An Unreal Price Target

As-salamu alaikum, everyone. I hope you are doing well. Had a really good day in the markets today and the Hamdulah, tomorrow we have a big day for Tesla, one of our core positions in PIF portfolios. And big day is because shareholders will be voting, are voting right now and the vote will end. They'll be voting on Elon Musk's pay package, which I think will be approved. I think it's pretty obvious that it will be approved. Because the people who own shares of Tesla are typically fans of Elon Musk. Not only that, I think the shareholders of Tesla recognize the value that Elon Musk brings for Tesla. And the fact that if his pay package is not approved and there is questions about his continuing with Tesla, that's going to affect the price of Tesla shares. And so the value of their investments will go down. The value of their investment in Tesla will go down. So I don't think shareholders are going to shoot themselves in the foot and downvote this pay package, which by the way, what is in my view totally well deserved. The pay package was almost entirely performance based. He had to reach targets that were at the time when the pay package was approved, seemed to be unreachable. He accepted these very challenging terms. And I think it makes sense for shareholders. After all, this value was created for them for shareholders to honor his pay package. Today, Arc came out with their price target for Tesla. And so I'm going to go over what they basically assumed to arrive at their price target and what their price target actually is. And I actually think in some areas, they were perhaps a bit too generous, but there is a elephant in the room that should be addressed with regards to their price target. So without further ado, let's get started. I want to make an announcement. 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That being said, I think there are, especially with version 12, their most recent edition or upgrade for a full self driving. I think there's there's more and more reason to believe that this Robotaxi network is going to be commercialized sooner rather than later. And, you know, I've experienced it firsthand. I really suggest that people who haven't experienced it firsthand. And now you can actually go to any Tesla. They have a lot of Tesla test driving centers and you can actually experience full self driving as someone who is just interested in it. You don't necessarily have to be an owner. So I highly advise in order to really appreciate this opportunity, I highly advise people who haven't experienced it to experience it. It's quite breathtaking. Now the regulators, I think, are going to find it very tough to ignore the safety record that full self driving has been able to accumulate for itself. So if you look at the national average for miles per crash, so the number of miles driven per crash on average nationally. That's 192,000 miles driven before you get a crash on average. When Tesla FSD is engaged, full self driving is engaged in a Tesla number of miles on average. For each one crash is 3.2 million. So you have 15, 16 times more safer results for Tesla in FSD. And this is in 2023. I'm assuming this difference has gotten even larger now with the recent updates. And by the way, these updates to full self driving are happening more frequently as well. So the compute power of Tesla has been increasing exponentially and that has allowed them to release software updates more and more frequently. Now, in terms of competition, so okay, if we assume FSD is where it needs to be in the next 12 months, obviously the safety record speaks for itself and is pretty hard to argue with if you're a regulator. What about competition? What about other people? Other companies that are going to try and take a piece of the full self driving pie. Well, if you look at the data that is being accumulated by Tesla, it's 110 times the accumulation rate for Tesla of this data is 110 times larger than it is for Waymo. A lot of people ask me, oh, hey, what about Waymo? What about Cruise? What about these other companies that are in this full self driving space they're trying to compete? They don't stand a chance. You cannot simulate the real world better than the real world. And right now, in terms of real world miles driven, Tesla is leaps and bounds ahead of anyone else. And I'm not even sure leaps and bounds is the one is the right term to use. It's 110x head of everyone else. So this is going to be a winner take the vast, vast majority of the pie. And that winner is Tesla. Now, what about their calculations for other major assumptions for this company? So currently, or in 2023, I should say, the car sold in millions was 1.8. Their bearish outcome for 2029, so 5 years from now, is a car sold being close to 6 million. Their bullish outcome is cars sold being close to 14.5 million, which is in line with Tesla's target of having sold 20 million cars per year in 2030. Electric vehicle revenue, for this, they assumed that the average price of a Tesla electric vehicle was going to trend downwards, and this is in line with Tesla's plans as well. So whereas it was 81 billion in 2023, they assume it's going to be 250 billion in 2029, 394 billion in their bullish scenario. Autonomous ride hailing revenue, obviously, was 0 in 2023. This is going to reach 603 billion in 2029. That's their bear scenario, 951 billion in their bullish scenario. Now, again, this assumes that Robotaxia reaches commercialization in 2025. Now, here's something that's really, I think, eye-opening, the gross margin here, and you have to understand this line in order to understand Tesla's valuation currently as it compares to other car companies. So the gross margin, they assume that it's going to go from 18% to 56 in their bear outcome and 53 in their bull outcome. This highlights the fact that investors in Tesla, people who understand the play, are not looking at it as an automobile company. They're looking at it as basically an AI software robotics company that will have similar margins to software companies. And this makes sense because