MikeMareen
Introduction
In 2022, Tesla’s (NASDAQ:TSLA) stock has been cut in half, and the relative underperformance compared to major equity indices like the S&P 500 (SPX) and Nasdaq-100 (QQQ) is getting worse by the day. Elon’s daily Twitter antics are dominating the sentiment around Tesla’s stock, and many retail & institutional investors are seemingly running for the exits due to this absurd Twitter overhang on Tesla.
My past coverage of Tesla will tell you that I wasn’t a proponent of the EV giant until I became one in mid-October:
What turned me bullish on Tesla? Simply put, an aggressive normalization in valuation multiples combined with robust business momentum has turned me into a Tesla bull. After waiting for nearly two years, I finally own Tesla shares. Yes, there is a lot of noise around Elon being distracted, but I think Tesla is a magnificent company, and at this point, it runs itself!
A couple of weeks ago, I laid out a fundamental-based investment thesis for Tesla, where I showcased that Tesla is stronger and cheaper than ever before. I also discussed some of the major factors driving the bearish price action in Tesla’s stock, including Twitter noise, macroeconomic concerns, and poor technical setup. If you are interested in learning more about my bullish investment thesis for Tesla, I highly recommend you read the following note:
In today’s research note, I will discuss the potential importance of the Tesla Semi to the EV giant’s future and explain why I think this week’s delivery event could catalyze a move higher in Tesla’s stock. Without further ado, let’s get started!
Can Tesla Semi Move The Needle?
After being announced roughly five years ago, Tesla Semi finally went into production in October 2022 (a delay of three years on the original timeline), and Tesla is now set to begin deliveries this week, with the first deliveries going to Pepsi (PEP) on 1st December 2022. In order to commemorate this feat, Tesla is holding a rare delivery event at Gigafactory Nevada this Thursday, and I think investors will get to learn a lot from this event.
According to electrek, Tesla has set up a production line for Semi near Gigafactory Nevada, and this line can produce ~5 Tesla Semis per week (or ~260 per year). If we go with Tesla’s original price tag of $180K for the Semi (500-mile range model), such production will yield only $50M in annual revenue. This is absolute peanuts for a company generating $80B in revenue. Hence, Tesla Semi will not move the needle for Tesla in the short run.
However, Elon and Co are an ambitious bunch, and the plan is to scale up Tesla Semi production considerably in the coming years.
It takes about a year to ramp up production. So, we’re tentatively aiming for 50,000 units in 2024 for Tesla Semi in North America. And obviously, we’ll expand beyond North America. And these would sell; I don’t want to say the exact prices, but they’re much more than a passenger vehicle.
– Elon Musk, Tesla’s Q3 2022 Earnings Conference Call
The pricing for Tesla Semi is not set in stone, and I hope to learn more about pricing from this week’s event. For the first 1000 Tesla Semis (Founders’ series), the price is expected to be $200K, and with Tesla Semi’s superior specs compared to rivals such as Daimler’s eCascadia (price: $139K), I would argue that Tesla Semis deserve to be priced higher than $150-180K. We will see where this figure lands in due time, but I think Tesla could price Semi closer to $250K and still sell very well due to the lower total cost of ownership. According to a Torquenews report, a 200-mile trip would cost $169 for a diesel truck (with a diesel price of $4.99 per gallon), and a similar trip would cost just $28 with Tesla Semi. That’s a saving of 83%! Yes, electric trucks cost as much as 2-3x their diesel counterparts; however, the operational economics make the Tesla Semi an absolute no-brainer.
By 2024, I expect Tesla Semi to contribute significantly to Tesla’s top line, and this contribution can be as large as $10B (50K units at $200K). Of course, the scaling-up process is not as easy as it sounds on paper; however, I think Tesla is going to win big in the trucking space with Tesla Semi.
The Semi Event Can Re-energize Tesla’s Stock
Elon’s acquisition of Twitter has raised many concerns about Tesla’s future, as investors and analysts are getting worried about a distracted CEO. However, this week’s delivery event brings Musk’s focus and (more importantly) investor attention back to Tesla’s business, which is as robust as ever.
Leaked email from Tesla (Twitter)
During the Q3 2022 earnings call, Musk said that Tesla is going to have an “EPIC quarter” in Q4, and if estimates are correct, Tesla will deliver more than 430K vehicles this quarter. As we have discussed, Tesla is rapidly turning into a free cash flow printing machine, and even a nothingburger of an event (like a couple of trucks being delivered) can trigger a rapid move higher from current levels.
Concluding Thoughts
Tesla is a best-of-breed growth company trading at an extremely reasonable valuation of ~30x forward earnings. With medium-term CAGR growth expectations of ~50%, Tesla looks like a great deal right here right now. As discussed in my previous article, I understand that Tesla’s technical setup is ominous, so much so that the stock could decline to the low to mid-100s in the near to medium term. However, as a long-term investor, I view Tesla as a solid deal at $180 per share. Hence, I continue to rate it a buy (with a preference for slow accumulation).
As I see it, Tesla Semi won’t move the needle in the next twelve months; however, it could significantly contribute to Tesla’s topline come 2024. Despite the possibility of this delivery event being a nothingburger being relatively high, I hope to hear some positive updates from Musk on future growth and expansion plans for the company. As I have said before, low EV adoption should allow Tesla to grow through the impending recession, and this week’s event could bring investor attention back to what really matters – Tesla’s ever-improving business fundamentals. Tesla is about to hit new records in Q4, and I think not buying the stock here could prove to be a missed opportunity for long-term investors. Therefore, we will accumulate more Tesla shares within TQI’s portfolios before Thursday’s event.
Key Takeaway: I rate Tesla a long-term buy at $180 per share (strong preference for slow accumulation and/or proactive risk management).
As always, thank you for reading, and happy investing. Please feel free to share any questions, concerns, or thoughts in the comments section below.
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