Tesla Earnings Preview Q4 (Watch Before Market CLOSE)

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week or so here TBD and exactly when and

you know we view the stocks valuation as

highly compelling at these levels yes

remember Tesla fell by 65

last year uh it was a broad-based EV

sell-off so it's decline wasn't as bad

as some of its peers such as lucid and

rivien uh both of which fell by 82

percent but we feel that so much of the

headwinds are priced in at these levels

that it's it's really a compelling buy

and investors will be glad that they

bought this stock at these levels

looking down the road you know one three

five years from now there are some

headlines so you acknowledge Garrett

what what are the

can you summarize the the top three head

ones I mean is it is it good for market

share that you see prices discounted uh

is it our supply constraints are those

still affecting delivery so that they're

they're not going to be what what had

been promised and what about

uh Mr musk's other interests if you will

oh my God no I think you just reeled off

the the major concerns there

um you know it's really demand has been

a major worry of investors production uh

Tesla's quarterly production has

exceeded its sales for the last three

quarters so they've built some inventory

but what they've done to respond is cut

prices which they just announced a week

or two ago and also uh they the the

company's lower priced model 3 and model

y vehicles are now eligible for a 7 500

Federal EV tax credit so we think those

two things are really helping stimulate

their sales we're seeing that

anecdotally in some of the uh sales data

that we've seen uh recently as far as uh

elon's you know interest in Twitter you

know that's still the number one uh

headwind for the stock just the

uncertainty uh regarding whether he

might possibly sell additional stock

sell additional Tesla shares at some

point down the road in order to continue

to fund Twitter's operations I guess

those head ones are are front and center

for you Craig

you know the most important thing right

now is competition right you can't

control the demand environment and we

know competition is becoming more

intense

Tess has had to uh had to put in price

cuts to defend market share you know

they were overly aggressive in building

out capacity so price cuts are price

cuts are something they will use going

forward and you know once they've used

it it's coming again but the bigger the

bigger thing is there's nothing they

have that others don't right Battery

Technology was mentioned you know the

4680 cells that are starting to cut into

production now those are based on the

Maxwell Technologies uh dry electrode

technology the key piece there is the

coders

um some of your investors or some of

your viewers would have noticed the 100

million dollar order to Matthew's Corp

recently

um that was I assume from Tesla but if

you do a little bit of work you see that

Matthew's corpse sells too many

different battery oems worldwide so the

key Technologies open source other

people in Japan and in Germany are using

the same technology you know does not

have anything that others don't have if

their batteries were so Superior why are

they buying from Chinese oems just

doesn't make sense so the posturing you

know just doesn't fit with the reality

of almost fine competition weak

environment price Cuts necessary to

drive uh growth consistent with capacity

growth you know it doesn't speak for a

company that's going into a golden era

it speaks for a company that's actually

a nominal job creating the market but

there's probably better value elsewhere

and that's how we really encourage our

clients to approach the situation did

that change yeah let's not mention full

self-driving at all as potentially a

competitive advantage and let's not

mention at all that the batteries that

are being bought from companies like

catl in China are lithium iron phosphate

batteries which are generally your

cheaper lower cost batteries and are not

the structural batteries or the

structural Battery Technology that Tesla

plans to implement into cars like the

Cyber truck for substantially more

vehicle efficiency power towing capacity

uh range nope let's not mention any of

that

uh they have a CFO who recently

exercised stock options in late December

to buy 13 uh 13 500 shares and then they

also have a potential stock buyback

announcement of the magnitude we think

in the order of five to ten billion

dollars and so you know those are the

the positive catalysts that we see ahead

for the stock that's that's what we

that's what we like about it here

endless debate on on Tesla and it always

works thank uh thank you Garrett Garrett

Nelson

sounds like an astronaut uh yeah I I

don't know I mean some sometimes I feel

like uh people have to have an opinion

on Tesla so because they have to have an

opinion on Tesla they start you know uh

spitting out nonsense

um what I heard there was I mean I'm I'm

all for hearing negative compelling uh

information if if it's compelling but

you know suggesting that Tesla doesn't

have any advantage in Battery Technology

not mentioning uh the fact that you know

as as we have a commenter here

mentioning Tesla's twice the margins of

