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  • Hey, I'm Steven and this is Solving The Money Problem.

  • If you're new, welcome. If you're not, welcome back.

  • Tesla reports Q4 earnings on the 29th January and many of you have been asking for my thoughts.

  • Will Tesla post a profit or not?

  • What will the stock do after earnings?

  • Should I buy the stock before earnings or sell?

  • I can't see into the future but I do have a brain and an internet connection so, while

  • I can't say what WILL happen, I can look at some clues about what MIGHT happen.

  • With sentiment on Wall St shifting dramatically in recent weeks fromTesla sucksto

  • Hmm, maybe Tesla doesn't suck”, the stock has been on a tear.

  • I expected this shift in sentiment as analysts began to wake up.

  • In fact, I predicted it in December in my videoWaiting For Tesla Stock To Dip? (good

  • luck).

  • In it, I confidently laid out the reasons why I believed Tesla stock was likely to trend

  • up over time.

  • Many of those reasons have come to pass and the stock is up more than $200 since I posted

  • the video.

  • With commentary like this, is it any wonder?

  • [He is the new face of an auto executive. With just--that your car becomes an exciting

  • place to be. I love sitting in a Tesla. My daughter loves the flatulence seat. She kept

  • sitting on it, pressing the button--I mean, I know it's a little odd--but the Tesla

  • is the place, it's the third place to be. People love to be in it. And they've got

  • autonomous driving--oh my it's so exciting]

  • [You--just put numbers around it. Let's call today 360-370,000 in terms of units.

  • China could be an incremental 150-200k. That's why the bull thesis, Chinas worth another

  • $300 per share. That's how you get to that sort of uber-bull thesis on Tesla]

  • [Mr Deiss a very, very interesting time for the auto industry. If you take a look at Tesla's

  • market value surging past VOlkswagen. I mean, how do you explain why investors are putting

  • money in a company like Tesla which is uh, not making money yet. Compared to a company

  • like Volkswagen. I mean, Tesla's burning cash. You're making money]

  • [Ya. You know, the market evaluation tells you something about the future--you know--future

  • expectations. And Tesla is--is having a product which basically describes the future of the

  • auto industry. Now fully connected, electric car and so into--there's a lot of evaluation

  • about the future car and I think Tesla is paving the way there. It's--it's uh, modelling

  • something new for the industry. I think we are close to follow, ya. And um, so, uh we

  • are quite optimistic that we still can keep the pace with Tesla and uh, also, at some

  • stage,probably overtake]

  • Today, all eyes are Tesla. Automakers are watching.

  • Wall St is watching. Investors are watching.

  • Is the stock getting ahead of itself?

  • Is it overvalued now?

  • What will Q4 bring?

  • In my opinion, this may be Tesla's most important quarter ever in terms of Wall St

  • sentiment.

  • If Tesla knocks it out of the park, it may add enough momentum to widely shift perceptions

  • fromTesla is doomedtoTesla might win this”.

  • Let's dive in.

  • Records

  • Record deliveries and production have already been confirmed. This was painfully obvious

  • leading in to the end of 2019 yet most of Wall St missed it.

  • What's also obvious is that record deliveries and record production are VERY GOOD THINGS.

  • Profitability & Product Mix

  • Unless there's an extraordinary, unexpected event--or I'm way dumber than I think--it's

  • all but certain Tesla will post a net profit.

  • For one, Tesla has continually found new efficiencies and steadily increased automotive margins

  • on like-for-like vehicles.

  • The exact same Model 3 being sold today is more profitable than the same Model 3 being

  • sold a year ago.

  • Or 6 months ago.

  • Or 3 months ago.

  • This is why Q3 surprised most of Wall St.

  • Yes, the product mix has changed.

  • Q4 2018 saw many more performance Models 3s sold, and higher numbers of S & X which have

  • much higher margins.

  • But Tesla's continuous optimization means margins on low-spec version are growing.

  • Tesla delivered 90,996 vehicles in Q4 2018 and 112,000 in Q4 2019 - 23% increase.

  • Admittedly, these are lower margin vehicles but 23% more of them is HUGE.

  • Bonus Vehicles

  • Tesla delivered 7,109 more vehicles than it produced in Q4.

  • Why does that matter?

  • At $50,000 a pop, that's an extra $350,000,000 in revenue, many of whose costs have already

  • been accounted for in previous quarters.

  • These revenue on these 7,000 vehicles will effectively be VERY high margin.

  • I think this alone may compensate for the lower-spec mix of vehicles sold.

  • Cash On Hand

  • Tesla ended last quarter with over $5 billion in the bank.

  • No doubt some of it has made its way into Gigafactory Shanghai, some into new supercharging

  • infrastructure and other areas of the business but I expect Tesla to remain flush with cash

  • moving forward as they're becoming exceptionally resourceful with capital expenditure.

