Elon believes demand will fall in 2023 due to a heavy recession and with an increasing fed fund rate. He feels if that's the case, he will still consider high volume growth at the expense of margins, even dropping profits to break even or negative.
To be clear, Elon emphasized that no one knows whether this recession will be mild, medium, severe or just evaporate. His comment was that in a severe recession it was a judgement call on whether to sell fewer cars at higher margins or emphasize growth at low margins or even zero or a little bit negative. And his leaning was toward keeping the production high in the event of a severe recession and sell them at compelling prices even if it meant taking the hit on margins. It was very apparent to me that Elon knows demand is very sensitive to price.
He also explained multiple times how high interest rates make anything bought using credit (primarily cars and houses) effectively cost more. He emphasized that he thought TSLA was better positioned to weather a severe recession than any other carmaker due to Tesla's margins which were higher than any other carmaker. He also said he has no special insight into how much of a recession that we will have, but it's always good to be prepared for the worst. His Tesla analogy was a fleet of boats going into a storm. You could have a really good boat that could handle stormy weather really excellently, but you are still going to get tossed about.
Elon also emphasized that this is the way our economic system works - we have cycles, it's normal to have recession followed by growth. And that's why he recommends against using margin. He also said he was confident Tesla would be the most valuable company in the world and he thought it would happen in about 5 years. He also said his teams at Tesla were executing exceptionally well.
All of Elon's thoughts on demand, margins and strategies aligns with what I have been saying for months but I have been assuming a mild to moderate recession. It's true, the more severe the recession, and the higher the interest rates, the lower TSLA's margins will be. But they will likely be higher than competitors and Tesla will still sell every car they can make. In the event of economic Armageddon, all bets are off. And it was clear that Elon believes it's always wise to be prepared for the worst economic weather that can be thrown at us. I found particular comfort in that because it aligns with what I need for my investment style.
This was a very good talk with the Twitter guys and Elon (I didn't hear any women on the group chat), I think Elon came across very well and provided a lot of clarity on pretty much all the issues the media has blown out of proportion. Very comforting to people who were worried about things like Elon being distracted by Twitter, the impact of his tweets on demand, Elon selling more shares (he said he was confident he wouldn't be selling any TSLA for two years) and all related topics. IMO, this is bound to cause some strong buying tomorrow. Which I don't really think is that important in the bigger picture (and I don't think Elon thinks so either). I'm not in TSLA to make a quick buck, I'm in to increase my net worth by leaps and bounds over time. And Elon made me more certain than ever that this would be the case.
