I mean I stand by my prediction long-term you know that that
Tesla will be the most valuable company in the world.
That is what Elon Musk just said, December 22nd.
So that was very recent just this month, he repeated his
prediction again that he thinks his company.
Tesla will become the most valuable company in the world.
Now, he's even made comparisons that he thinks it will become
worth, more than Saudi aramco, more than Apple and more than
all these other companies combined a Massive
multitrillion-dollar market cap company, and these predictions
are ones that lots of people. Hold, we have Steven, from
solving, the money problem, a very popular Channel on YouTube.
He's basically all in on Tesla. That's been as portfolio for a
long period of time. I think he's done really well on
it. And his prediction is that Tesla
like Elon Musk. It will be the most valuable
company in the world with a multitrillion-dollar market cap.
We have Jeremy from Financial education, just putting out a
video. I think yesterday where he gave
his base case for Tesla Implying that it would have 50 billion
dollars of net income. And again have a multi-trillion
dollar valuation. So I'm aware I'm surrounded by a
lot of YouTube channels that are very bullish on Tesla.
They think this company is going to be massive, it's going to be
huge. They have lots of reasons to
back that up and that comes at a time where the stock is down.
Big, it's down 72%. So naturally, a lot of people
are asking the question. Is this a good time to be
jumping into Tesla? And I've asked the same
question, I've come to a different conclusion, so I'm
hopeful that in this So I can share an opposing view about
Tesla of why I'm not buying the stock without being labeled a
hater. I don't have anything against
anybody that's invested in Tesla.
I don't think there are dumb or stupid or anything like that,
but I think it's good to hear opposing viewpoints with any
company. And I think if you get into the
attitude of only hearing viewpoints that reaffirm your
biases, it can cause a little bit of an echo chamber.
So, in this video, I'm laying out, why?
I'm not investing in Tesla, why? I think this company has way
more risk inherent in the investment.
Most investors are giving it credit for.
I think it's a much riskier investment than most people
realize and this is something that I've done routinely and I
hope these videos are valuable. I hope these different
contrarian view points are valuable.
I've done something similar with palantir when it was trading
around $30 per share. I made a video about why I'm not
buying it. I think the company had a lot
more risk. I think investors are too
enthusiastic. I think they're predicting too,
good of a future for it. Pounders like six or seven
dollars a share down its down 70% during the peak of Arc
invest hype. Be wary of 2021.
I made a video warning about Arc, invest how I thought it
would have low perspective. Returns it's down to 80% since
that video and so I'd like to make these opposing Viewpoint
videos because I think they can be helpful when you're doing
research. And I think this one will be
helpful to consider even if your Tesla investor.
That would be the Hope here. So let's go ahead and Jump Right
In will bring up Tesla here. And the big thing that's drawing
attention to test the stock a recently is both at the CEO,
obviously, Elon Musk is an attention-grabbing person.
Tesla Is an attention-grabbing stock.
It's always been that way, but especially so over the past six
months because of the breathtaking fall of the
company. Now, I've seen a lot of dramatic
Falls of companies. We've seen meta, we've seen
PayPal. We've seen Netflix, we've seen a
lot of companies fall, but none quite like Tesla, because the
size of this company was massive, a trillion dollar
market cap and it's down 73 percent year-to-date.
And then if we look at it in, just the past 90 days, three
months, it's down 59%, Don't we look in the past month.
One month, then it's down. More than a percent that day
down 40%. This is a breathtaking dramatic
fall and there's been a lot of finger-pointing people blaming
Elon Musk, Elon Musk blaming the fed and the, you know, it goes
on and on people blame different things but regardless, that is
why people are focused on Tesla. Now, what does this fall do?
Of course, it makes the valuation cheaper for Tesla.
So people are wondering now, they should buy the dip for the
company and I think that question that one question.
Is reliant on one other question.
The other question of whether or not you should buy, the dip is
reliant on. The question is Tesla, a car
company. This is an important question
for Tesla investors. Listen to Gene Munster call in
on the phone for CNBC I think he accurately portrays this
question which of the panelists talked about this today but is
this a tech company or a car company?
And I think that to me is the bigger question.
