I mean I stand by my prediction long-term you know that that Tesla will be the most valuable company in the world. 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.