Updated: Oct 21, 2022
I want to talk about Tesla, and why I think it’s going higher and higher and higher from here. Now, it’s going to be a rocky road along the way, no stock chart is a straight line. It’s a squiggly line. But if you squint like Peter Lynch says, that line looks from lower left to upper right. And I think that’s going to be the case with Tesla. Now, this isn’t a technical analysis, discussion, this is a fundamental discussion about what’s going on with the company Tesla.
So, Tesla just reported its numbers, they blew away expectations pretty well, then they expressed a couple of concerns, because we have a little bit of a concern going on macro with this economy. And a couple of the concerns have to do with factory closures because of COVID in China, that shut down their factory for three weeks. And then because of supply chain issues, they had to shut down for another couple of weeks. So that affected their China sales. Nonetheless, they still beat expectations on earnings. They beat expectations on revenues. The revenues for first of all, we’re up 42% I mean, a company is growing its revenues/sales 42% is doing something right, even in the midst of what I think is a recession right now plus we have got an inflationary economy. But yet, they’re still producing cars. They have some labor problems, but they’re not big problems. They’re figuring out ways to do things at a very efficient level. And that’s because of Elon Musk. I’ll talk about that in just a second. Second of all, earnings per share, earnings per share were up 57%. Earnings is how efficient and how much money the company is profiting right per share. They were up 57% to $227 a share. That’s pretty incredible, in this economy in this world. This company is doing a lot of things right now. There’s a big move to EVs right now. I think they have plenty of backlog, plenty of people that put down deposits for their model S’s, their model x’s and y’s and even their cybertruck. They’ve got a lot of cool stuff happening and they got a really cool car. Some of the cars have these gull-wing doors, the cars have autopilot, which I’ll talk about in a bit. They got these beautiful displays, they’re upgraded constantly with the newest software, it’s a lot better technology than your typical car, although they’re kind of catching up. In the EV market, though, Tesla has got the edge, they’ve got about a seven-year edge in manufacturing. They were manufacturing only cars when everybody else was giving a little bit of homage to cars and saying, “Well, we’ll do some hybrids.” Tesla was like “no, we’re doing electric only” To my opinion, electric only is a risk. But nonetheless, it’s paying off for Tesla right now. So, it doesn’t matter what I think, right?
Alright, so in the midst of this report Tesla bought, about a year ago, maybe a little less, about a billion and a half dollars’ worth of bitcoin. Now Bitcoin has come down along with Tesla stock along with Netflix and Facebook and Apple and Microsoft, and all these stocks and bonds and gold and whatever in Bitcoin. One Bitcoin has gone down 70-75%. And so, they needed some cash because they had some cash crunches going into the quarter, which might be a problem in the short term. And so, they created by selling Bitcoin, about 930 million dollars’ worth of cash flow. And so that’s pretty good, right? They sold at the bottom. Now, they didn’t preclude the fact that they would buy back in but at least they were willing to go to their treasury and say, “hey, look, let’s put some cash on the balance sheet in case we need to pay some people in case we need to buy some more supplies.” “Like we’d have to liquidate Bitcoin”. Now, I think they did at the bottom, personally, yes. I can just tell you that, I think it’s a pretty good deal right now in the way the Fed and the central banks around the world are printing money, I think bitcoin is bottoming right now.
Now, let’s talk about why I think Tesla is going to where I think it’s going to go. And I’ll tell you what, I think its target prices in just a second. Actually, you probably already know what it is from the title of this video, but whatever. Let’s play that you don’t. All right. So, first of all, they have incredible car production, the car capacity is increasing. It’s accelerating. They’re making more and more cars; they’re opening more and more factories. They got factories in Berlin and Shanghai and Fremont, California. And they just put one in Austin. They have got factories in Nevada, where they’re producing batteries and they’re looking to do some more things like that. So, production is amping up. You always want to be on the side of increasing production, increasing exposure to sales, and that’s what they’re doing even in a lousy economy. I think Tesla is pretty recession proof. And that’s because they have such a backlog of people wanting to buy their cars and trucks that, even if they allow, I don’t think people are going to take their deposits back as they still need to buy cars. The whole world is talking about this crazy green movement and moving to Tesla. So, car production is ramping up.