If you think it's a car company, you shouldn't own.
It this means that they're going to have minimal market share.
Share that their margins will go away.
That other companies are going to catch up to them.
If you think they have some sort of a competitive Tech advantage
or on manufacturing, whether it's FST batteries that will
yield higher margins than typical.
And there's a massive Market doesn't getting into so Melissa,
80% of this is the vortex over the next month.
I think the bigger question investors should be asking here
is this the car or tech company? If you believe it's a tech
company I think you should own it here despite what the the
sock is trying to tell us and think long term, it goes higher
and to Stan, why this question is so important of whether or
not Tesla's a car company or a good tech company is because of
the implications in those definitions.
If you're to break down the differences between a good tech
company in a car company, it looks something like this.
Good tech companies have high Returns on Capital employed,
they're typically asset light, they have high gross, margins,
High profit margins, High operating margins, they have
reoccurring Revenue, they're highly scalable.
They also have high barriers to entry large Network effects.
They have a lock in creating a note.
This is what defines a good tech company.
Now, a car company. On the other hand is very
different car, companies are not good companies period, it's not
a good industry, not good. Place to be car companies have
low Returns on Capital employed, that's also very sporadic car.
Companies are capital intensive, they faced intense competition.
They're highly cyclical. They're sensitive to the
economy, they sell a product, that's not a reoccurring
purchase rather. It's a one-time lumpy expense
that the lifespan can be extended for you.
Years during economic slowness, overall car companies are bad
businesses and their different than tech companies.
That is why they trade differently from tech companies.
An example of this a great example is Ford a car company
for trades at the same price it did in 1987 over 30 years ago,
the only gains over that time period is basically, the
dividends that spade and that has not kept up with the market
Ford's earnings per share. Not a compounder.
They don't just continuously grow over time, rather, they're
highly cyclical and Suitable Ford's Returns on Capital
employed, overall are incredibly low, most of the time, be lower
the cost of capital and more than that, they're also highly
cyclical. This company never knows whether
the Investments it makes are going to be profitable.
And again, the sensitivity to the economy market Cycles.
Make this company overall with its Investments, very
unpredictable, even Ford's revenue is not very stable.
It typically goes down a lot during recessions and takes a
long time. Period to recover.
Now, investors realize all of these things with Ford and it's
priced appropriately. Really four trades below a
commodity multiple of a 12 forward P/E, that means that
investors are literally pricing it as a wealth destructive
company, a company that does not create wealth above the cost of
capital, the pricing a day, seven forward P/E.
So all of these various concerns with Ford the cyclic ality the
sensitivity to the economy, the low Returns on Capital employed.
The historically, bad performance are being priced
into the stock, by investors it trades at a below, commodity
multiple with this seven forward P/E.
A very low multiple. And for again, is not
cherry-picking, it's not unique in this, this is the car
industry companies like GM trade at a 64 PE, because they suffer
from the very same thing. This is an industry-wide problem
with these Investments. Now, the big outlier here, of
course is Tesla. This company does not trade at a
six or seven forward P/E ratio, even after the dramatic 72%
sell-off year-to-date, 50% over the past three months, the
company still trades at a 28.8 forward, P/E ratio, Which is
four times as much as GM and Ford four times the price for
this company's next year's earnings and that's what raises
this big question of if Tesla's different than other car
companies. Because if Tesla is the same
around the same as other car companies, it deserves to fall
in price by another 70%, that's the implications there.
So we have to show that Tesla is different than other car
companies by a substantial amount to be trading up four
times a multiple. So let's go ahead and jump into
this. Question is Tesla different than
a car company. Well, a lot of people attribute
different The Buttes to Tesla one of them that I heard really
frequently six months to a year ago was unlimited demand.
That was one of the biggest talking points from Tesla bowls.
I've heard it over and over and over again, Tesla doesn't have
demand issues. It sells as many vehicles as it
can produce, it's only limited by the amount of vehicles.
It can produce. In fact we have people with
interviews. One year ago that say this
pretty explicitly. Here's one of the most notable
Tesla analysts who is pure. They have unlimited demon so far
Six months, wait times for all cars, unlimited demand so far,
six months plus wait time. That's not a random clip.
