I was Wrong about Tesla Stock [Full Details].

hey everyone kevin here let's talk about

tesla because it's about daily that i

get hated on on the internet and that's

okay but there's been a lot of confusion

that i'm trying to spread tesla foot

complaining about things i shouldn't be

complaining about because the permabulls

like to go like this

i can do no wrong look i'm a really big

bull for tesla and i really respect the

tesla community i think they're

wonderful people very educated people

and they're people who are right to be

long tesla tesla is an absolute

phenomenal company there's a reason it

is the largest position that i have but

as with the largest position i have i'm

going to place the highest amount of

scrutiny on that company

because when something has the potential

to really hurt me i would be stupid not

to hyper analyze and hyper focus on the

red flags so that way i know when to

pivot in the event that i need to

and tesla is very very very critically

exposed

to one simple thing that props it up

what props tesla up is a multiple that's

it a multiple of their earnings and

their projected earnings we refer to

this as the price to earnings multiple

if tesla makes fifty dollars of earnings

and the stock is trading for five

hundred dollars then it is selling for

10 times earnings right very simple

again you make 50 of earnings per share

it's trading for 500

well then that's 10 in terms of your

multiple your price earnings multiple

the issue is this multiple fluctuates

based on what the growth is that tesla

faces and there are three red flags that

came out of the last earnings report

that testables don't want to hear about

but they're things that we seriously

have to look at because they have the

potential of affecting what the market's

perception of this multiple is and

should be now tesla is nowhere near 50

of earnings per share in fact wall

street or bloomberg doesn't even have

them at half of that by 2025. let's just

for example look at 2022 estimates

though because lately that's what we've

been doing for all of the companies that

we're looking at so we're just looking

at the end of 2022 what do we get we get

probably earnings per share of around

13

and the share price currently is around

800

let's go with 815. that's going to give

us a multiple that's obviously a lot

larger than this

let's even be generous though and go out

just to compare to a future year and say

we're going to get to 25

by 2025 so we'll call this the 2025 and

this will be the 2022 multiple right

and then at this point this becomes easy

math because we just take 815 divided by

13 and what do we get we get a current

multiple of about 62.6

and if we go all the way out to 2025

tesla's currently trading for

32.6

this is really considered a forward

multiple and this could be considered a

forward multiple as well because

oftentimes if you just type into google

hey what's the pe multiple of tesla what

they're doing is they're looking at the

trailing 12 months of earnings per share

that means you're looking at a snapshot

of earnings the last 12 months which are

obviously substantially less uh than

what this uh you know what what the 2022

earnings per share could be in fact the

trailing 12 month is sitting at eight

dollars and 43 cents so obviously very

very

small relative to 13 which would make

this like 100 pe right

okay so we've got to understand that at

62

times earnings this is selling at a 50

growth rate of a peg ratio by dividing

62.6 by the growth rate of 50 selling

for a peg ratio of about 1.25 that's

actually pretty decent i like that about

tesla i really do

the issue is

if tesla stops growing at that 50 clip

then you're not going to be selling four

peg ratio that that that's that high

anymore in fact if tesla starts growing

at just a 25 clip which at some point in

the future it will just because of the

law of large numbers it's not going to

grow at 50 forever so two measures of

growth here one would be the top line

which would be revenue growth and the

other would be earnings a growth so

let's just go revenue growth here for a

moment this is the bloomberg consensus

estimate going forward that

revenue is going to grow 57.9 in 2022

and then 40.5

in 23 20 thereafter 12 percent

thereafter and 23.2 in 2026. i'm not

sure why you get this sort of weird bump

maybe they assume another gigafactory

will come online at that point whatever

that's earnings now if i do eps growth

and i show you this i'm going to skip

2022 because it's confusing

let's go over here to 38.5

point 20.1

percent uh and then nineteen point one

percent the point is all of these

numbers are substantially under fifty

percent and when you get a number that's

substantially under fifty percent it

makes your multiple much larger and so

what tassel really needs to do is make

sure that these numbers

over here are consistently over 50

percent wall street does not believe

it's possible

most tesla investors do believe that we

can easily get to a compounded annual

growth rate of 50 percent at least

through 2025. at some point that will go

down we're not going to be growing at 50

percent forever by 2030 we'll probably

