Submitted by carsonthecarsinogen t3_ysrao5 in wallstreetbets
Short term noise
A stock falls 5% and everyone screams to buy the dip like a Tostitos salesman, but during a bear market everyone thinks the world is ending. $TSLA has fallen ~50% from ath mostly due to raising rates and all that shit but more recently the blue bird and Elon selling shares to feed the bird.
The twitter purchase is annoying to me for 3 reasons. It takes away Elons time, its already cost a lot of $TSLA stock and he might end up selling more, and it’s causing uproar and extra downward pressure on the stock. But at the end of the day, it’s short term noise. Elon could sell all 420 million shares or whatever he owns and nothing would happen to Tesla the company longterm.
Elon has been more erratic than usual lately, maybe it’s stress maybe he’s actually losing it. Maybe the power is going to his head, or it might just all be an act. Some of those are more likely than other of course, I’ll leave that there. Worst case Elon sells all his shares, tanking the stock and probably getting booted from the CEO spot. Idk if that’s actually how that works but regardless, Tesla would still be okay longterm. In my personal opinion, I think Elon is important to the company. I understand why some disagree, but that’s not what I’m debating here.
”DD”
Tesla recently hit a PE of 56 with a forward PE of 35. Their last 3 quarters of earnings were $8.87b total, with a below average Q2 due to covid shutdowns in China. Q2 was only $2.26b in earnings, so if we assume tesla earns at least that (meaning negative growth Q/Q) 2022 will have earnings of $11.13b. 2021 and 2020 earnings were $5.52b and $721m. That will be another year of 100%+ earnings growth Y/Y. For reference the SP500 current and forward PE are ~19.5 and ~17, growth ~5-10%.
So Tesla is growing and expected to grow earnings ~10x more than the SP500 but is only trading with a PE ~2x. This seems flawed to me. I have done screening and some comparison, but I’m sure some of you could say otherwise.
Tesla is a car company, but it’s also much more. Not only are they leaders within the car industry they are outliers. VW CEO stated the model 3 is made 3x faster than their more efficient factory. The MIC vehicles are sold at ~30% margin, recently dropped to about ~27% to meet Chinese incentives. That’s ~20% higher than the industrial average for ICE vehicles which have higher margins than EV in general for legacy auto. In the US they are ~15% higher than the industry average. They have next to no debt, no dealership model, mobile service which depending on the state is very good or very bad but eventually it will be very good everywhere. If you look at Tesla without the name and not knowing what they sell they don’t look like a car maker.
People love to talk about build quality. Clearly it’s not effecting sales but regardless it’s getting better and it’s actually good in China. And if you think this is a non fixable issues you’re delusional, it’s just not a priority. Cars are still selling, as soon as this changes it will become a priority.
Cheap interior is cheap in cost, and far from “luxury” but it’s durable and practical. For $50k it’s understandable why not everyone loves it, and why some think it’s unacceptable. Not a real issue imo, if it starts reflecting in a loss of sales (after demand drops blow supply) they can easily add some leather and drop margins to make everyone happy again. I don’t see demand dropping below supply longterm anytime soon, especially with cheaper models being announced.
Ford has only had earnings 1 of 3 quarters this year Q2 667m. Forward PE of 7.4, a mountain of debt, transitioning into a new manufacturing process while also scaling down another, low margins, but they are scaling EV production well. Aiming to hit 600k run-rate by 2023.
VW has also put in serious work and has expanded quickly but their numbers are easy to get confused as they tend to combine hybrid and EV sales. They’re earnings have shrunk every quarter of this year. PE and forward of ~5. Selling 366k in the last 9 months, so we’ll assume 500k for the year and growth is ~25% Y/Y.
Tesla can pay off debt with 1/4th of its cash on hand, has industry leading margins 15-20% higher than industry average, and are aiming to grow production at ~50% over the next couple years which they are on track to do. “Some years will be a little less some will be a little more.” Giga Shanghai, one of four Giga factories has a run-rate of 1 million alone.
So the best US manufacturers are shrinking while Tesla is growing production and earnings at ~50% and ~100%. Yet Tesla is trading at ~5x industry av, remember what happened last time we saw economic downturn like this legacy did not do well.
The economy is not doing great regardless of what the ice cream man says. Less people will be buying shit they don’t need, but generally luxury items perform better than regular consumer goods. The people that were stretching to afford a $50k+ car probably won’t be buying in these climates. But someone that had no issue buying will still be buying. Even if it’s worse than we thought and way less people are buying cars, who’s going to last longer, a shrinking non profitable legacy auto company or a small lean extremely profitable Tesla? Obviously tesla will perform better in those climates.
China is a threat to domination, not success. BYD has officially passed tesla in overall sales, and are doing extremely well. They’re moving into Europe, I don’t see them moving to North American markets soon. It’s very easy to do EVs in China thanks to the CCP, and they’re growing extremely fast due to soft regulations and a huge market. I think at least BYD will be a major player longterm and possibly NIO. I’d buy their stock if they weren’t IOUs from the CCP.
I haven’t even touched on their energy business which is growing well and has a new factory ramping, I didn’t include FSD because it’s not close to being solved but I strongly believe Tesla has set themselves up the best to do it, and I don’t consider the sex bot for multiple reasons. Regardless of not including them any one of these has the potential to be worth more than the car business.
Thanks for listening to my TED talk, ik reading is hard. Oh and sorry my bad 😩🚀🚀📈
TLDR: Tesla has so much room to grow longterm, with a forward PE of only 35 I strongly believe it has upside potential even in these market conditions.
Position 33.69 shares (ik I’m poor).
Edit: I know this is WSB, but I just want to point out that there was only 1 comment that promoted conversation on topic. That’s extremely regarded, I’m impressed
Edit2: I give it 1 year, or a solid 3 months of green before everyone love TSLA again. Sheep