other competitors uh the market share

Tesla can swoop up with a massive free

cash flow they have I mean again

consider it Lucid rivian losing money

for every single vehicle they're making

uh byd has a you know what 1.5 percent

1.45 net margin so every 100 of Revenue

they get they bring a buck 40 to the

bottom line Tesla's bringing 14 bucks to

the bottom Lane it's insane that's the

stupidest thing I've heard but uh hey

you know what sometimes you hear stupid

things from analysts about Tesla and uh

some people believe it and you know what

you just have to thank them because you

thank them for the discounted

opportunity to get some more of a sweet

sweet Paper Stock I love pricing power

stocks and uh this is one that in a

recession uh has the most pricing power

out of all vehicles that doesn't mean

prices can't come down remember that

it's about relative pricing power it's

how much money can you make to

strategically position yourself to

cannibalize the competition and expand

the overall pie it's pretty exciting do

keep in mind that uh right now uh models

from GM and Tesla qualify for the EV tax

credit at least through uh March in

March we'll get some more uh curiosity

in terms of how many cars we'll actually

qualify uh that is we'll get a little

bit hopefully more guidance from the

treasury Department and that's because

in uh in March probably for April and on

we'll get some more battery requirement

a battery sourcing requirements that are

implemented so we'll see but right now

it's expected that a new battery

sourcing requirements to qualify for

2023 EV tax credits Beyond April will

require 40 of battery critical minerals

and 50 of other parts to be sourced in

North America or countries with a U.S

Free Trade Agreement critical materials

or critical minerals are basically

non-fuel minerals or mineral essential

to the uh to economic or national

security to the US so these are pretty

important these are going to be things

probably uh much like lithium nickel

these are things we do not Source a lot

of in the United States

if using recycled material North

American minerals must be 50 or more of

the value added if a newly extracted a

process critical mineral uh then the

same requirement

as recycling is implemented but with 50

of extraction steps or processing steps

occurring within the us or in a free

trade country so you're really requiring

multiple parts of that supply chain

remember there's extraction then there's

refinement then there's shipping to your

destination a lot of pieces here I my

guess is that look for the first

probably three months here we're good

with the 7500 EV tax credit for Teslas

they've got a big banner on the front of

their page uh until March 2023 certain

model threes and y's qualify for the 700

7 500 EV tax credit when we get those

new IRS rules and a new treasury

guidance which we expect in March I

wouldn't be surprised that we actually

see some of these requirements fall so

that more Vehicles qualify for the full

7 500 rather than a dropping to the 3750

that they would otherwise fall to the

reason I believe that is because right

now we are led by a democratic

Administration a Democrat Administration

that is trying to do their best to

maximize what they have been able to

pass they were able to pass the

inflation reduction act which included

uh the EV tax credits uh and and and the

chip sack they were able to pass they

were able to pass a lot of spending

Provisions uh and the treasury

Department is led by uh Democrats

under the Biden Administration so I

would not be surprised to see these EV

guidance rules actually end up loosening

come March and more Vehicles end up

qualifying for those EV tax credits

specifically because of the buy the

administration what we're seeing do keep

in mind we also are seeing uh Europe

Implement their own EV tax credits like

a seven thousand dollar EV tax credit

coming to Germany for Teslas this is in

part because uh Chancellor Olaf Schultz

from Germany and uh Emmanuel macron from

France have been kind of complaining

about the U.S inflation act they believe

that the 500 billion dollars in spending

and tax breaks are not fair to Europe

and that they don't comply with

International rules because they

unfairly entice companies to shift their

Investments to the United States versus

Europe they actually think they might

potentially sue the United States at the

World Trade Organization complaining

about what's being called the subsidy

race basically the government send a

spending spiral to compete for electric

vehicle and grain businesses the U.S

obviously wants to recapture its

manufacturing base of American-made

Vehicles this comes as Ford is cutting 3

200 jobs in Europe another slap in the

face to Europe so you're getting more

tax credits in America and now Ford's

saying they're cutting jobs in Europe

yikes so you've you've got some uh some

uh some political nonsense going back

and forth personally I actually believe

the best beneficiaries of this political

infighting are actually EVS electric

vehicle manufacturers because ultimately

what will end up happening is not less

spending for EVS because that's not a

democratic priority and Democrats are uh

certainly with green priorities are