I'm not cherry picking here. I could find a dozen two dozen
clips of people saying the same thing on CNBC Tesla, both saying
the exact same thing Tesla has unlimited demand unlimited
demand, unlimited demand. Now what's happened over the
past year? Well it seems like the unlimited
demand thesis that part of the thesis is starting to vanish.
It seems like there's a little bit of cracks in that unlimited
demand Tesla. Sure.
Those are sliding on demand concerns, we have articles going
back, just a couple of months saying that there's a lot of
price Cuts with the model 3 to try to make it so that it can
sell their current Vehicles. They're they're cutting down
prices, which is a clear indication that they have a
lower demand companies, don't lower prices because they have
unlimited demand. Then we have other reports of
Tesla not only cutting prices but actually cutting output.
So they're out right, sizing down the amount of vehicles,
they're producing again. The only reason they do this is
because of demand issues now even though you don't hear this,
The thesis is much anymore because it's starting to be
diminished a little bit. Keep in mind, this was a central
thesis of many Tesla investors just one year ago.
One year ago, the story of Tesla and why it was different than
other car companies? Is it had unlimited amounts of
demand and we're just seeing that not happen.
It seems like Tesla is starting to act and behave like other car
companies with demand limitations and it's starting to
act like a cyclical company. That's sensitive to the economy.
We know what's going on right now.
The situation has changed for the economy.
We have the car dealership guy on Twitter.
That post a lot about the car industry.
Sing imagine, you're a 750 plus credit score rating, which is
the highest score. Now, imagine you come to buy a
car and I offer you a nine percent APR puke Emoji.
Rightfully, so who wants a nine percent interest rate on an auto
loan? I don't need to say much more.
High rates are killing the car business right now.
They're crushing it. A year ago, the unlimited demand
was closely tied to unlimited amounts of capital.
You could get car loans for one or two percent.
I have a loan for a car that is 2.1 percent.
It's about as cheap as money can get, I get more in a savings
account. Now that's change that window of
opportunity. For all these car, companies has
vanished, the FED jacked up, interest rates so high, and it's
going to take a while for them to come back down.
And we're seeing this affect every car company used cars and
the auto business as a whole. Oh, and what we're not seeing is
Tesla being spared from these effects.
We're seeing Tesla be affected by them, with both price, cuts
and demand problems. We're seeing in the data itself.
Used car prices, go down month. After month.
After month, this does have an impact on the overall car
industry and I think a lot of investors are forgetting.
If you can't get cheap interest rates on car loans and it goes
from 2 percent to 9 percent your car.
Payment goes up dramatically, most people can't afford that
they simply can't afford a thousand.
Fifteen hundred dollar car payment.
They could afford a five hundred dollar one or a four hundred
dollar one. But once it gets into the
thousands that is unaffordable for most families and they're
not going to be buying used luxury vehicles or new luxury
Vehicles when they can't get cheaper Credit.
Now to add on to those concerns. That brings me to the next part.
If Tesla's not a car company and it said, a different company, a
different entity, a really quality tech company.
Then it's not going to be as economically sensitive as most
car companies, but I don't know if that's going to be the case.
I I really am unsure about that. I think Tesla may be about as
economically sensitive to the economy.
As most car companies, not only is it affected by interest rates
but economically sensitive companies have a wealth effect.
We have home prices, going down month after month, after month,
when home prices go down, it makes you feel poor.
When you feel poor, you don't buy high-end premium Vehicles,
we have the stock market going down dramatically the S&P, 500
down, 20 plus percent that QQQ down 30 plus percent that as a
massive wealth. Fact, people feel poor this year
than last year. And again, if most people feel
poor, most people are going to be more reluctant to buy premium
Vehicles. So I look at the whole situation
here and I ask myself is Tesla really that much less
susceptible to the overall economy than most car companies
and I just don't know. But I think it's very risky and
I think most investors are assuming that it's not when
there's a good chance that it is that it's going to be just as
susceptible as most other car companies.
