Tesla's Growth Engine Misfires

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00:00GIVEN THE THIRD QUARTER RECORD DELIVERIES, THIS WAS SUPPOSED TO

00:04BE A REALLY NICE QUARTER PROFITABILITY-WISE INTO THE

00:09KNOWN MARGIN CHALLENGES FOR NEXT YEAR WHERE WE LIVE LIFE

00:14WITHOUT REGULATORY CREDITS DEMAND BECAUSE THE EMISSIONS ARE

00:18GETTING RELAXED IN THE U.S. AND ALSO WITHOUT THE $7500 CONSUMER

00:22TAX CREDIT FOR THE PURCHASE OF EVS.

00:26THAT IS A LITTLE BIT OF A LITTLE BIT OF A LITTLE BIT OF

00:32CHALLENGES FOR TESLA IN THE NEAR IN THE MEDIUM TERM FUTURE.

00:36SO THE THIRD QUARTER WE HAD THE PULL FORWARD IN DEMAND.

00:40I THINK WE ALL EXPECTED BETTER AUTOMOTIVE GROSS

00:42PROFITABILITY IF WE EXCLUDE THE CREDITS AND IT SIMPLY JUST

00:45DIDN'T COME THROUGH. WE ONLY SAW 40 BASIS POINTS OF

00:48MARGIN EXPANSION VERSUS THE SECOND QUARTER WHICH WAS A

00:50VERY MUCH CHALLENGED QUARTER. MY QUESTION, I TALK TO ED

00:54TODAY, I ASK, WHO CARES ABOUT CAR SALES AT TESLA?

00:58THIS IS A $1.5 TRILLION COMPANY.

01:00THAT IS NOT A CAR COMPANY'S MARKET VALUATION.

01:02THAT IS RIGHT. THE PUNCH LINE TO MY PRICE

01:06TARGET VALUATION, WHICH IS ABOUT 30% BELOW THE SHARE

01:08PRICE, IS THAT 75% OF TESLA'S VALUE IS TIED TO ROBO TAXIS

01:12AND THE OPTIMIST ROBOTS. THAT SAID, THERE IS STRONG

01:18DIRECTIONAL CORRELATION TO THE STOCK PRICE AND AUTOMOTIVE

01:22GROSS PROFITABILITY. THAT IS, I THINK, EXPECTATIONS,

01:26CERTAINLY MY EXPECTATIONS ARE FOR THE GROSS MARGINS FOR AUTO

01:30TO COME DOWN NEXT YEAR. CONSENSUS FOR FREE CASH FLOW

01:42NEXT YEAR IS OVER $4 BILLION. I AM BARELY ABOVE BREAK EVEN.

01:46THERE IS A MASSIVE GAP IN THE POTENTIAL DOWNSIDE FOR NEXT

01:48YEAR.

01:49WHICH IS WHY, BECAUSE EVERYBODY WHO WANTS AN EVY HAS ONE.

01:53THE KIND OF PEOPLE WHO BUY EVYS DON'T LIKE ELON MUSK'S

01:56POLITICS. THEY HAVEN'T PUT OUT ANYTHING NEW OTHER THAN THE

01:59CYBER TRUCK SINCE, LIKE, 2010.

02:02YEAH. TO TESLA'S CREDIT AND WHAT I HAVE IN MY MODEL, I DO HAVE

02:07VOLUMES QUITE RESILIENT NEXT YEAR DESPITE THE $7,500 TAX CREDIT

02:12GOING AWAY. THAT IS BECAUSE OF FULL SELF-DRIVING.

02:15I DO THINK TESLA IS FAR AHEAD OF THE COMPETITION FOR THEIR

02:20HANDS-OFF AND SOON MAYBE EYES-OFF DRIVING CAPABILITY.

02:25SO I DO THINK THAT IS THE DRIVER TO DEMAND.

02:29BUT IT IS GOING TO COME AT A COST. PRICING WILL COME DOWN.

02:34AND THE COMMERCIAL, THE EARLY COMMERCIALIZATION OF ROBOTAXI AND

02:39OPTIMUS IS GOING TO HAVE COSTS ASSOCIATED WITH IT.

02:42AND THAT IS WHAT ALSO DRIVES LOWER PROFITABILITY.

02:46YOU SAW THAT IN THIS QUARTER, RIGHT?

