Tesla Earnings Warning

we've got a lot of catalyst to talk

about in this video we're going to look

at expectations for Tesla earnings as

well as some other catalysts but look

folks we just got this from the IRS and

the treasury Department these are the

models that qualify for the following

tax credits it looks like the model 3

standard range will be or see its

credits reduced from 7 500 to 37.50

that's the only tax credit that really

gets reduced for Tesla that is the

approximately forty two thousand dollar

model 3 Tesla uh that basically just got

a price hike of three thousand seven

hundred fifty dollars all the other

models maintain their 7 500 credit

rivian did not get the credit Lincolns

you've got well you can see on screen

here the Grand Touring at 7 500 Corsair

Grand Touring it's 37.50 get a couple

Jeep uh at 37.50 you've got the Mustang

Machi extended and standard at 37.50 the

lightning gets the full 7 500 Escape

plug-in 37.50 and you can kind of pause

the screen here and see some of the

others lyric from Cadillac it's the full

7500 with that said let's get into

Catalyst well we've got a lot of

catalyst to talk about this week for the

stock market including 420s Tesla

earnings we're going to talk about what

some of the expectations are for Tesla

earnings but let's also go through some

of the economic data we're expecting

this week and which matter the most this

morning for example we got Empire

manufacturing that came in a lot

stronger than expected at 10 points

versus negative 18 for the survey or

negative 24.6 prior suggesting maybe the

recession isn't as close as people might

think it is tomorrow on the 18th we'll

be getting building permits we'll be a

little bit of an indicator for what

we're seeing in housing as well as

housing starts we're looking for a 1.5

or 1.45 million permits that's a month

over month decline of 6.5 is it going to

come in hotter than expected along with

housing starts expected to be negative

3.5 percent will those rise as the real

estate market so far this year has

actually been booming very little

inventory leading real estate prices

actually to rise some of those year over

fee year fears that we're looking for in

may may not end up coming to fruition

initial jobless claims are expected for

a Thursday at 4 20 at 4 20 and then on

Friday we'll get some manufacturing PMI

services pmis and then a combined at PMI

all of those expected to be around 49 to

a 51. uh more importantly this week are

going to be earnings though so uh today

we'll be getting uh Charles Schwab uh

although actually some of their earnings

actually just already out 93 cents on

EPS Revenue slightly misses after the

Bell on Monday we'll be getting a JB

Hunt now that's a transportation service

and a lot of people like looking at JB

Hunt as a potential inflation indicator

uh four or four Freight since Freight

really affects almost every company

whether you're shipping servers in

you're shipping clothing out who knows a

lot of people like looking at freight

companies so JB Hunt might be an

interesting one a lot of talk of layoffs

happening at freight companies because

of weaker demand Bank of America reports

before the Market opens tomorrow Johnson

and Johnson Goldman Sachs Lockheed

Martin A Bank of New York Mellon so some

more bank and defense earnings tomorrow

morning and then then things get

entertaining then we get into what Ryan

Reynolds calls one of his favorite

stocks in fact just this morning he was

on CNBC pitching I think it was newbie

or Nouveau or something like this some

Canadian finance a fintech company and

uh the folks on CNBC are asking if so

what do you know about financials and

he's like absolutely nothing you know in

classic Ryan Reynolds style and he's

like I just like the emotion of

companies I'm a marketer yeah and In

fairness he's a great marketer he's

incredible uh you know he's an

inspiration for many money but some

other companies that he thought were an

inspiration to him in addition to

um to Netflix where actually or was

actually Ford I was kind of surprised

he's like oh it's a legacy company you

know part of part of the the the the

American Fabric and I'm like it's gonna

be part of the American BK if they don't

innovate soon with getting their costs

down on those EVS but uh anyway so Ryan

Reynolds big fan of Netflix he's kind of

made the argument that he can't really

bet against it based on the industry

that he's in Netflix reports earnings at

4 pm on Tuesday and it is usually seen

as the signal for kicking off attack

earnings and it seems like every earning

season we get to Netflix is the one that

everybody's kind of like man if Netflix

comes in good it's good Netflix comes in

bad it's bad they did go back to growth

in the last quarter which was great we

are expecting an a movement of eight

percent on Netflix stock uh tomorrow

afternoon that's down from the average

movement of

12.3 percent uh earnings per share

expected to come in at a uh 2.87 with

revenue of 8.18 billion in net income of

1.34 so we'll see what happens with

Netflix after Netflix will get United

Airlines interactive brokers those

Tuesday afternoon then on Wednesday

we're going to be looking at Morgan

Stanley in the morning and in the

afternoon on the 19th uh sorry this is

already yeah no this is the 19th okay uh

Wednesday afternoon on the 19th uh we'll

be getting a Tesla earnings at 405. uh

Ross Gerber is apparently having a Tesla

party on 420 the next day star sorry

SpaceX is actually expected to launch

potentially one of their vehicles today

or tomorrow we'll see what ends up

happening uh this is the big one people

have been waiting for but anyway Tesla