obviously uh in in the driver's seat

right now in America uh and uh and green

priorities are more commonly accepted in

Europe so I really believe the EVS are

going to be the beneficiaries here and

do keep in mind uh you know earlier in

in this video here we talked about uh

how much money folks are able to make as

unioned employees and that's great when

you're an employee but one of the

reasons Tesla actually potentially has

Superior margins is because not only are

they highly automated they actually

bought a German robotics manufacturer

and have been using uh that company

substantially for building their own

proprietary robotics which is another

moat by the way it's another moat around

the competitor being able to have the

margins that Tesla does Tesla literally

bought the machine manufacturer that

makes the robots that make the cars but

you also have a substantially not well I

mean you have a completely non-unionized

Workforce in manufacturing you don't

have the massive pension liabilities and

overhangs that you do at Legacy Autos

like Ford and GM

operating margins uh or at Tesla are

actually pretty similar to the margins

that you see at some of the luxury

automakers like Ferrari and a

Lamborghini uh and so obviously we also

expect EV sales to rise over three and a

half X globally over the next five years

expecting to get to 17 million units

produced by 2026. obviously Tesla will

get all of those

uh model 3 and y's are pretty reliable

on the EV Market uh obviously I'm

kidding they're not going to get all of

that uh we do know that Elon musk's goal

is to eventually manufacture as many as

20 million vehicles and with the new

announcement of the Giga expansion uh

yesterday there is an expectation that

Tesla's going to get a big old market

share especially for uh the electric

semis Market which really nobody else is

playing in right now which is pretty

remarkable Tesla earnings obviously

coming up today I'm relatively bullish

about that mostly because I think a lot

of those price Cuts we know especially

in the United States really didn't start

happening via tax credits uh in the last

week of December for 7 500 bucks uh in

the month of December for 37.50 and then

of course the actual price Cuts not

until January so I think most of that

margin impact won't be seen for Tesla

and so I think margin could actually uh

nicely surprise especially as we're

coming out of two quarters of potential

Shanghai Payne uh although we'll see

what kind of blame uh Tesla puts on but

uh you know pressures from China which

hopefully reverse going into 2023 so

we'll see when it comes to those

earnings though

um the the Tesla semi announcement uh

the uh should I say the Giga Nevada

expansion announcement pretty exciting

3.6 billion dollar investment 3 000

additional staff 4 million square feet

of new manufacturing a 100 gigawatt 4680

cell that's enough batteries for 2

million light duty Vehicles annually

thanks Sawyer for that uh new high

volume semi a factory that's that's

pretty exciting they've got a nice

render of the factory as well that's

been circulating on Twitter uh I'll show

this this is just a render uh so it's

not actually anything too spectacular

but essentially you see another

gigafactory here with uh Tesla designed

on the roof thanks to their solar panels

and then you can actually see a whole

line of Tesla semis which is interesting

because I like how the rendering shows

that the Tesla semis would have uh like

basically cargo already attached to them

I don't think that semi trucks coming

off the line are going to have

cargo containers already attached to

them but they definitely look better for

the rendering than if they didn't

because this is what they look like

without cargo attached uh and then I

kind of like that one semi truck right

there kind of like magically coming

through the wall uh but then again it's

just surrendering you're not supposed to

look that close at renderings

anyway uh look uh it's sort of a Tesla

earnings preview uh let's you know let's

look at their last and I'll give you

kind of a little bit of uh guidance in

my opinion in terms of what to look for

and what Wall Street is looking for so

let's look at their last earnings uh

report so we'll go to their Q3

presentation and we can also compare

that

to what the earnings estimates are from

the Wall Street consenses but I promise

you the first thing that we're going to

look at is going to be all right

here is going to be Automotive gross

margin so I want you to remember this

and and this is what I actually think is

actually in my opinion bullish here

about Tesla and look I always you know

like if if you go YOLO call options and

then you lose money trying to bet on

earnings that's your problem and if you

make lots of money do send me a thank

you then I'll take responsibility for it

but look I generally don't play earnings

because you have no idea how markets are

going to react to the stupidest things

ever and so I don't like playing

earnings I think you're kind of just

flipping a coin when you're playing

earnings I prefer to play a longer term

tactical trades but what I want you to

pay attention to here is in Q2 we had

what I call Shang hell and that was