be growing at 25 or something like that

maybe even less by 2030 we'll be growing

at a lower or slower clip and what's

going to happen then is the valuation

markets will give us will compress see

when you look at an s curve that looks

something like this

okay when a company starts out you start

out with this insane potentially

infinite p e ratio because you're losing

money then you start making profit and

your p e ratio looks insane it's like a

thousand uh and then it's 500 and then

maybe it's a hundred right and then this

p e ratio can align with a growth rate

if we're at a hundred and we're growing

at let's say seventy percent uh and then

we're growing at you know a fifty

percent over here fifty fifty fifty 50

50 50 something like that and then we

have a multiple let's say of

50 as the multiple that we're using or

even 60 right so let's call it 60 to 50

which is roughly where we sit now in

that 2022 rim at some point when that

growth rate slows and goes to maybe 20

over here or 25

you might see this multiple collapse to

about 30 kind of like an apple right and

then when you collapse all the way to

the to the tippy top which is sort of

that flat region which i'll show you

over here you get to this flat region

where your growth is only like three

percent and you're like you know an att

or whatever you're a company that's so

established you just don't really grow

that much anymore you're just still

printing some amount of attendees but

you're growing at very very nominal

paces well well then your your multiple

uh that you're paying for this kind of

company might be something like

six to ten you pay a very very low

multiple once you get to the top of the

s-curve so with tesla the hope is that

okay but then we're going to have fsd

and that's going to be another s-curve

and then we're going to have robots and

that's going to be another s-curve on

top of that right and we're going to

keep having these reasons to have an

expanded multiple at tesla but you know

future product announcements like i

always say cyber truck insurance semi

trucks all this stuff for me is just a

margin of safety but i really want to be

part of the tesla ride as an investor as

we're on this first s curve but i do

want to be aware that when this s-curve

hits here multiples are going to

collapse and that's going to affect

how much tesla can sell for on the

market relative to other companies right

if and that's a very important thing

that i think a lot of people forget in

the tesla bull community is that look if

tesla right now were let's say uh twice

what it is now sixteen hundred dollars

and now all of a sudden we're selling

for 120 or it'd actually be more because

i think we did what was it was close to

like 62. so whatever be like 124 times

that's our multiple for 2022. well geez

man why would i pay 124 times pe

for tesla if i could go over to let's

say a company like nvidia

and nvidia for uh has has great margins

as well as a phenomenal company right uh

into uh a.i and augmented uh uh reality

intelligence everything is i mean look

they're obviously very very different

companies but phenomenal company nvidia

is a company that is presently selling

for next year we are expecting eps of

536 for nvidia let's go ahead and grab

nvidia stock quickly that is 173

divided by

536 and that's compressed quite a bit

from the 300 where used to be look at

that you're only paying

32 times

the projected eps for nvidia this year

that's not bad why would i pay four

times that

for tesla well maybe tesla's growing

faster right that's always what it goes

back to maybe tesla's growing a lot

faster see the growth the eps growth at

nvidia is expected to probably average

somewhere around 15

so at around 15 percent growth that

means we're paying about a two peg over

here right but if we're growing at 50

percent here then at 124 times

uh 124 divided by 50 that puts us closer

to 2.48 right so i'm paying more money

for the same dollar of growth at tesla

as i would be over at nvidia now this is

opposite right now because tesla is

actually i think at a great point right

now because again we're closer to a 1

1.25 peg as we did the math earlier

which is substantially less than that 2

over at nvidia so i like tesla right now

just saying the stretchier the tesla

valuation gets the more attractive other

companies become in comparison and

that's why there's a limit to how much

tesla can explode in terms of its

multiple you have to consider other

companies now this led to uh the next

issue and that has to do with the issue

of perception a lot of folks don't

recognize that the way wall street

maintains multiples is through this very

very important word called

perception the perception of growth at

tesla the perception of stability at

tesla so when people like oh kevin

you're only identifying the fud i'm

doing that because i know what the

hedgies are going to be looking at i

know how they're thinking and so one of

the first things that came up is folks

said oh well kevin you've gone like 10

to 12 minutes in this video and you

still haven't mentioned that on july

28th the programs on building your

wealth expire because there's a 50 off