But now I want to talk about some other esoteric things that are going to drive Tesla. Now, in order to do that, I’m going to talk about Musk in a second. But I want to lay out that Musk is a visionary. Now, he came up with this autopilot thing, the car drives itself, before anybody else thought of it, everybody thought he was crazy. Now, he might be crazy on his timetable. But I think within a couple of years, we’re going to have a lot of cars driving themselves around, they’ve got a proven track record, they’re having like 1.2 million miles driven for every accident, which is incredible, because I don’t know about you, but I get in an accident probably every 300,000 miles or something like that. And a lot of people are worse than that as they drive a lot. And they get in more accidents, especially around the cities. So, Tesla, and that’s an important thing, is they have a technology that uses this thing called LIDAR, which is kind of a radar. But it also uses artificial intelligence, AI, and that AI takes in thousands and thousands of images and data, and it says, that’s a bicycle, that’s a motorcycle, that’s a pedestrian, that’s another car, that’s a red light. And it puts us in this database so that it recognizes all of these things when it sees it. That’s an incredible piece of technology. And the cool thing is they can go down and they can upgrade all the cars in just a second. They can push a button and upgrade all the cars with that data. What does that do? That makes driving even safer. The more data they get, the more cars and Tesla’s are on the road, the better their cars start to operate and start to perform, the safer they are. So, they’ve got autopilot. But the cool thing about autopilot, and if you have a Tesla, you know what I’m talking about, you can tell your car to come out of the parking lot and come pick you up basically. It’ll come around and open the door and pick you up and close the door. It’s kind of getting pretty smart, little scary, but pretty smart. And so, you in the future, they’re going to be integrated this autopilot with ride hailing. Now, I want you to imagine this, right? Imagine you go to your phone, you pull up your app, your Tesla app, you go bring my car out of here, you don’t need valet parking, by the way, you just say bring my car to the front door of this restaurant, pick me up, you go out the car door opens, you sit in the car, and then you go off. And you said “go home Tesla” and it drives you home. Now take it one step further. You get on your app, you don’t have a Tesla, and you say I want to go to my house, a Tesla that’s not being used that’s close by, just like Uber, will come and pick you up and using the autopilot will take you home. Now I know that sounds crazy, but the technology is right there. So, they’re going to displace Uber potentially, and Lyft because they’re not going to need to pay the amount of labor that it costs to drive you in in an Uber. They’re going to be able to eliminate that. And on top of that, they’re going to have autopilot, right? It’s going to be feeding more and more data back into the system. This is a like a snowballing effect. Now, I don’t know if you see how important that is. But now think about their safety record. Think about autopilot and think about ride hailing and put that in the context of now they can become their own insurance. Now they have the safety data. They know those habits of a person that’s driving the car. They know how good autopilot is, they know how many accidents they’re going to have every million miles driven, right? And so, they can do an underwriting an actuarial calculation, that’s probably going to undercut by 20 or 30 or 40%, their nearest competitor. Now imagine a GEICO or Progressive or a Liberty Mutual underwriting a Tesla with their own data, right? That’s a game changer. People don’t realize this yet. It’s coming. That’s its own business insurance. It’s its own business. And we both know, it’s a lucrative business because Warren Buffett has built his whole career on buying insurance companies. He owns Geico, right? Berkshire Hathaway is an insurance company; it was a furniture company and became an insurance company.
Now you put together the autopilot, the ride hailing and the insurance, by the way, you probably haven’t heard of this stuff, have you? Right, this is what’s going on behind the scenes. And then you say, “well, you know, he created through his cousin or his brother-in-law or something like that. A battery, a solar company, right to go to the solar business.” Well think about how brilliant this is. He gets into the solar business, you buy solar, you put it in your house, and then he makes this thing called a power wall. It’s a big battery that stores some of that solar. But the Tesla is also a battery, it stores the solar when you plug it in. So now this is all working together. When you lose power in your house from the power company, it kicks in. You’ve got plenty of power from your Tesla and plenty of power from your power wall. And now, as they grow battery technology, as they get better at it, it gets more efficient. So, they get economies of scale. It’s actually brilliant when you think about how all these things come together without us realizing they’re come together. But that’s the brilliance of Elon Musk.