  • FSD Revenue

  • Tesla has around half a billion dollars indeferred revenuefrom the sale of full

  • self-driving. As new features are rolled out, more of this revenue is recognised.

  • How much will fall in Q4 is anyone's guess but it will be more than $0 and because it's

  • pure margin, it will go straight to the bottom line.

  • Performance Upgrades

  • In late December, Tesla announced a $2,000 “acceleration upgradefor Long-range

  • all-wheel-drive Model 3 owners.

  • How many owners opted for this over-the-air upgrade in the final days of 2019 is unknown

  • but what I do know is that every one of those upgrades is almost pure profit for Tesla.

  • Imagine 10,000 owners upgraded.

  • That would be an extra $20,000,000 to the bottom line.

  • Premium Connectivity

  • Also in December, Tesla announced a $9.99 monthly premium connectivity service to enable

  • features like live traffic, netflix and YouTube.

  • While I don't believe any of this revenue will fall into Q4 due to the billing cycle,

  • Tesla is likely to share details of the take rate on this service and that could have a

  • positive impact on the stock price as it will give us clues about what's in store next

  • quarter and beyond.

  • ZEV Credits

  • It's a low chance but we may see surprise revenue from the sale of Zero Emission Vehicle

  • credits.

  • As we know, Fiat-Chrysler has an agreement to purchase more than $2 billion in ZEV credit

  • from Tesla between now and 2021, with about 80% of those expected to be in 2020.

  • Whether or not any credits were purchased in Q4 is unknown but in either case it's

  • good news.

  • Either Tesla had a bunch of unexpected net income in Q4 2019 OR that income rolls into

  • Q1 and beyond.

  • $2 billion is a staggering sum of free money--enough to build a Gigafactory--and a huge boon for

  • the bottom line.

  • China

  • I'm turning into a broken record.

  • Gigafactory Shanghai was built absurdly fast--in record time.

  • Muddy field to production vehicles in less than a year.

  • In Q3 Tesla confirmed that the Model 3 lines in China were built for 65% less capex per

  • unit of capacity than the US model 3 lines.

  • This matters.

  • Moreover, production ramped so fast that even Tesla bulls were surprised.

  • Expect Tesla to share more info on China.

  • We may hear about current and future production rates, planned expansion, order numbers and

  • most importantly, I suspect Tesla will announce their plans to begin manufacturing Model Y

  • almost immediately.

  • Germany

  • I'll be surprised if we see the Berlin Gigafactory completed before year-end but we'll probably

  • hear a bit more on Tesla's European plans during the Q4 call. Anything other thanwe

  • have been delayedwill be good news.

  • Model Y

  • Rumors are swirling that US Model Y deliveries will commence any day.

  • I'll be shocked if Tesla doesn't announce this on the call by sharing an expected timeline

  • for first Model Y deliveries.

  • We may also hear the first insights around demand.

  • Model Y is way, WAY ahead of schedule.

  • No one was expecting this.

  • Most of Wall St still have no f***king idea that the Y is about to begin deliveries.

  • If you can't read between the lines, too bad.

  • As I've said elsewhere, the Model Y will make tesla billions.

  • The global SUV market is about 30,000,000.

  • The Y is poised to take a nice slice of this.

  • Battery and Powertrain Investor Day

  • I'll also be surprised if Tesla doesn't announce a date for their upcoming Battery

  • and Powertrain Investor Day and drop a few hints as to what's in store.

  • I actually think--from an investor's point of view--this event will be one of the most

  • important in the history of Tesla.

  • We know Tesla's current battery and powertrain technology is absurdly far ahead of everyone

  • else.

  • It truly is embarrassing.

  • Of course, Tesla isn't standing still.

  • Their acquisitions of Maxwell Technology and Hibar Systems shows that they're taking

  • the necessary steps to remain in the lead and more importantly, to scale annual battery

  • output to multiple terawatt hours.

  • Tesla will tell us how they plan to do this at the investor day.

  • My guess?

  • They're going to licence/sell their battery and powertrain technology to other automakers.

  • They may also partner with them to build gigafactories together or licence the gigafactory design

  • to other automakers.

  • Any clues we hear about this will be good news.

  • Solar Deployments

  • In early December, the following email from Elon Musk starting Tesla's top priorities

  • was leaked:

  • "The first is making sure all cars are delivered to their customers before end of year,”.

  • "The second, just as important, is that we immediately increase the rate of solar deployments

  • by a significant degree.”

  • We know Tesla hit the first priority out of the park.

  • What about solar deployments?

  • We'll have to wait and see but that's the point.

  • We already know Tesla's automotive business nailed Q4.

  • Any growth in solar deployments will be good news, and help the bottom line.

  • Battery Deployments

  • Tesla's battery business is by far it's lumpiest, in