the incremental cost per unit turns downwards with software, in many cases, is basically zero. I mean, it costs the same to release software to one car as it does to 10. So this is really going to separate Tesla and its margins and its valuations from traditional valuations for traditional automakers, where they made money from selling physical cars. That was their main source of revenue and profit. This is not going to be the case for Tesla, especially if Robotaxia gets commercialized. So EBITDA margin, they assume it doubles from 17 to 32. Now something interesting is that they are assuming that the enterprise value to EBITDA will actually fall in half. So the expansiveness of Tesla will actually fall in half, even compared to 2023 levels. And keep in mind, we were basically 50% down from all-time highs. Now they're saying that's going to have even further in the next five years. So enterprise value to EBITDA would be 16 and 18. And so they come out with the market cap in billions of, currently it's 540. They think it'll reach 7 trillion in their bear outcome and close to 11 trillion in their bull outcome, which imputes a share price of $2,000 in their bull case and$3,100 in their bull case, which means, so in their bear case, they're assuming that the compound, the average compounding rate of the price of Tesla shares will be 56% in their bear outcome. So every, their annualized rate of compounding would be 56% in their bear outcome and 69% in their bull outcome. By the way, if you are to, there's basically, you know, achieving 69% return annually for a five-year stretch is basically unheard of in the hedge fund world and the mutual fund world and the ETF world. These are returns that are essentially unheard of. Typically the market, if you look at the last 50 years, around 10% annually. So 70% and you're talking about very elite level returns, especially if they're compounded over five years. And then they assume free cash flow is going to improve on the order of something on the order of 3X. So whereas it's 1.5%, it will be 4.3 or 4.1%. Again here, the switch from being a manufacturer that makes money from selling physical products, primarily to a company that sells a lot of software with very fat margins. So this all I think is within the realm of reason. Now obviously the big variable here is when does Robotaxi get commercialized? When does it actually, when does the rubber meet the road quite literally? So again here to summarize their bear target is 2,000, their bull target is 3,100. Their expected value is 2,600. So that's the price where they think there's a 50% chance shares are actually below this price. In 2029, 50% chance shares are above this price in 2029. Their bear target assumes a 25% chance that the share price of Tesla is below this number. The bull target is where they think there's a 25% chance that the share price is above this number. So just to give you some idea of what does bear and bull mean in mathematical terms. So let's talk more about Arc's model and their assumptions. So they assume that 90% of Tesla's earnings will be attributed to the Robotaxi business in 2029. I think that's actually overstating the role that Robotaxi will play in Tesla's earnings picture. I think there's a lot to be said about their energy storage business and the growth that that can achieve. And currently it's actually their most profitable business in terms of margins. So I think there's a lot of room for that to become extremely large in the next five years. Elon Musk mentioned that it could be larger than their automotive business. Tesla's Robotaxi take rate. Now here I think it's a bit generous, but we've never dealt with a Robotaxi model before. But they assume that the take rate, so out of every dollar how much will go to Tesla from the Robotaxi network. They assume that's going to eventually be 80%. So 80% out of every dollar goes to Tesla. Much higher obviously than the 20 to 30% that take rate that goes to Uber. Now the fact that it will be higher that's understandable because Tesla doesn't have a driver to pay. It is the driver. So that makes sense. But 80% is something that, you know, maybe on the generous side. The business model should transform from one off vehicle sales to a recurring revenue base as every car becomes an AI powered cash flow generation machine. And I actually see that right now. So with my model Y, there's a FSD subscription. There's premium connectivity. There are obviously in car entertainment options. And so this is continuous cash that is going to Tesla. It's not just a one and done thing like the traditional business model for automakers has been. And this is going to become more and more pronounced, especially with the Robotaxi and a Tesla insurance, not to mention Tesla insurance as well. Vehicle production increases 45% per year through year and 2029. That may be a bit tough to achieve as the number as the base grows 45% growth every year. Despite Tesla having been able to achieve that in previous years for the next five years, 45% average annual growth will be extremely difficult, although not impossible. Tesla certainly has the cash flow and the cash pile to make it happen and the margins to make it happen. But it's going to require a very concerted effort and pristine execution. Now, here's where the model and interpreting the model becomes really interesting. And that is all of these numbers are without what I think is going to be the biggest contributor to Tesla's bottom line, which is the humanoid robots that they are working on. I believe this will be their biggest product, their biggest contributor to their bottom line and basically demand for it is going to be unlimited. Now, the reason why they didn't include it in their model is because generalizable. So they do think that generalizable humanoid robots represent a 24 trillion global revenue opportunity at scale. However, meaningful commercialization is likely to happen beyond the five years captured in this model. Perhaps they don't reach full capacity in terms of their production. Now, perhaps they only get started