This Is What Conviction Looks Like If You Want To Beat The Market

[Singuy]

My Tesla position during the period I was buying at the lowest point.



Headlines from this period of time




You can see how I was buying Tsla shares almost every week.
Also notice that the stock price just goes lower and lower, aka me trying to catch a falling knife.
But if you sniff through all the noise and only focus on the signal, you'll beat the market on the other side.
This is not easy as it took thousands of hours of research and having many sleepless nights. So the majority of people should
stick to index funds.

[james.hendrickson]

Buying a lot, even when the share value is declining, can be hugely stressful.

[LivingAlmostLarge]

I agree. It's like catching a falling knife. You can also feel that way chasing the VOO. I recall buying only VOO in 2007/2008 and our positions increased and the contributions were $20k year in DH's 401k and we saw no return. So $15k contributions and bad years. then it suddenly turned and went gangbusters, but we kept on plowing in more and more money. Even in index funds it can easily take your breathe away. NOT The same returns but when you have no money and you don't see it going anywhere it's terrifying.

Also we weren't making much, fresh out of school, and we were cash flowing another degree, had an expensive house and were just starting to have kids and I wasn't done with school. So our financial position unlike yours was anything but secure or established. Everything we did felt very risky.

[Yoloma]

Beating the market is hugefully stressful but equally rewarding!

Well done for your grit and perseverance.

[Singuy]

Tesla just announced their deliveries. Based on the numbers they have sold, their net income will be more than 2 billion dollars, or 8 billion dollars annualized. This is already more than GM and F's 2019 numbers. We are not going to talk about their 2021 numbers because they are all going to report gigantic loss this quarter. Tesla's Q4 will be even crazier, with a net income closer to volkswagen's annualized. People wonder why some analysts are so crazy bullish on the company while others continue to compare Tesla to other car companies. The manufacturing prowess of Tesla is insane even today. As the CEO of Volkswagen pointed out, "it takes Tesla only 10 hours to make a Model 3, while it takes us 3x the time to make an ID4". Legacy automakers whose only advantage over Tesla is manufacturing just got crushed hard. Financials show it, Tesla's operating margin is already the highest in the industry second only to Ferrari. Elon's goal is to reduce the time to make a Model 3 (or an electric car) down to 1hr a piece. That's his aspiration, and it's not something you hear on main stream media. If he accomplishes this, then it's just game over.

[rennigade]

I'm still sticking with index funds. My returns have been good to say the least.

And it looks like Tesla just increased their lowest price vehicle to $42k. Not sure if that's a good thing.

[Scallywag]

Kudos to you, Singguy. I think the future is electric cars, and space exploration. That's where Big Money is and that's where I'm getting into with the hope of a nice pay day. Let's see.

[Yoloma]

Nothing wrong with index funds, even Warren Buffets recommends it to beginners.

[bennkar]

Congrats with the purchases. I started to stock up on Tesla this March and bought quite a bit in the $500s & $600s. Shame I didn't know about it a few years ago like you did. Oh well, in a half year my purchases have gone up about 30% and grown more than the cost of one of their cars (so I am not complaining). I plan on buying one next year after the federal EV credit plans are finalized.

[Singuy]

Congrats with the purchases. I started to stock up on Tesla this March and bought quite a bit in the $500s & $600s. Shame I didn't know about it a few years ago like you did. Oh well, in a half year my purchases have gone up about 30% and grown more than the cost of one of their cars (so I am not complaining). I plan on buying one next year after the federal EV credit plans are finalized.

Everyone thought Tesla was a stinker 2 years ago. We actually had threads in here talking about shorting the company instead of buying the stock. So at the time very few people I have convinced to actually buy the stock.

[Jluke]

What’s the latest analysis?

tesla touched $900 today

[rennigade]

Tesla to the moon! Hopefully it keeps climbing. Good for all of us who own some shares.

[Singuy]

What’s the latest analysis?

tesla touched $900 today

The analysis is that Tesla will be bigger than apple and earnings report has planted the seeds for these thoughts.

1. Tesla has a gross margin of 28.8% on automobiles on the backs of supply chain issues. Wall street is expecting gross margins to miles higher than any automaker.
-as comparison, GM has about 9-10% gross margin on their cars and that's WITHOUT chip shortages. Currently they are just breaking even. With that said, Tesla now makes as much PROFITs as GM while shipping like 1/7th of the cars
-Tech stocks like Apple has a gross margin of 43%. Capital intensive tech stock like Amazon has a gross margin of 27%. This is why Tesla trades like a tech stock and not like an auto stock. At the end of the day it's all about making profits, not just revenue.

2. Operating margins is now the highest in the sector at 14.8%. This is big, because the most profitable volume producer Toyota has an operating margin of 9%. Nissan is at 3%. Ford is right now not even positive. Tesla is now ahead of the pack at being the most profitable mass production automaker in the world. When compared to Tech, Amazon is at 6.8%, apple is at 25%.
-This margin increased 200 bps since last Q even with supply chain shortages
-There are multiple upcoming things from tesla that should drive operating margins even higher.
a. Currently new giga berlin/Texas are a drag on margins because they are producing zero cars
b. After fully ramped, Giga berlin/Texas will have factory 2.0 efficiency install, meaning driving cost down even more than Shanghai. Fremont factory is the most expensive as it has the worst layout, worst equipment, and most expensive workers.
c. Tesla's newest batteries like the 4680s is suppose to be 50% cheaper than current pack after it's fully ramped
d. Giga press fully frontal and middle casting is not yet implemented in current cars
e. Full self driving software revenue is only being recognized at 50%, and take rate is low. However FSD beta software is getting rolled out right now
f. Tesla's most profitable cars, the S/X are currently causing a margin drag because they just started ramp
g. Energy sector is also causing a margin drag due to supply chain issues
h. Tesla will use software monitoring to produce high margin insurance products for customers while also saving their customers money/month

3. Forward PE is compressing. Currently annualized PE for Tesla is around 120. Going forward, we are expecting operating margins to keep coming down(except not Q1 or Q2 of 2022 during massive Berlin/Texas ramp as that will initially have a drag on margins). However Q3 and Q4 of 2022 will be great. PE will start to drop below 100. So just as an example. Amazon's PE is 60 with an operating margins of 7% and a growth rate of 27%. Tesla will have similar PE as Amazon next year except with an operating margin 15%+ with a growth rate of 70%.

