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Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

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Cash is King

I think most people are missing how the valuation conversation will fundamentally change if TSLA stays anywhere close to its current price with the upcoming earnings explosion. Most investors would consider a P/E below roughly 30 as being more of a "value" play than a "growth" play, and Tesla by next year will be providing exactly what value investors are looking for: free cash flow, consistently strong margins, and earnings per share, all of which speak louder than any FUD or BS that may be disseminated by the powers that be. I think something truly extraordinary would need to happen for market manipulation to allow TSLA to reach the "value" zone because the "growth" investors will see the PEG ratio of like 0.2 and be salivating. When many billions of dollar bills are flowing into Tesla's bank account every quarter despite investing in new factories and running the world's most prolific technology research and development operation ... that is basically undeniable.

Worried about public image issues for Tesla? Well, Saudi Aramco's market cap of more than $2T puts it at the 2nd-most valued company in the world after Apple. How many people in wealthy nations (mostly Western and East Asian) who have most of the capital influencing the markets think that the national government of Saudi Arabia and the leadership team of Aramco are filled with people who are doing good things? These guys decapitate journalists, are one of the last remaining absolute monarchies on the planet, enforce a restrictive theocratical legal system, and severely oppress women. Aramco's leaders and primary shareholders are...less than average...in terms of their respect for basic human rights and for the planet. Yet despite this, people want their stock for one main and rather obvious reason: the $100B annual net income.

If f%^&ing Aramco is worth $2T+ because they make $100B profit per year, even with minimal growth expected by the markets and major actual ESG flaws and in an industry facing growing pressure from renewables, BEVs, and increasingly stringent environmental policy from foreign governments, then why would we expect the market to keep Tesla anywhere near its current $0.8T valuation with where earnings are actually trending even just in the next few quarters? If I had to put a 99% confidence interval on when think Tesla achieves their first $25B earning quarter ($100B annualized to match Aramco quarterly profit), then I would say we're looking at it happening between Q4 '23 to Q2 '25, with the former being on the very optimistic side if the ramps go extremely well, margins blow up and/or FSD actually gets usable for daily driving for most people without it being annoying, and with the latter estimate being super pessimistic about margins actually shrinking somewhat, Energy still not contributing much and it taking much longer than hoped to hit a 1M quarterly run rate.

The stock market is a voting machine in the short run and a weighing machine in the long run. BS and FUD can exert significant influence only on the voting component but not on the weighing component, so financial fundamentals place a limit on how low of P/E this can reasonably go to and by extension how low the stock can be reasonably expected to go in a time of maximum full-throttle bearishness. If nothing else, maybe some entity could attempt a massive leveraged buyout of Tesla to gain ownership over the profit firehose.

When annualized earnings hit $12, which most professional institutional analysts say they aren't expecting until the mid to later half of the 2020s, then TSLA would be at a current P/E of 20 at today's $238 price. I have Tesla doing $2.96 GAAP EPS in Q1 '23, just shy of $12B annualized. @The Accountant 's last published estimate had $2.84 GAAP EPS in Q4 '23, which is further in the future than my estimate but not far off in the grand scheme of things considering that's merely 12 months away with the quarterly update coming out around 20 Jan 2024. So, even with @The Accountant's conservative estimate, the P/E at $238/share would be just 21 in Q4 '23, roughly on par with the long-term average for the S&P 500 index. What self-respecting "value" investors and funds wouldn't want to buy stock in a company with these characteristics:
  • 4% earnings per share yield, meaning equivalent dividend or share buyback is possible, and that 4% yield would be the lowest it would ever be for the foreseeable future
  • Strong gross margins of 35%+ on core automotive business with consistent multiyear improvement trend
  • Years of excellent, demonstrated operating leverage
  • 11-year track record of 60% exponential growth of demand and production
  • Selling products the customers love, so much so that they evangelize about their cars to anyone who will listen and wait in line for months to pay $65,000 to buy one
I think that if it reached this point a year from now with the stock price still at $238, even Berkshire Hathaway would buy, as would the sizeable pool of investors looking for American blue-chip industrial champions with proven fundamentals and attractive P/E ratios. That's why in my opinion this is a total bargain basement price right now and why I moved to make my position somewhat more aggressive yesterday. I can't say with any confidence precisely what P/Es I believe we'll get to in the next two years, but it seems clear that even the lower bound of what's reasonably likely still will drag the share price up in a bearish recession situation. $10B+ per quarter profit is very likely to happen sometime in 2023. Market manipulation and simple underestimation of the growth can affect whether the P/E ratio is 120 vs 69, but there's little room for this to push the P/E below the roughly 25 backstop from the army of value investors and growth bargain hunters who want to beat the S&P 500 without doing anything too risky.