really your shutdown of uh the uh

Shanghai gigafactory which is your

highest margin gigafactory do keep in

mind these margins do include the

electric vehicle tax credits right here

uh so they're a little bit elevated but

look at in 2021 we were sitting at 30 to

33 gross vehicle margins Shang hell we

were at 27.9 percent we're at 27.9

percent we missed the estimate of 28.4

percent on margins uh for uh for for

2020 uh for Q3 here uh and so the the

hope is that maybe we could actually

beat here but uh with with price Cuts uh

you know even a meat here would be

phenomenal uh so let me see if I can get

any kind of consensus uh forward here

for the quarter which I think will be

quite interesting let's see here

consensus on quarters so but that margin

is going to be in important especially

since we are expecting oh yeah here we

go okay uh no Q3 okay there it is uh no

that's cute why is there no Q4 estimate

that's quite odd uh I actually have a q1

estimate of

25.25 provided right now but I'm not

seeing an estimate for Q4 however if the

margin is 25.5 for q1 uh that's actually

that I mean the margin should be in

excess of of 26 percent expected uh for

Q4 so I'll work on getting a little bit

more of an estimate there for automotive

gross margin but uh as far as the actual

earnings you'll want to write these down

so you can have a little bit of a prep

for when that earnings uh report comes

out the uh guidance is a buck 12 for

adjusted EPS Gap EPS a buck four Revenue

which should be relatively accurate

because it's a have line number and we

already have guidance on how many

vehicles were delivered but then it

comes down to energy and that I do think

we're going to start seeing a Slowdown

in battery deliveries and energy

deployments probably is by q1 but we'll

see if we'll get any negative insight

there maybe we'll get some mega pack

deployments to offset that revenue of

20.6 20.7 billion expected on Top Line

rev net income expected to be 3.98 so if

we can get a nice four on that net

income I think that would be pretty

exciting uh fascinating fascinating here

to see and uh excited to see what we end

up getting with margin but I think

margin's probably going to be your

biggest concern and again I don't

actually think it's going to be as bad

as folks expect because again most of

the price Cuts were were uh you know in

in basically uh q1 over here so uh we'll

see but that margin is going to be a big

deal I believe the consensus is about

26.4 percent

uh right now

excluding credits is what I'm able to

research here so 26.4

excluding credits let's go ahead and

jump for a moment to one of the last

pages here which is where we can get

Automotive gross margin excluding

credits

uh let's see here which page was it on

hmm

should be on one of these Back Pages

here Automotive margin Excel I will find

it this is the same bit of cash flows

this is our balance sheet one thing

we're going to look for on the statement

of cash flows obviously is uh the level

of free cash flow that we had look at

this folks cash provided by operating

activities 5.1 billion dollars you had

3.3 billion dollars of free cash flow

Tesla really really incredible extremely

low debt you know I mean I don't even

really consider lease as debt but other

long-term liabilities sitting at 4.3

billion dollars uh that's right here for

oops okay well decided to page away but

anyway 4.3 billion dollars relatively

low over here uh for Tesla so we'll see

if there's any kind of pay down for that

sort of other long-term debt what do we

have let's see here we've got

uh we'll go ahead and look at energy

generation we'll see that was that was a

nice boost in the last quarter coming in

at about 1.1 Bill we'll see what kind of

movement we have there again I am

expecting longer term weakness in that

segment

uh and then Automotive gross margin we

know was 27.9 but that includes credits

I think I'm just going to go ahead and

calculate it myself really quick what it

was without credits last time because uh

that's easy to do so let's just go ahead

and take Automotive gross profit of

5212. let's go ahead and subtract

286 from that that brings us down to

4926. we're going to divide that into

revenues uh so divided by 18692 that

brings us to about

26.35 without vehicle credits so again

26.35 without vehicle credits was the

last one and the Wall Street consensus

right now is looking for about 26.5

without vehicle credits going into the

fourth quarter

I personally am optimistic on that again

I wouldn't YOLO bet on it but I'm

optimistic that's clearly something

we're going to be looking at another

thing of course I love looking at is how

much are they taking to the bottom line

right and uh in this last quarter we

took three nine or three two nine two

billion to the bottom line three point

two basically 3.3 to the bottom line if

we divide that by revenue of 18

uh six nine two that actually gives you

a quarterly net income margin of 17.6

percent the 14 I usually refer to as an

annualized as an annual figure 17.6

pretty impressive

so

it's gonna be a big day going to be a

big day for Tesla so fingers crossed we

get some great news here for Tesla but

I'm excited and I think there there is

reason to be excited

uh anyway

and