Overall this report solidifies Tesla as a growing tech company with a massive multi-trillion dollar TAM that Apple nor Amazon can match. Apple is peaking in revenue growth at their current revenue of 260 billion dollars/year. Tesla if they can hit their own guidance of 20M cars and 1 terawatt hour of energy will have an annual revenue of 1.5 TRILLION dollars. This is without robotaxies , tesla insurance or Tesla bots. This is just to get the goal of selling hardware. If you then apply a 20% operating margins to this number than Tesla will make more PROFITs than Apple can make in revenue. Think about the marketcap of Tesla then...most likely 7-10 trillion dollars, or a stock price of about $8,000-$10,000

[LivingAlmostLarge]

I don't know. I do believe electric vehicles is the future, but I"m not sure it's tesla. The number of s/x sold is about 9275, but they sold 241k vehicles. I'm not sure ramping up will work because I don't think people want to pay that for a tesla. So the profits have to come from people buying 3 and Y. Unsure how that will work. Are people interested in buying 3 and Y every 5 years? Or are these people who bought once and keep long term? It'll be interesting to see

I think people with money (everyone I know buying electric is not buying tesla i mean why pay $100k on car that other people have ). Sorry but people buy the 3 and Y but I know people buying the taycan, audi, rivian, and on hold for lucid. Luxury car market is not going to be tesla and I'm wondering if Toyota will catch up on the low end scale? If they were smart Toyota would have flipped the prius into a plug in a long time ago but as prices of batteries decrease and it becomes more profitable I am going to bet toyota and honda go hard after the low end market.

Do you know google's gross margain? 53%. FB? 80%. MSFT 69%. Apple is off of the backs of iphones, ipads, laptop. It's not the same as a tech company profits. Even netflix is 41%. AWS in 2019 had 61% and that's what is driving amazon price shares and profits. It's not the retail. That said I think it'll go up a lot. I have a bunch I bought last year during the 2020 in March. But I haven't bet the farm on it.

Singuy is tesla your most profitable stock or did you make more on AMD or SHOP?

[Singuy]

I don't know. I do believe electric vehicles is the future, but I"m not sure it's tesla. The number of s/x sold is about 9275, but they sold 241k vehicles. I'm not sure ramping up will work because I don't think people want to pay that for a tesla. So the profits have to come from people buying 3 and Y. Unsure how that will work. Are people interested in buying 3 and Y every 5 years? Or are these people who bought once and keep long term? It'll be interesting to see

I think people with money (everyone I know buying electric is not buying tesla i mean why pay $100k on car that other people have ). Sorry but people buy the 3 and Y but I know people buying the taycan, audi, rivian, and on hold for lucid. Luxury car market is not going to be tesla and I'm wondering if Toyota will catch up on the low end scale? If they were smart Toyota would have flipped the prius into a plug in a long time ago but as prices of batteries decrease and it becomes more profitable I am going to bet toyota and honda go hard after the low end market.

Do you know google's gross margain? 53%. FB? 80%. MSFT 69%. Apple is off of the backs of iphones, ipads, laptop. It's not the same as a tech company profits. Even netflix is 41%. AWS in 2019 had 61% and that's what is driving amazon price shares and profits. It's not the retail. That said I think it'll go up a lot. I have a bunch I bought last year during the 2020 in March. But I haven't bet the farm on it.

Singuy is tesla your most profitable stock or did you make more on AMD or SHOP?

Tesla is my biggest gains in dollars. SHOP is my biggest gain percentage

As for the S/X sold.

1. They made 0 X this quarter, which is usually more popular than their S
2. There's an active backlog for the S LR for more than half a year out
3. Their S/X capacity(prior to their line shut down) is 25k/quarter

So this ramp is definitely not done. This is simple due diligence you have to do just so you don't start making up assumptions that is not true. It's very easy to go on Tesla.com and verify delivery times while checking their manufacturing capacity.

As for Toyota/Honda going hard at the low end
1. They don't have the supercharging network which is the easiest to use, the most reliable, and the most abundance high voltage charges around
2. They don't have the battery capacity. Batteries are constrained by production and raw materials. Honda and Toyota doesn't even have any mass production EV plans unlike some other big auto. They are probably the most behind.
3. Tesla makes a car cheaper and faster than Toyota. It takes 10hrs to make a Model 3, while it takes 18hrs for Toyota to make a car (and we can see this on the balance sheet in the form of gross margins)

As for margins

Yes software companies have very high gross margins, however we only care about operating margins as that produces net income. Now high growth companies(those that are posting 50% yoy revenue growth) I don't expect them to have too much of an operating margin. However this is why Tesla shines because they are in high growth mode at 70% AND posting high operating margins while Amazon is growing way less while posting 6.8% operating margins. Tesla is still 1/2 to 1/3 of the big software techs when it comes to operating margins, however it has a much bigger TAM, about 10x of other tech companies. So when Tesla expands operating margins while collecting more revenue from the larger TAM, their net profit will surpass all of the big tech names in a few years.