02:48THERE WAS A BIG HIT ON OPERATING EXPENSES BECAUSE OF THE AI.

02:52BUT IF TESLA IS VIEWED IN THIS MARKET MAYBE MORE AS A TECH

02:55COMPANY, EVEN THOUGH YOUR PRICE TARGET DOESN'T SEE IT THAT

02:57WAY, WE'VE SEEN OTHER TECH COMPANIES BE REWARDED FOR

02:59SPENDING MORE. THE MORE YOU SPEND ON AI, THE

03:01MORE AHEAD YOU GET IN THE RACE OF WHATEVER IS GOING ON.

03:04DOES TESLA NOT GET THAT BENEFIT OF A DOUBT THAT IT NEEDS TO

03:07SPEND IN WHATEVER THIS AI FUTURE IS GOING TO LOOK LIKE?

03:10I WOULD SAY THEY GET A SUBSTANTIAL BENEFIT OF THE

03:14DOUBT. WHAT I'VE DONE IS TAKEN A LOOK

03:18AT THE MAG-7 GROUP, WHICH TESLA IS A PART OF.

03:22THE AVERAGE MAG-7 MARGINS ARE 30%, PLUS OR MINUS.

03:29NVIDIA IS THE HIGHEST MARGIN AT AROUND 60% OR 65% EBITDA

03:33MARGINS. TESLA IS GOING TO BE AT 15%

03:38NEXT YEAR. IF YOU FAST FORWARD TO WHAT THE

03:422035 VERSION LOOKS LIKE, WHICH I'M GIVING THEM

03:46SUBSTANTIAL SUCCESS IN THAT VIEW, THEIR MARGINS ARE STILL

03:49ONLY AROUND 25%, WHICH WOULD BE THE LOWEST AMONG THE MAG-7.

03:55SO I DO THINK TESLA IS GETTING A LOT OF CREDIT ALREADY AS A

03:58TECH COMPANY. CAN I ASK ABOUT FORD?

04:01IT'S COMING OUT AFTER THE BELL. YOU HAVE NOT GOT AN OUTPERFORM

04:05ON THAT STOCK. YOU DO ON GENERAL MOTORS, WHICH

04:08OBVIOUSLY THE STOCK CRUSHED IT OVER THE LAST COUPLE OF

04:10SESSIONS. BUT YEAR-TO-DATE THEY'RE STILL LIKE

04:13NECK AND NECK AT 25%, 26%. WHAT DO YOU EXPECT FROM FORD?

04:16THE ISSUE I HAVE WITH FORD IS VALUATION, WHERE THEY ARE

04:22TRADING AT A FOUR TO FIVE TIMES PE PRICE TO EARNINGS PREMIUM VERSUS

04:26GM.

04:28TYPICALLY THEY TRADE AT A ONE, ONE AND A HALF TURN PREMIUM.

04:32THE VALUATION IS ALREADY STRETCHED, AND I WOULD NOT

04:36EXPECT TONIGHT FOR A SIGNIFICANT GUIDANCE RAISE FROM FORD.

04:40WE DID SEE ONE WITH GM, AND OF COURSE THAT REFLECTED IN THE

04:44STOCK REACTION.

04:46WHAT IS THE PROBLEM? WHY CAN'T FORD, BECAUSE THEY

04:49MAKE EXPENSIVE BIG TRUCKS TOO?

04:52SO FOR FORD, THEY HAVE AN ALUMINUM SUPPLIER THAT THEY'RE

04:58SPECIFICALLY EXPOSED TO. THIS ALUMINUM SUPPLIER HAD A

05:02PLANT FIRE. THAT WE ESTIMATE IS GOING TO

05:05DRIVE ALMOST 40,000 LOWER VOLUMES IN THE FOURTH QUARTER.

05:08SO THAT'S GOING TO BE, YOU KNOW, KIND OF OFFSET.

05:13I DO, I WOULD EXPECT FORWARD TO HAVE A HIGHER, A BETTER TARIFF

05:18OUTLOOK. GM ALSO SHARED THAT.

05:20SO I THINK THAT'S A POSITIVE FOR FORWARD, BUT THEN THAT GETS

05:23OFFSET BY THE FOURTH QUARTER ALUMINUM SUPPLIER.

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