Now, there’s a reason this freaking guy is the richest guy in the world, right? Let me tell you why. He started a computer company with a partner and sold it to Compact, I think it was for 302 million or something like that, 300 million, this first company. His second company, he co-founded PayPal, you’ve heard of PayPal, he sold it for like a billion dollars. 1.2 billion maybe. He’s gone from 300 million to 1.2billion to Tesla just a few months ago, and it’s getting back to close to that spot was worth a trillion. So, it’s over 300 million to a billion to a trillion. Now the guy is the richest guy in the world, right? He knows how to run companies. Now you may look at his tweets, and think he’s a whack job, and he smokes pot on people’s shows. But at the end of the day, he knows how to run a company. And he understands it has a vision for technology. And he’s got a rare trait, he can execute on the vision. He can execute on the vision huge because a lot of people have vision, but they don’t have the execution or vice versa.
So now you know about Elon Musk, what else is he doing? Well, he’s got this little company called SpaceX, which is putting thousands of satellites all around the world, to be able to bounce off each other and bounce back down to the world and low orbit internet signals. So, he’s going to cover the earth, you heard that lately, he went to Ukraine, and enabled all of the Ukrainian people to have Starlink to be able to communicate on the ground when Russia cut them off. And when they didn’t have access to the internet. He allowed that. But it was like pretty cool technology that you could do that. And then he’s also launching into space. And he I don’t know if you’ve seen it, but he launches a rocket and stage one comes back down, and it lands on itself, it lands on a pad in the middle of the ocean. And then he can reuse it up to 10 times. Think about how much money that saves. Remember all the things that were sent into the ocean when the space shuttle launched. And they you know, half of it broken, some of them were retrieved but you could only use them once or twice. This guy can reuse his camp, his capsules, and his fuselage over and over and over again, huge economies of scale. And now NASA is paying him to set things up in space because they are sending food to the space station, sending supplies and adding on to that space station. That’s what Elon Musk is doing with SpaceX, and he has this vision that he wants to go to Mars now. I’m not sure about that one. But you know what, every time I doubt Elon Musk, he proves me wrong. So maybe he’s right on this one, probably in 20-30 years, we’re going to have people going and living on Mars, I don’t know. But I’m not betting against this guy anymore.
He also has this thing called The Boring Company. Now he goes under the earth. He’s figured out this cool technology, because he’s kind of an engineering geek. Even though he’s not an engineer. He’s a self-taught engineer. He’s figured out this way to drill these huge tunnels under the earth. And he’s done them in L.A. and he’s done them in Las Vegas. He’s connecting the underground of Las Vegas using Tesla’s with this Boring Company, these tunnels, which are revolutionizing some things under the ground and transportation in these different cities, he’s going to create this thing called the Hyperloop, which is going to use the Boring Company, see how everything does fits together? It’s really, really amazing. I’ve never seen a company like this except maybe apple that has all of these different fingers that feed into each other. He has this.
And then he’s looking at Twitter. Now, you might think he’s a quack and a little bit of a nut. And he wants free speech and all that stuff. And he’s creating all this ruckus with Twitter. But I think he has a big plan. I don’t know what that big plan is. And I’m not going to speculate. But I do think that he’s going to go through with the Twitter acquisition. And if he doesn’t, he’s going to figure out a way to make a ton of money out of it, in any case, or at least he exposed Twitter for what they are. That’s if they’re lying to him about the number of bots that are part of this is part of their platform. But I don’t want to get into the politics of that. I just want to tell you; I wouldn’t doubt him.
So where do I think all this is going? Where do I think the car production and autopilot and a ride hailing and the insurance, and the solar and the batteries and the and the SpaceX and the Mars thing, right, and all of this Starlink and the boring company and Twitter, what do I think this is all going? I think this is going to be a massive enterprise, an enterprise like you and I have never seen. A massive enterprise that’s going to take all of these revenue fingers, as my friend likes to call them, revenue fingers, and plug them into this massive thing that everything works together, the solar and the batteries and the cars and the tunnels, and the insurance and everything. And it’s going to be a massive company like you’ve never seen in this world before. And I think that’s why I think the target price in three to four years, by 2025 will be about $3,500 per share for Tesla. Now a lot of that’s going to depend on the market. It’s going to depend on the Fed. And it’s going to depend on our policies, and all of these things. But this guy knows how to run companies. And I wouldn’t bet against him now. And I wouldn’t bet against him in the future. I think Tesla is going to $3,500 a share. I’m not saying that you need to jump on board. In fact, go talk to your broker and go talk to whoever you want. I’m a big investor in Tesla. That doesn’t mean you should be, it doesn’t mean it’s right for you. Here’s my disclaimer, go find your own financial advice, but I’m giving you a case for my opinion about why I think Tesla’s going to $3,500 a share. Hope you like it. Take care.
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