coupon code down below and that expires

and then you're not going to get that

amazing price anymore we've been talking

about this coming date for a while so

it's a really important date it's also

the day gdp numbers come out we find out

if we're in a recession or not okay so

mark your calendar on that

okay so

what we've got to talk about now is the

cash flow and this this got a lot of

people kind of like

a lot of people got their their panties

tied up over this one all right because

they didn't like the way that i did my

math and so i'm going to now use a

spreadsheet to show you why i said what

i said so first of all it's it's useful

i think to know that i do a lot of quick

math

and i do that because i don't have a lot

of time and when i'm live i also respect

that you might not have a lot of time

now that's no excuse for doing bad math

but it's i i round i do slight roundings

so on the fly within minutes of this

coming out i'm like you know people keep

talking about how tesla has 18 billion

dollars of cash i've done that as well

but let's be real you have to do what's

known as a quick test some people call

it an acid test and you subtract current

liabilities not including inventories

from current liabilities and then you

see how much

cash the company actually has available

in the event of a stress event okay so

that's very very important and what

we're going to do is i'm just going to

erase all this highlighting here for a

moment and i'm going to show you what

we're going to use we're going to use

current the current assets available

like cash short term marketable

securities accounts receivable so number

one is cash in the bank number two would

be stuff like treasury bills or or well

cash equivalents or sometimes short or

super short-term treasury bills like

three-month treasuries short-term

marketable securities could be like a

six-month treasury a 12-month treasury

whatever accounts receivable is you've

already

delivered a product let's say and you're

expecting to receive that revenue within

the next 30 days

inventory we don't actually like to use

inventory because inventory is part of

operating expenses so or leads into

operating expenses and the reason we

don't use inventory in our current quick

test test or asset test is uh because

inventory takes time to actually be used

and sold so it's not very nimble in

terms of how much actual cash do we have

ready to go right now prepaid expenses

uh fine okay so we've got a few prepaid

expenses over here i usually personally

don't love using prepaid expenses either

but

you know

people defer on this the difference on

prepaid expenses here is uh somewhere

around what we got two billion dollars

so you know depending on how you like to

do your your acid test prepaid expenses

by the way i think it's helpful to just

understand a little bit of what they are

prepaid expenses would be like all right

we we paid our uh our lease next month a

month early right now you wouldn't do

that i'm just saying that would be an

example of a prepaid expense or uh hey

we paid our insurance premiums for the

next six months well the next five

months of those are prepaid expenses the

problem with that is it's not really

like ready to go usable cash i kind of

consider it very much like an inventory

so in my quick math i generally don't

consider prepaid expenses yeah they're

they're bills that you're not going to

have to pay going forward but it's kind

of already spent right you can't

re-spend prepaid expenses okay so that

means i'm really only going to take the

first three numbers here of cash okay so

we'll highlight those now we'll do the

same thing over here in current

liabilities so this one's a little bit

trickier okay so accounts payable these

are bills we actually have to pay

accrued liabilities are things we're

going to have to pay within the next 12

months deferred revenue is a tricky one

we're going to get back to that in a

moment customer deposits let's just

assume worst case scenario we had to

refund these deposits

generally you don't but the expectation

is when we're doing these these uh cash

analyses is that deposits aren't money

that you're actually going to spend you

need to show that you have that money

available in the event people want their

cash back so we're not expecting tesla

to have to take that to give that cash

back but it's just money you don't spend

so we subtract that off and then

obviously current portion of the longer

term debts like a 30-year mortgage the

stuff due within the next 12 months

we're going to highlight that as well

now notice i'm not going to subtract

deferred revenue here deferred revenue

is cash that you've gotten that now you

just need to let's say deliver the car

for we're expecting that to happen this

cash is usually cash that we could

expect all right yeah we can expect to

use that within the next uh you know 12

months so so really

i don't like to subtract that as a

current liability though you can

technically if you're doing the asset

test by the book you would also subtract

that deferred revenue because it just

it's money that hasn't been earned yet

so technically you shouldn't be spending