Now we bring up the next point of the question as Tesla,
another car company. Of the big moat advantages that
lots of Tesla bulls have cited. Is that Tesla has a unique
Advantage with their Giga factories and with their
manufacturing prowess. They basically are so
sophisticated. And so Advanced with their
robots and Manufacturing process that they can manufacture these
vehicles for a cheaper price, which raises their margins
overall and Tesla has gone to Great Lengths to sort of show
off their, their Advanced manufacturing.
With these really slick Productions.
Look at this video here. This is from the Ella YouTube
channel. By the way, I just find this
stuff so amazing and fascinating, what we're able to
create, its it is incredible. I have to give Tesla engineers
in the robotic Engineers. I mean, this stuff is just
fascinating. You know, I'm thinking about how
they're filming this. Do they have some, like
world-class drone flyer in here. Just going in between the
machines, hoping not to get stamped by one of them
impressive. They got someone good with a
drone here I really think so The Tesla gigafactory is in their
manufacturing process is legitimately incredible and I
know why they would want to show this off because it's incredibly
impressive to show what they've done and what they've
accomplished. But again the question here is
not if Tesla's impressive but if it's different than a car
company, let's go ahead and look at another Factory.
This one happens to be by Ford. This is a walkthrough of a Ford
factory by the YouTuber jerryrigeverything and they
invited him in. They don't have a fancy drone
with an incredibly skilled pilot for that drone.
But rather they just walked through and he filmed some of
the process here. Now it looks like Ford has like
a different color scheme of hair.
A lot of it is this yellow and orange but if you look at the
robotics I think it's I think it's pretty neat.
What Ford was able to do? They have similar to Tesla these
gigantic hydraulic robots Basically assembling every
single aspect of the car. In fact, watching this entire
video, you realize how little humans are doing now.
Now not only does it actually assemble it and build it, but he
goes on to describe how this little robot hair with that
camera goes around and takes pictures of all the different
parts of the truck to make sure that every single component is
in the exact right spot. If it's off by 1 cm, they'll
have a human common inspected and look at what's going wrong
with it, because they can actually do the checking with
robots and cameras. Then they move it, the move it
along with this big robot here, that basically Scoops.
The truck up and moves it along and it goes through the assembly
process, humans, do part of it. They just make sure the robots
are doing their jobs. The humans do very little in and
of themselves and this is the process.
When I looked through Tesla's, gigafactory, I think it is
incredibly impressive, but then I looked through Ford's
factories and I think, again, they're incredibly impressive.
And I think you should do the same, especially if you're a
Tesla. Take a look at this video from
jerryrigeverything. I'll put it in the description
of this video. Watch the whole thing.
It shows the entire process beginning to end and almost
everything is done by robots. They eventually test the truck
and case it has any leaks and any part of it.
They actually spray it down with water just to make sure no Park
gets wet. And then after a test drive by
an employee, that's when it's finally good to go.
It's cleaned off and you have the Ford electric truck there.
So when I look at Ford's manufacturing process and I see
that it's also very impressive and almost entirely done.
By robots. I asked the question is Tesla
that much different than Ford even in the manufacturing
process. Now I'm no manufacturing expert.
Maybe there's some differences, I'm missing.
But when I look at both, the factories and the walkthroughs
of both of them, it looks like almost everything in both
factories is being done by robots, completely automated.
And the big idea here, that Tesla's entirely different than
Ford because of the manufacturing process.
I don't know. Again, it's something that I
think is a little risky. I don't know how different they
really are to me. Look very similar.
So we have the thesis part 1 Tesla is different than a car
company because it has unlimited demand.
I don't really think that's the case.
I think we're seeing that Tesla's, more similar to other
car companies with limitations to demand and economic
sensitivity. Then we have thesis part to
Teslas different because of its manufacturing prowess.
Again, I'm not really seeing a huge difference there.
Maybe I'm missing something but they look very similar to me.
Let's move on to Tesla thesis part 3, full self-driving
Tesla's, a tech company. Penny and not a car company
because of its Advanced full self driving and the
availability the capability of their cars to be upgraded even
after you buy them. So let's take a look together at
the full self driving. This is something that really
would separate Tesla from any other car company.