on the 19th expectations we'll talk

about Tesla in just more it will Circle

back to Tesla IBM reports on Wednesday

afternoon as well as Las Vegas Sands and

then on Thursday Thursday morning will

be entertaining uh we'll be getting ATT

and Taiwan semiconductors along with

American Express and DR Horton so we'll

be getting a look into housing not only

DR Horton but Blackstone a lot of those

REITs a lot of blackstones REITs are

seeing liquidations a lot of talk about

paying in commercial real estate how is

that going to affect the broader economy

American Express what can they tell us

about that wealthier consumer is

American Express still going to tell us

that people are spending through the

recession or are we going to see an

inflection where people are no longer

spending through the recession Taiwan

semiconductors hey what's going on with

China or any potential issues with uh

China uh still present is how much is

China adding to a book of business or

taking away from the book of businesses

Taiwan semiconductors what about uh

International sales to the United States

is the chip Market really growing

because of the AI Revolution I expect to

hear a lot from Taiwan semiconductors

about none other than chips of course

excuse me uh and specifically because of

this AI Revolution that really began uh

I mean it's been going on for years but

really exploded over the last couple a

couple of months here we'll be talking a

lot about Google in a different segment

especially with uh with the potential

for Google scrambling and shaking in

their boots as they may be losing some

billion dollar contracts we'll be

talking about that all of this of course

driven by AI on the afternoon of

Thursday we'll be looking at a Seagate

we'll get a little bit of a look into

maybe memory and uh more specifically

storage for Seagate both of those are my

least favorite segments as I find them

to be more commodity is Ish uh that

might be offensive to some people in the

field but I hate to say it but I I feel

like SD cards and ssds and memory are a

little more commodity-ish

Procter Gamble on Friday morning we'll

be looking at some of those consumer

staples

as uh well as a Friday afternoon we have

nothing because you generally don't have

anything on Friday afternoon so I said

we talk about Tesla let's try to look at

some expectations for Tesla the most

important thing in my opinion for Tesla

is going to come down to margin it's

going to be very simple is how bad did

the margin get in q1 and the question

isn't necessarily how bad is it going to

get in q1 since we already have

estimates of that and we know that Zach

the CFO told us we don't expect to go

under 20 gross vehicle margin how bad

though is that margin going to

potentially get in Q2 remember in q1 we

have pretty much an entire quarter of

inflation reduction act credits of about

7 500

unfortunately for Tesla and a lot of EV

manufacturers the 7 500 credit is

actually going to fall to 37.50 which

could potentially lead to more price

cuts for Teslas in fact here at the top

you could see a 7 500 tax credit for the

model Y and model 3

model 3 real-wheel Drive will be however

reducing to 37.50 on April 18th

so you're seeing some bottles that are

going to get impacted with a lower

inflation reduction Act tax credit what

does that potentially mean for Tesla

margins if Tesla had a 7 500 credit all

throughout q1 and only has a 7 500

credit on all their vehicles for the

first three weeks of the quarter which

means you actually have a whole other 11

weeks essentially to go uh a little less

than 11 weeks it'll be more like nine

weeks to go there we go let's get our

math right uh well then the bulk of Q2

is actually not going to have a full

7500 credit and that could really hit

margins more so what are expectations

right now in terms of margins well

expectations are

the following uh let's go ahead and pull

these up on screen here these are the a

margin expectations that we have the

expectations are simple we're looking at

uh Automotive gross margins set to

decline once again with our peak in q1

2022 where we actually broke over 30

margins but the expectation is that

these could go down to as low as about

23.1

23.1 percent there are 17 analysts

interviewed by Reuters and the average

estimate is

23.1 some estimates are lower some are

higher but this is going to be a big

deal and I think the biggest part is

going to be hey what are those

expectations for Q2 because again this

right here on screen is the q1

expectation now we'll look at the

expectations for actual earnings but uh

I think there are going to be two main

things we're going to be looking at I'll

explain the second in just a moment but

number one is going to be gross margin

including the path forward on gross

margin right now we're expecting an

implied one-day move on Tesla stock

after earnings of 6.51 that is in line

with the average movement of 6.4 percent

regarding earnings

we're looking at an adjusted EPS of

86.3 cents Gap EPS of 77.1 cents revenue

of

23.46 billies that's the Top Line

looking for a net income of

3.05 billion operating profit of 3.06

billion uh and that's the adjusted net

income by the way an ebitda at 4.43 now

keep in mind that Tesla has had sort of

a mixed record on earnings here when it

comes to adjusted EPS five out of eight

times you beat however they're almost

always right on net income if they miss

here it could be painful because they'd

be breaking a trend they have beat eight

out of the last eight times on uh on on

net income adjusted net income so we'll

see if they continue to beat this time

around these are the current estimates

again margin being the number one but I