money you haven't earned yet right

which which makes sense that's logical

okay so let's just go with that example

okay i think i'm being very generous on

both sides

so my mental math when i did this said

we were roughly at a wash

and people got mad at this because

they're like oh my gosh tesla has kevin

kevin you're reading this statement

wrong tesla has 31 billion dollars of

assets and the current liability section

only says 21. that means they have like

10 billion dollars of extra again

they're not considering that eight of

those billion are inventories right and

things that we can't quickly use so this

is this is just a debate to be had these

are nominal little differences but i

think the conclusion makes a very very

important one and that's what i'm going

to show you here so take a look at this

by the way

sorry to the course members uh i i gave

out my cell phone number to all course

members yesterday and i'm like 400 text

messages down to still reply to so i'm

working on it

i'm like on the subway lauren's like how

why are you texting so many people i'm

like yeah don't ask

anyway um yeah it's been kind of fun

thank you for all your support by the

way there's so many of you sending even

just nice messages like hey thank you so

much you know made a lot of money or

changed my perspective in life here i'll

pull up a couple screenshots i have

that's my little there's lego on my desk

right behind

me and so i thought it was um yeah

anyway uh so um this this was a pretty

neat one i thought i'd just shout out

really quick so shout out over here love

all the work kevin been a disabled

investor proving you don't need much to

get started only got 30k net worth but

it's a start much love i thought that

was really cool somebody who's just

getting started with the program uh

really really awesome so anyway thank

you course members really really do love

you and appreciate you okay uh and again

my goal is always to provide more value

and that's that's my life school okay so

if we put this silliness on a

spreadsheet

all right we get the cash the short term

the accounts receivable i'm putting zero

for inventory prepaids that gets us to

21 ish billion dollars payables accrued

liabilities again i'm not subtracting

off the deferred revenues here deposits

current portion of long term fine okay

that gives you an extra billion dollars

of cash so so that gives you think about

that for a moment okay on one hand you

have people running around going oh my

gosh tesla's got all this cash they've

got 18 billion dollars of cash and i'm

at fault for throwing that number around

as well it's a nice you know little

tidbit to throw on on on tv or whatever

but like when you actually do the

nuanced math you have to remember that

this isn't like math that we could spend

tomorrow it's not accessible

a cash to us in math cash to us what's

really accessible and usable is about

this extra 1 billion dollars and what's

remarkable about that is it's propped up

by a sale of about 900 million dollars

936 roughly million dollars of bitcoin

you see what i mean like if you take the

936 million out of this the extra actual

literal free cash that tesla has or

would have had would have been next to

zero but let's say they have this

billion dollars

this is again extra cash above their

current liabilities not considering

inventory right why is this important

well if tomorrow we decided to build

another five billion dollar factory

we don't have it

okay now some people are like oh what

about operating cash flows we'll talk

about that in a second the point is

if you have

one billion dollars of available cash

and it looks like you have 18 billion

dollars we don't have that 18 billion

dollars we have another billion dollars

that we could go spend now the

difference is that we do have cash to

fund our operations and that's really

really important but if tomorrow elon

musk is like all right we're announcing

that we're going to build three new

gigafactories which i think they should

do they should do this and they're like

we got to raise 10 billion

because we think our operating

activities will eventually cover the nf5

but we got to raise 10 billion dollars

what are they going to do folks well

folks if they need to raise 10 billion

dollars to build three more

gigafactories first of all hell yeah why

hell yeah because you're gonna have a

short-term pain because they'll probably

do bonds which are convertible to stocks

which dilute shareholders or they'll

sell stock right which also uh you know

puts downward pressure on uh on the uh

the company uh the company's valuation

on public markets but that's short term

because now they have ten billion

dollars to go build more gigafactories

why do we actually need to do this

well we need to do this because again

remember the beginning part of the video

how i talked about tesla has to maintain

that growth that 50

and right now wall street is thinking

what 30

20 18 right roughly numbers like that

like wall street's like you guys ain't

grown at 50 for the next four or five

years so i'm making this argument here

that tesla does not have the money that

people think it think it has in order to

build more factories

