Tesla reported earning on 26th Jan 2022 and despite beating estimates with record delivery and more than $2 billions in profits, Tesla’s share price closed 11.55% lower on the following trading day (27th Jan 2022).
This is an enlightening 38-minute video where fund manager and long time Tesla bull Gary Black explained why Tesla’s share price dropped after a stellar quater of earnings.
If you do not have the time to watch this video, this is a summary of what was covered:
The $25,000 Tesla car, which investors were expecting was not the focus for Elon Musk come 2022 and 2023. Instead, the Optimus humanoid robot aka Tesla bot will be the priority for Tesla this year.
The change in focus from EV (Electric Vehicle) to robots worries portfolio managers, and as Gary Black describes, is akin to Tesla going into the restaurant business.
It will be difficult for portfolio managers to put numbers to Tesla’s future balance sheet because there is so much unknown about robots, such as the TAM (Total Addressable Market) or the functions that the Tesla Bot will serve.
Much has been said about Tesla being more than just a car company. It has the energy segment, FSD (Full Self Driving), insurance and in the future, they will finish developing their own 4860 battery that can significantly reduce battery costs, deliver the highly-anticipated cybertrucks and create the robo taxi fleet due to FSD being fully functional and widely adopted.
However, it is worth noting that Tesla’s solar energy segment is still not profitable and has lost $50 millions in Q4. Also, Tesla’s FSD is not the monopoly in the market as there are other competitors such as Waymo, Mobileye, Cruise, all trying to get ahead of Tesla in autonomous driving. Mercedes-Benz has achieved level 3 autonomous driving (hands-free on the highway) as compared to Tesla which is at level 2. Tesla’s FSD take rate is also declining whereas the price is set to increase.
As investors are now in risk-off mode due to fears over interest rate hikes, recession, negative GDP, they are likely to stay away from high P/E stocks such as Shopify, Nvidia, and Tesla, unless Fed changes their mind and become less hawkish with regards to raising interest rates.
Gary Black reiterated that his price target on Tesla remains unchanged at $1,600 for 2022 as demand for Tesla’s vehicles remains high and they are ramping up production through their factories. Also, the world’s EV adoption is only at 6%, which means there is still a huge market ahead for Tesla.
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