Not advice. Make your own decisions. I'm not an investment or financial advisor. These are my notes for my model which I'm sharing.
 
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Thank you for sharing as this is simple and easy to read off the table. Is there such a reference for other homeowner credit for solar, heat pump HVAC/water heater, etc that you found?
Probably, but I don't know. I found this one just by one of the top links on DuckDuckGo when I searched for something like "clean vehicle tax credit"
 
I can only assume, that this news means that their "preferred clients" have now accumulated their desired number of TSLA shares at the recent heavily discounted prices, so now they can let the various funds / institutional holders play catch-up and start pumping the stock owned by those precious clients.

-- and no, I'm not a cynic, I'm a realist !
Ding Ding
 
Insurance and energy infrastructure and the synergy on the battery manufacturing will play a bigger role imho, offsetting the loss in margin on the car hardware by lowering battery cost and bringing additional revenue streams, energy arbitrage etc
Thanks. My model takes product sales into account. But not energy arbitrage sales - but that will be common in both scenarios.
 
The market seems to think that the twitter acquisition is an overhang, but if elon sells more, then more institutions get to own and control tesla. It was even said on AI day 2 that it is better for tesla to be publicly owned to vote in and make changes so that tesla apparently doesn't go HAL 9000/terminator/robocop on them. And when FSD rolls out, elon said that will be one of the most important dates for value creation...
 
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In the spirit of StarFox, since we're a certain frog-like color, we should be expecting some fresh scary Twitter news about now right? :)
Nah some new scary Twitter FUD isn't even necessary.

The macro's are due for a pullback after their monster rally all week which is going to cap any rise from this and drag TSLA down. After months/years of speculation about Investment grade rating's effects on the stock, we can't even get a up 1% day.......even though TSLA drastically underperformed the macro's all week.......it's so deflating its hilarious to me at this point.

Take out the money value aspect...........................and by far the most irritating thing is how easily Wall St gets away with it. It doesn't matter if fund managers were completely clueless with their head in the sand for the past 2 years, they're going to get to buy into TSLA at the same valuation it was almost 2 years ago.
 
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Cash is King

I think most people are missing how the conversation will fundamentally change is TSLA stays anywhere close to its current price with the upcoming earnings explosion. Most investors would consider a P/E below roughly 30 as being more of a "value" play than a "growth" play, and Tesla by next year will be providing exactly what value investors are looking for: free cash flow, consistently strong margins, and earnings per share, all of which speak louder than any FUD or BS that may be disseminated by the powers that be. I think something truly extraordinary would need to happen for market manipulation to allow TSLA to reach the "value" zone because the "growth" investors will see the PEG ratio of like 0.2 and be salivating. When many billions of dollar bills are flowing into Tesla's bank account every quarter despite investing in new factories and running the world's most prolific technology research and development operation ... that is basically undeniable.

Worried about public image issues for Tesla? Well, Saudi Aramco's market cap of more than $2T puts it at the 2nd-most valued company in the world after Apple. How many people in wealthy nations (mostly Western and East Asian) who have most of the capital influencing the markets think that the national government of Saudi Arabia and the leadership team of Aramco are filled with people who are doing good things? These guys decapitate journalists, are one of the last remaining absolute monarchies on the planet, enforce a restrictive theocratical legal system, and severely oppress women. Aramco's leaders and primary shareholders are...less than average...in terms of their respect for basic human rights and for the planet. Yet despite this, people want their stock for one main and rather obvious reason: the $100B annual net income.

If f%^&ing Aramco is worth $2T+ because they make $100B profit per year, even with minimal growth expected by the markets and major actual ESG flaws and in an industry facing growing pressure from renewables, BEVs, and increasingly stringent environmental policy from foreign governments, then why would we expect the market to keep Tesla anywhere near its current $0.8T valuation with where earnings are actually trending even just in the next few quarters? If I had to put a 99% confidence interval on when think Tesla achieves their first $25B earning quarter ($100B annualized to match Aramco quarterly profit), then I would say we're looking at it happening between Q4 '23 to Q2 '25, with the former being on the very optimistic side if the ramps go extremely well, margins blow up and/or FSD actually gets usable for daily driving for most people without it being annoying, and with the latter estimate being super pessimistic about margins actually shrinking somewhat, Energy still not contributing much and it taking much longer than hoped to hit a 1M quarterly run rate.