they just don't have the money and so

people got to get through their heads

pesta is going to have to raise money if

tesla goes to 1500 tomorrow elon musk

is probably going to raise money and he

would be smart to do that now some

people are like but kevin but have it

they could just fund that 10 billion

dollars from their operating profits

they had 2.3 billion dollars of

operating profits last quarter this is

true they had 2.3 billion dollars of

operating profits in the last quarter

but remember the money furnace argument

that elon musk talked about okay here's

how this works you go over here to this

2.3 billion dollars this 2.3 billion

dollars right here you then subtract the

money that's being invested into the

factories that are currently already

being built which will still be getting

billed and still be getting ramped over

the next six to 12 months which is when

i hope to hear some more gigafactory

announcements so you're still going to

have expenses here you had them here you

had them here right we're still going to

be growing these factories

so now the sudden your operating cash

flow of 2.3 billion dollars actually

gets reduced by what you're investing

now you get a free cash flow number now

your free cash flow is actually only

about 600 million dollars in fact we

could jump over here there you go free

cash flow 621 million dollars oh but

wait a minute

we usually

ignore this eight quarters thing here we

usually also pay off some amount of debt

whether that's 400 million dollars or a

billion dollars or 600 million dollars

we usually pay off something in fact in

the last quarter we paid off about 400

million

that means we basically have no money

left okay we've got 621 in free cash

flow but if you pay off 400 million in

debt

well now you're down to 200 million but

even if you didn't pay off any debt

you're like we're going to borrow for 10

billion

and we're not going to pay off any debt

the free cash flow is still only 600

million dollars per quarter that would

take you what

15 quarters or more to actually pay for

those 10 billion dollars in new

factories so

people like to make fun of me and they

they like they don't like my quick math

or maybe they don't like that i laugh at

my own jokes which are pretty funny by

the way

i i don't know what it is uh like i

think what somebody told it to me once

uh they're like i don't know why kevin

but i've always wanted to punch you

in the face when i first started

watching your stuff but then when i got

to know you either in person or just

through watching you longer i stopped

wanting to punch you in the face and i

actually started liking you

a lot uh and i sometimes i wish it were

the opposite like because that's very

disappointing it makes it harder to have

lots of friends because more people

don't want to be your friend out of the

gate right

the opposite is very convenient for some

people some people they watch once and

they're just like enamored in love with

but then over time they realize oh wait

you know this person isn't actually

what i thought they were right uh er

this person will always tend to have

more friends because unfortunately most

friends are very uh surficial very very

surface level

uh and and deeper friends uh are i think

very very important but anyway i don't

know why we're on this tangent

i think it's because we've got to get to

the next thing that people get mad about

and the next thing that people get mad

about which i think is silly because

again we talked about this tesla doesn't

have that much cash for the next

factories okay they're going to raise

money in the future mark my words tesla

will raise money in the future and if

that catches you blind because you

thought but they had all this these

these uh you know current assets well i

guess you just didn't look at things the

way i looked at it here and the way i

explained and that's fine you can have a

different opinion it just means you're

not prepared you're not prepared for

tesla to raise money that's fine because

i am and so if tesla drops 20 because

they raise money and set off a selling

frenzy because that's what happened the

last time they did that in september of

2020

well i'll diamond hand because i'm

already expecting that to happen

uh okay or i'll sell some calls before i

think it's going to happen right

all right the next thing that people get

mad at me about is they say kevin

how could you say that the model s's and

x's and plaids

prop up

margin

they're only 16 000 of them versus the

250 000 vehicles that are produced well

the reason for that is the s's and x's

add maybe to the margin the difference

this quarter maybe only added you know

0.2 to 0.4 when you do the math that's

probably somewhere around what what the

ss and x is at to margin

but what's so important when it comes to

looking at margin is understanding that

tesla shanghai

is really

really important because in my opinion

if and we don't know this with certainty

but if we could shut down all of tesla

except for shanghai and make vehicles

margins would probably be at 35 percent

or more maybe even 38

if we shut down all of china and only

made american-made teslas i would guess