Now, luckily through the magic of YouTube, we have some content
in some video footage on this as well, for Marcus Brown's
Channel. It's a Great Tech reviewer.
One of the most popular ones, but he actually did a full
self-driving, full drive like a 20-minute.
Plus drive on his way from his home to work where he films in
his studio and I really liked him doing this because I think
that he gave a very transparent honest review of this.
I thought it was very straightforward and he describes
the pros and cons of it. Now this is him on the freeway
and he says that the best part of full self-driving, where it
has it down? Best is on the freeway but he
still describes the challenges with full self-driving, get
stressful. I'm going to show you actually
what it's showing me on the screen which is its kind of
picking a spot. Right now.
Wow, that is assertive. That was in assertive move right
there, okay? That qualifies as assertive.
So he's saying it's assertive Tesla.
It was trying to get into the slain it needed to.
So it really cut in and front of someone a very assertive move.
So it goes through this drive narrating.
It and Marcus says repeatedly that right now full self-driving
would not be able to make this drive without his interaction,
with out him watching the vehicle.
So even though it's called Full self-driving, that's the label
of it. It's not really full
self-driving. It's more like a helpful tool to
drive but you still have to be on guard watching the car in
case it screws up. In fact in one part here that
we're going to watch this is where he had actually interject
and take over the car because it was about to do something.
He didn't want it to do something that would not have
been good which is like 2 to 5 and then 5 to 2.
Now it's gone. This is not going to work.
If it doesn't see that it's yet their Zone here.
It's not hard. Is it strong?
Yeah, I'm taking over so, that was bad.
There's a cone over there. I took over and I also need to
be back over to the right, which this car didn't.
Now he's having to cut like across the utilization.
Is the second link here. So I'm going to go back into the
correct Lane here. Now again I'm not trying to bash
full self-driving. What they've accomplished so far
is amazing, but this really isn't full self-driving.
He has to be on guard and on watch the entire time.
He's making this drive and in some cases what I've heard from
feedback from people, I know personally that own Tesla's have
a couple friends and people that I work with the onnum, they say
that in some cases full self driving from Tesla, is almost
more stressful than just driving yourself.
It's almost like having a student driver.
It gets it, right? And most cases.
But you still have to be on guard, you have to be ready to
take over the steering wheel because they might make a dumb
choice and so you're almost on more guard and more stressed out
than if you're just driving yourself.
That's the feedback that I've often received.
In either case, Tesla does not have full self-driving.
Full self-driving would mean that you can punch in a
location, you can recline in your chair, close your eyes, or
you can recline and watch YouTube or Netflix, and not even
worry about the road. That's the true definition of
full self-driving. Tesla simply isn't there in
fact, because The term full self-driving is a bit of a
misnomer, it's kind of an overstatement for its
capabilities. California has outright banned
Tesla from calling it, full self-driving saying they cannot
sell it under that label anymore and that's one of their biggest
markets. So the full self driving aspect
of Tesla is cool. I think it's very impressive,
but I don't think it's a home run right now.
It's not gotten to the last step of being, totally fully
autonomous and not having anyone have to interact as it's
driving. And at the same time, again, if
we're asking. The question between the Tesla
and different Vehicles. A lot of vehicles can Aid
drivers on the freeway, just like the strongest point of full
self-driving. There's many cars now that have
cameras and sensors and they realign trucks.
They rely on cars. If they're starting to go off
the road, they warned about trucks.
They'll automatically press the brake.
If you get too close to another car, I've actually seen that
happen. We're a non Tesla vehicle slams.
The brakes because a car in front of it is getting too
close. Now this probably is not as
advanced as Tesla by any means but it is Their cars outside of
Tesla's are doing some of these functions.
Now, again, the problem for Tesla right now is that, if it's
not full self-driving than it's something other than full
self-driving and that has huge implications, Tesla cannot run a
robo taxi Network, they can't have the massive economics,
implied in a lot of valuations, unless they get to that end
point where they really have fully autonomous full self
driving at the same time, there's been a lot of
predictions. A lot of promises from Elon Musk
at this is right around the corner.
This is Back in 2014 next year we'll probably be 90% capable of
autopilot. Like so 90s, the model S and
model X. At this point, I can drive
autonomously with greater safety than a person.