with commercialization during these next five years. This is a possible scenario. However, regardless of whether they reach maximum capacity in this next five years and they reach scale in terms of manufacturing. All investors need is just a vision for the future that is corroborated by some anecdotes from the present in order to include it in their evaluation. So, even if Tesla starts to sell a small quantity of these humanoid robots, if people get an idea of the margins that the company is capable of, if people get an idea of the size of the market, then they're going to start including it in their evaluation of Tesla. So, regardless of whether the full potential is realizing these next five years, it's going to enter people's valuation of this company and it will reflect itself in the share price for Tesla in these five years, even if actual manufacturing of the humanoid robots doesn't reach scale during this time. Investors are forward looking and all we need is basically to prove out the model, prove out the idea of what we're trying to do and that will reflect itself and the value. So, I think that this in this way, by excluding Artemis, there's a big margin of error that is built into Arc's price targets, which is good, which allows for errors in other place to be compensated for. Those are also other business opportunities that they did not include in their model. So, Tesla's, Tesla's semi trucks, the supercharging network and the revenue that they get from there, FSD licensing. Like I said, no one else is going to be a major player in FSD, not in the next few years and therefore they can license their technology to other car companies if they don't want to kill them off altogether and AI as a service. And also, something that came to light in the last 48 hours, perhaps the possibility of a Tesla phone. So, Morgan Stanley's Adam Jonas has released the new Tesla note and he thinks Tesla may make a phone. We talked about this in our Discord, the PIF Discord today and I think that it's likely that Tesla makes its own phone. It's just a matter of when, like how soon it does right now. Obviously, they have so many different projects, their bandwidth is rather stretched, but a phone makes a lot of sense. Now, the reason why this came up recently is because Apple agreed with OpenAI to integrate OpenAI into their devices. It will be an option that people can use. Elon Musk does not trust the competence of Apple or the integrity of Microsoft to believe that the data from Apple's devices is not going to be funneled into Microsoft and used to supercharge the development of its AI, which could be used for nefarious purposes. This is why he started XAI in the first place. So, he may come to the conclusion that the only way to actually compete in AI and provide an alternative would be to come out with his own phone or Tesla phone. This also has a lot of synergies. A Tesla phone would have a lot of synergies with other Musk companies. So, for example, Starlink, so they could have connectivity with Starlink. How cool of a feature would that be? So, you could get Wi-Fi basically anywhere regardless of how remote you are. And obviously, their integrations with Tesla vehicles and different optimizations that you could do in terms of how the phone interacts with the vehicle. Right now, Tesla vehicles are basically operated by the Tesla app. So, having your own operating system own Tesla phone makes a lot of sense. Obviously, you could have XAI, their artificial intelligence on the phone. So, there's so many different synergies, Neuralink and connections with Tesla phone. There's so many synergies that you can think of. So, I think it makes so much sense that it will eventually be done. But the question is how soon considering the limitations in bandwidth because they have so many very promising projects that they're working on. And I do think that, like I said, at the beginning of this live, the Tesla CEO pay package will be approved tomorrow. Obviously, you know, you can't know the future for sure, but I think that that is the outcome that makes the most sense. Tesla shareholders on that kind of shoot themselves in the foot and not approving the pay package will be the equivalent of doing exactly that. And when that happens, I think Tesla could break out in a big way once people get to focusing on the actual businesses that Tesla is pursuing in the opportunities that it has. And then August, when you have the reveal of the more details around the robot axis, that's really going to get investors' imaginations going. This is my assessment at least. If you'd like to follow our portfolios, know when we buy, when we sell, and hopefully share in some of the profit making decisions that we make, such as IRIS, energy in the last 12 months, I use code autophilic 35% off, link to become a member in the description of this video. Like if you haven't liked already, subscribe, hit the notification bell so you know when I go live. Next, I can't believe we're almost at 30 minutes. I thought this was going to be a short one. I just always have a lot to say when it comes to Tesla. Very quickly, I'll take the questions that are on my screen right now. How much is membership, but what is the process of joining? Click the link in the description. Take you the plans. You can see how much each plan is. We have premium and elite plan. You get a 35% off. Use the code targets of Tesla. We covered that. Cathie Wood has had some very bad calls, so Zoom was one of them, and they had this outrageous price target for Zoom. I actually covered it on this channel. However, with Tesla, they've been very good. Their model has been very good in terms of predicting its price. They have a good track record with Tesla. I do believe that Musk is a big value producer for Tesla, so there is that key man risk that is associated with Tesla. But as the company grows, that key man risk falls. Thanks, Oshad. I really appreciate it. I love having you, man. Thanks for always tuning in, and you're really nice comments always. 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