margins would probably be around 25

and so getting the blended average

together

is very very important

with two things

or the way you get it up

is propped up by two very important

things i should say

number one

more s and x in the mix it might be a

smaller portion but even getting this up

50 basis points or half of a percent

very very very possible through premium

plaid sales of the s's and the x's which

have substantially higher margin

substantially higher margin i would

guess that the margin on the regular

vehicles is probably close to

27 28

these s's and x's are probably closer to

40 or 50 percent there's a lot of margin

in these they don't break that down

because i don't think they want people

like me who buy these cars

to feel ripped off that we probably you

know if i buy 130 000 car it honestly

probably only cost them 50 to make it

and that's 80k right there uh that's

substantially more than half i mean

that's like a 70 profit margin

this is what it is i mean that pads the

margins pretty nicely so that's fact

the other thing is shanghai

shanghai

really china the low cost of labor uh

and uh how quickly things can get done

in china make it uh very very smart to

do business in china however there are

also real risks associated with doing

business in china now some people are

like oba cat

china is not a vladimir putin china is

not going to rug pull us and go invade

taiwan and then shut down shanghai dude

they shut down shanghai over covet you

don't think in a trade spot there's a

risk

and you know what

don't take my word for it don't even

consider what what i'm saying about it

why don't we just look at what elon musk

says and i want you to see now that you

know that had it not been well let me

put this away let me remind you

with this bitcoin sale

totally free and available cash tesla's

got about a billion bucks not a lot of

money

without the bitcoin

tesla's got nothing in fact their their

cash would have been negative

they would have grown their business

their cash available cash by a negative

amount okay not so great

all right that aside should people think

you can't that you just betting no being

realistic and not going to be a

permanent i'm not i'm not here to to to

you know uh blow smoke uh and i'm not

saying that talking about all these

future potential revenue sources for

tesla or whatever and all this

excitement is blowing spoke but we got

to be real

and by being real let's also look at

what elon said about china

yes it should be mentioned that the

reason we sold a bunch of bitcoin

holdings was that we were uncertain as

to when the coveted lockdowns in china

would alleviate so it was important for

us to maximize our cash position given

the uncertainty of the coveted lockdowns

we're certainly open to increasing our

bitcoin holdings in the future fine

that's because elon is smart and he

realizes crap

the amount of free and available cash we

have be above and beyond our current

liabilities

is zero

let's dump our bitcoin which i made a

mistake on i said they lost money on it

they actually sold their bitcoin for a

gain they made money on bitcoin i'm

gonna make that clear

okay i'm sorry i made a mistake i went

too fast on that

but this is very interesting folks

elon was worried about china

digging into

their actual operations because china's

closed if china was closed for another

six months tesla's cash after even

breaking the piggy bank of a billion

dollars of bitcoin could have gone to

negative three bill maybe if china was

closed for the next six months they

would have to raise money just to keep

the company going

and that's not saying bankrupt i'm by no

means suggesting that tesla is anywhere

near bankruptcy but what i am saying is

the amount of available cash

is low

above and beyond the prepaid uh or above

and beyond the

the quick test that we did right uh and

we know again there are longer term

assets we know there's brand value we

know yeah they don't have to pay off

debt and then they've got maybe 600

million dollars of free cash flow fine

that's with shanghai reopening though

free cash flow goes down very quickly

with shanghai close so there are real

risks and what you have to remember and

this is something that that like i i

can't even plan for uh but if china does

invade taiwan or we end up having some

larger trade disputes with china where

china says we're now going to put a

tariff on every tesla that that goes to

the united states from shanghai

well shucks maybe some problems and so

it's just a risk factor you have to be

aware of as an investor

so

perceptions are key when it comes to

tesla

critically key

and these are risk factors that we are

i'm not here to suggest otezla's going

to go bankrupt i'm here to say that in

order for tesla this is sort of the

bottom line in order for tesla

to maintain

or grow

its wall street

valuation

they must prove wall street wrong

and show that 50 50 50 that compounded

annual growth rate is possible

but it's not possible if you only have

a billion dollars to spend right now

when this tesla stock price goes up

a lot

i expect them to raise money thanks for

watching folks goodbye