Right now, we're still on track for being able to go
cross-country from LA to New York by the end of the year
fully autonomous. But next year for sure We'll
have over a million Robo taxis on the road, I'm extremely
confident of achieving full autonomy and releasing it to the
Tesla customer base. Next year, Tesla will solve
level for FSD, okay? It's looking quite likely that
it will be next year. So Elon Musk has been making
these repeated promises a full self-driving.
Going back all the way to 2014 every year.
It's a year down the road or by the end of this year.
They're going to make the next big break.
Through with full self driving. Here we are in 2022.
Almost in 2023, we have Marcus Brownlee driving his Tesla. 20
minutes from his house to work, and you have to take over the
vehicle twice, two times in 20 minutes.
That's not close to full self-driving.
It's impressive but it's not full self driving.
Now, maybe he'll get it right next year and that'll be the
year that it actually has full self-driving.
But as of right now with the data that we have people drive
Tesla's, not the car, the card, Not drive itself and people
drive forwards. They drive Ford trucks.
In both cases, people are driving the vehicles.
People have their hands on the steering wheels.
People are breaking. People are looking through the
windshield and making judgment calls and even if the Tesla can
do some things to Aid in the driving, it's still people that
have to be watching over it. There are legally mandated to
make that happen. So again, looking back on all of
this, I'm not trying to bash Tesla.
That's not my goal here. I think it's an amazing company
and I think it's incredible what they've accomplished.
I'm glad The company exists. But when you're paying for a
stock, you're paying a price a set price for the market cap.
Right now, Tesla's at 350 billion dollar company and a lot
of the thesis surrounding the implied market cap.
And these huge predictions about a multi-trillion dollar company
or an Elon. Musk's words, the biggest
company in the world. I think it's difficult to get
behind it. At least for me I don't see
Tesla's having unlimited demand. I see them being affected by
interest rates and being sensitive to the economy.
I See Tesla's, manufacturing process is all that different
than competitors. I don't see.
Full self-driving is really being full self-driving.
I see it as something cool but it's not autonomous driving
quite yet. And I think the company's
valuation implies something that I'm not seeing what the
fundamentals of the company. And if Tesla is a tech company,
we can compare it from not even car companies, but we can
compare it to other tech companies.
Let's compare Tesla to Adobe, for example, Adobe trades at a
cheaper price based on next year's, PE ratio even if Tesla
outperforms and does five dollars in earnings per share
next year, hire the most analysts, expectations, Adobe
still cheaper. It's still trades at a lower PE
ratio. Adobe has a much higher free
cash flow yield. So for the price, you're paying
for the market cap, you're getting a lot more actual free
cash. Flows Adobe has incredibly fast
growing Revenue. Very Tesla like Revenue.
But the difference is is adobe's.
Revenue is almost entirely reoccurring.
It's almost all subscription-based test Is off
of large, lumpy sales of vehicles, which are difficult to
sell during economic slowness. We have adobe's free, cash flow,
credibly good. Hi free cash.
Flow growth and low amounts of stock-based compensation similar
to Tesla, but again, very good, free cash flow growth.
While being subscription-based and not.
Having as much cyclicality, Adobe has been doing, share
BuyBacks while Tesla has been diluting the shareholder.
Issuing more shares. Adobe has higher Returns on
Capital employed by quite a bit Dobby has higher gross.
Ian's Dobby has higher operating margins, Adobe has higher profit
margins, all across the board, and they're very consistent
because, again, it's a subscription tech company
selling software. So I don't know what I'm missing
here. But when I look at this, I'd
rather just buy something like Adobe.
Then something like Tesla. That's my thoughts for now.
I hope you enjoyed the video. Let me know what you think.
See you in the next one. Ian's Dobby has higher operating
margins, Adobe has higher profit margins, all across the board,
and they're very consistent because, again, it's a
subscription tech company selling software.
So I don't know what I'm missing here.
But when I look at this, I'd rather just buy something like
Adobe. Then something like Tesla.
That's my thoughts for now. I hope you enjoyed the video.
Let me know what you think. See you in the next one.