The stock market is a voting machine in the short run and a weighing machine in the long run. BS and FUD can exert significant influence only on the voting component but not on the weighing component, so financial fundamentals place a limit on how low of P/E this can reasonably go to and by extension how low the stock can be reasonably expected to go in a time of maximum full-throttle bearishness. If nothing else, maybe some entity could attempt a massive leveraged buyout of Tesla to gain ownership over the profit firehose.

When annualized earnings hit $12, which most professional institutional analysts say they aren't expecting until the mid to later half of the 2020s, then TSLA would be at a current P/E of 20 at today's $238 price. I have Tesla doing $2.96 GAAP EPS in Q1 '23, just shy of $12B annualized. @The Accountant 's last published estimate had $2.84 GAAP EPS in Q4 '23, which is further in the future than my estimate but not far off in the grand scheme of things considering that's merely 12 months away with the earning report coming out around 20 Jan 2024. So, even with @The Accountant's conservative estimate, the P/E at $238/share would be just 21 in Q4 '23, roughly on par with the long-term average for the S&P 500 index. What self-respecting "value" investors and funds wouldn't want to buy stock in a company with these characteristics:
  • 4% earnings per share yield, meaning equivalent dividend or share buyback is possible, and that 4% yield would be the lowest it would ever be for the foreseeable future
  • Strong gross margins of 35%+ with consistent multiyear improvement trend
  • Years of excellent, demonstrated operating leverage
  • 11-year track record of 60% exponential growth of demand and production
  • Selling products the customers love, so much so that they evangelize about their cars to anyone who will listen and wait in line for months to pay $65,000 to buy one
I think that if it reached this point a year from now with the stock price still at $238, even Berkshire Hathaway would buy, as would the sizeable pool of investors looking for American blue-chip industrial champions with proven fundamentals and attractive P/E ratios. That's why in my opinion this is a total bargain basement price right now and why I moved to make my position somewhat more aggressive yesterday. I can't say with any confidence precisely what P/Es we'll get to in the next two years, but it seems clear that even the lower bound of what's reasonably likely still will drag the share price up in a bearish recession situation. $10B+ per quarter profit is very likely to happen sometime in 2023.

Not advice. Make your own decisions. I'm not an investment or financial advisor. These are my notes for my model which I'm sharing.
Good information, but only thing I have to indicate is that Saudi Aramco is in an inevitable position. The world cant avoid making Saudi Aramco incredibly profitable at this time. Oil is traded on the global market and there is really no way for someone to say F Saudi Aramco I am not buying any of their oil.
 
Good information, but only thing I have to indicate is that Saudi Aramco is in an inevitable position. The world cant avoid making Saudi Aramco incredibly profitable at this time. Oil is traded on the global market and there is really no way for someone to say F Saudi Aramco I am not buying any of their oil.
I agree on the profit side, but on the stock demand side Saudi Aramco's P/E ratio of 15 is right in line with an average business in the S&P 500 with little control over margins and questionable long-term growth prospects, so that indicates the market hasn't penalized their valuation very much due to public perception over ethics issues.
 
Good information, but only thing I have to indicate is that Saudi Aramco is in an inevitable position. The world cant avoid making Saudi Aramco incredibly profitable at this time. Oil is traded on the global market and there is really no way for someone to say F Saudi Aramco I am not buying any of their oil.
Maybe so, but I hate BIG OIL and my purchase of my MY is one small step in the direction of saying F OPEC and the rest of BIG OIL.
 
I agree on the profit side, but on the stock demand side Saudi Aramco's P/E ratio of 15 is right in line with an average business in the S&P 500 with little control over margins and questionable long-term growth prospects, so that indicates the market hasn't penalized their valuation very much due to public perception over ethics issues.
Isnt the market aware that consumers really cant choose not to use Saudi Aramco?

Also LodiEVFan I am right with you. It is so obvious how Big Oil F's with the world.
 
And now I wonder if somehow S&P knows something about an imminent Semi production launch? (or maybe Moody's waits for that)
Neither of these ratings agencies care to know about anything. They simply put a date on a calendar 2 weeks before a deluge of earnings was known to be arriving.
 
We should stop caring about Gordon or responding to his nonsense. Since I got my first Tesla in 2012 he hasn’t been right about anything. If he ever does say something accurate, it’s not relevant. No sign that’s ever going to change.
I watch him more for amusement. I must say that he is very creative in bending certain figures to fit in his narrative, you must somehow admire that.