think there's also a number two I think

the number two thing that we really want

to pay attention to for Tesla is going

to be the free cash flow now the reason

I mentioned free cash flow is because I

personally believe that Tesla doesn't

have as much cash as people like to say

they do now some Tesla Bulls think I'm

just trying to be a bear or for some

reason I'm trying to like click bait

people into thinking there's a problem

but the reality is

the Tesla's cash isn't as great as it

seems in fact if we jump over to their

cash flow statement first of all we see

that regularly Tesla spending about 1.8

billion dollars in cap X expenditures

and from the third quarter to the fourth

quarter which the fourth quarter is

usually that really big sell-through

push for vehicles we actually saw free

cash flow decline from just over 3.3

billion dollars of free cash flow down

to about 1.3 billion dollars of free

cash flow and the concern is what if

that contracts even more in q1 we'll see

if there were any potential credits that

could potentially hold this up as well

uh for for maybe

um electric uh charging inputs or or

electric charger manufacturing from the

Biden Administration but consider when

we jump over to

uh the balance sheet over here yes

everybody likes to look at the Top Line

right here of suggesting yeah Tesla's

got 22 billion cash that's fantastic

they've got a lot of money in cash and

we know they've got about 12.8 billion

in inventory but they've got bills

sitting on their desk of over 23 billion

dollars I mean just the first couple

lines over here on the right shows you

22.3 billion dollars of payables and

accrued liabilities that need to be paid

now that's not even including customer

deposits deferred revenue which I

generally don't consider those as debts

anyway uh and then of course you've got

other long-term debts here at 5.3

billion so you add up all the debts

you're sitting between 23 to 28 29

billion dollars substantially you know

more than the amount of uh cash that

Tesla has which means we want to see

continued cash flow I'm not offended by

the cap balance sheet at all I'm just

worried that if we start seeing free

cash flow go under a billy maybe we

start going towards uh somewhere around

50 you know 500 million uh personally I

get a little bit I'm going to start

scratching my head a little bit about

hey is Tesla going to have to enter any

kind of financing agreements to get

through 2023 and these are probably the

worst times to enter into Finance

agreements in fact Morgan Stanley's Mr

Mike Wilson has the argument that

usually what happens is in in a

recessionary environment is that you end

up seeing earnings slow gradually and

then suddenly he had a piece and now

he's always we know he's a bear okay we

know he's bearish talks about a trillion

dollars having left the banking system

over the last year he talks about small

business credibility shrinking uh to its

lowest level in 20 years while interest

rates are at a 15-year High keep in mind

a lot of entrepreneurs and business

owners uh end up uh with uh with um

Teslas because they they use Teslas as a

tool uh for advertising their business

or or they just want a Tesla whatever it

is but Mike Wilson talks about this idea

that we could have a gradual and then

sudden decline in earnings and the

reason for that is right now you see

this gradual decline in earnings but you

could all of a sudden drop off a cliff

like we have in the past in fact these

are sort of generally what we tend to

see here in 2007 to 2008 you saw this

gradual decline in earnings and then all

of a sudden you saw a crash in earnings

you jump in over here in the uh the

covet era what do you see you kind of

see this this gradual softening in 2019

late 2018 and then of course the covet

crash I personally would remove the

covet Crash from this analysis because I

think it's a little ridiculous to have

the kova crash in here but I think it's

a good analogy to look back in 2007 and

eight and say hey look this gradual

decline in earnings became a massive

decline in earnings and part of the

reason that happens is because

businesses are able to uh as earnings

gradually decline businesses are

basically able to refinance through the

pain uh through with cash that they have

they're not actually exposed to debts

yet but what happens when that cash runs

dry when earnings declined to the point

where you don't actually have as much

cash anymore now you have to go to the

bank at really expensive rates what

happens you're basically screwed and

then earnings suddenly uh decline now

again I think Morgan Stanley here and Mr

Mike Wilson really only give us one good

example of this they didn't decide to go

back further into history potentially

because maybe it doesn't rhyme at the

way Morgan Stanley's Mike Wilson prefers

uh and I don't think you can really

include covid here so he's got a good

example for 2007 and eight I'll give him

that he's not wrong that yes margin

degradation can be a lot more sudden uh

as as at first Revenue slowly

disappointed and then all of a sudden

you get a more meaningful acceleration

than declines I personally think that

margin squeeze could really occur if the

event occurs where Tesla needs to borrow

to continue to fund their expansion

now uh according to uh Bloomberg Tesla

we already know this Tesla delivered a

record 423 000 Vehicles globally in q1

that's 36 average growth year over year

maintaining 50 average volume gains but

putting profit a gross profit at risk

that's what we're getting production uh

uh Serge um let's see the surge failed

to Halt a rise in inventory yeah uh

let's see here consensus calls for 1.8

