does double or triple or quadruple

over the next three or four years which

I know December sound ludicrous but to

others will sound reasonable then I'd

rather be in an actively managed ETF

that can rebalance without passing on

capital gains to me I think there's a

great opportunity in that anyway thank

you so much for watching this video we

will see you in the next one good luck