million vehicles to be sold in 2023 not

exceeding 3 million until 2026 with an

average growth rate of just 20 percent

expected for Tesla according to Wall

Street while the company targets 50

myself I'm sitting somewhere between 30

to 35 percent on my projection so I'm

somewhat in the midpoint there Tesla's

EV market share uh it has uh has hit 86

percent in Q3 of 2018 and it's slipped

to an EV market share of just 50 57 in

Q4 though many argue that as the pie

grows you actually need less less of the

pie to continue to to push the strength

of Tesla Tesla has also cut prices quite

a few times and uh the the question is

how are those price Cuts really going to

hit we've seen most of the price Cuts I

believe about five price Cuts now since

January and we haven't had an earnings

report that kind of gives us some light

into those price Cuts until well two

days from now so that's going to be a

concern now there will be some potential

uh relief and some of that potential

relief may come in projections the Tesla

or Elon Musk gives us in terms of the

battery packs we know that Shanghai is

expected to manufacture uh expand the

Shanghai gigafactory and manufacture a

substantial set of Mega packs

potentially as many as 10 000 but that's

going to be expensive to ramp before we

start seeing those numbers come through

same thing for Giga Northeast Mexico and

if there's another gigafactory that ends

up being announced in say Vietnam or

Indonesia or ever these are all

expensive projects that aren't leading

to cash flows just yet so those are all

things that we're going to be looking

for in this next earnings report biggest

thing for me though uh margin cash flow

and uh and and then of course hopefully

we get something to soften the blow in

the way of not just batteries but also

FSD FSD will be a potential uh tool for

maybe propping up some of these revenues

if we see a larger take rate on fsds and

maybe we could start including a little

bit more revenue for FSD we do know that

uh Zach the CFO of Tesla has told us we

will be seeing more FSD revenues

recognized as they continue to roll out

full self-driving they did just roll up

for FSD 11. I think they're already on

the third or fourth update for number

11. I've certainly done at least two

updates on number 11 and I'm usually a

little bit behind in the updates I just

don't drive that much but I will say

just as sort of an Annex dope between

myself and you Tesla full self-driving

on version 10.0 95 of the time I could

trust the car but there were certain

parts around my town where I'm like it

just it can't handle this it can't move

from uh you know a right turn exit off

of a freeway and then needing to get

across four lanes to make an immediate

following left turn it was incapable of

doing that it has gotten substantially

better at being able to do that it still

doesn't get all the way but it's

probably gotten eight times closer to

making that left turn lane and there's

also a part in my town where it uh it

usually when I used to get on top on a

highway there were some construction

barriers that came up pretty suddenly

I would hold it until the last second to

see if FSD would ever turn and on

version 10 it wouldn't and I'm like all

right I guess I gotta take over version

11 has solved that uh version 11 has

also solved some funky merges where it

used to cut off bike lanes and and

basically use right turn Lanes into

neighborhoods before getting to the main

intersection so you're kind of coming up

on a main intersection and it just turns

right so early that it cuts off the bike

lanes and the neighborhood right turns

when it should actually stay in more of

one of the primary lanes and then turn

right into its its right turn lane FSD

11 has done that so the FSD is getting

really incredible you really can't make

a long-term bet against Tesla in my

opinion but if you're making short-term

plays there are plenty of reasons to

potentially be disappointed on the 19th

but don't worry 420 is just the day

later and you could party or sadness

away so my take here on Catalyst I'm

honestly not terribly concerned about

Tesla it's gonna do know what it's going

to do it usually goes down after

earnings so if you're nervous about it

sell some calls I I I'm not optimistic

about seeing a big upside surprise uh

but hey you know if if you're if you're

thinking there's a potential for an

upside surprise add some shares or maybe

sell some puts who knows

maybe it'll stay stable more importantly

to me for Catalyst I want to know what's

going on at American Express I think

American Express is going to be a much

bigger Catalyst even though it's not

going to get the news as much as Tesla

for me it's going to be a bigger

Catalyst as to whether or not this

recession is actually coming I think

American Express is going to be a tool

for that and now I understand that

American Express really focuses on the

higher net worth consumer and the higher

income consumer but generally the

companies that I'm investing in are

exposed to that consumer base so from a

personal point of view that is the

company that I really want to pay

attention to for sort of that

broad-based spending as well as of

course the artificial intelligence Drive

which I think will get a lot of insight

in from Taiwan semiconductor so we'll

see but those are my expectations on

Catalyst for the week including Tesla so

look at that I went a whole segment

without pitching you once on either the

programs are building your wealth link

down below the paid promotion on life

insurance you can get in as little as a

five minutes or a streaming with me at

stream yard by going to metcaven.com

stream yard