 Hey everyone, this is Dan with another episode of my Tesla videos. In the last 6 months, Tesla stock has gone up more than 80% when QQQ representing the NASDAQ 100 went up only 30% and SPY representing the S&P 500 went up by only about 13%. After Tesla's second quarter earnings announcement, which happened on July 19th, Tesla stock has dropped more than 9%. Will Tesla continue the upward momentum in the last few months or will it drop more in the next few weeks? I have looked into the fundamental elements related to Tesla and also did a technical analysis of the charts and came to a few very interesting findings. I've been buying and selling Tesla stocks in the last couple of years and have made considerable profit with it. In the next few minutes, I will tell you what I've found about Tesla. I will also share with you my Tesla stock trading strategies for the next few weeks. Stay tuned. First, let's talk about the earnings announcement on July 19th. Tesla posted an all-time high quarterly revenue but operating margin dropped to 9.6% from the Q1 number of 11.4% and from the 14.6% operating margin a year ago. Revenue from Tesla's core automotive business rose 46% year-over-year to $21.27 billion, which is about a 6.5% increase. Tesla's research and development costs also went up. What caused Tesla's stock price to go down was the deterioration of their profit margin. We will be talking more about it in the next few minutes. To put things into perspective, let's look at Tesla's businesses. Tesla is primarily an automotive manufacturer. They are also considered to be a technology company. In fact, Tesla has been developing and applying advanced technologies on the cars that they build in order to gain a competitive advantage. They currently build and sell five vehicles, the Tesla models S, X, 3 and Y, and the semi-truck. Tesla has only built dozens of semi-trucks so far. It is certainly not a determining factor for the company's profitability in the short term. The semi-truck can become a major profit contributor for Tesla in the future if and only if full autonomous driving becomes a reality so that Tesla can operate these trucks without drivers. That future scenario, however, might be years from now. We will talk more about autonomous driving in the next few minutes. The cyber truck will be the product that will significantly boost Tesla's stock in the next few months. On July 15th, Tesla reported that they built the first cyber truck of the assembly line at their Texas factory. That cyber truck was probably a non-sellable pilot vehicle built for the purpose of troubleshooting and further refinements. The sellable cyber trucks probably won't be rolling off the production line in large quantities until at least two to four months from now. Once Tesla is able to build hundreds of cyber trucks a day, their profit margin is expected to improve significantly. There are reported to be 1.9 million cyber trucks pre-ordered by customers. It will take Tesla about five years to build so many orders. As in any other new vehicle launches, the first few hundred thousand cyber trucks are expected to be expensive models loaded with many options. That means the profit margin for each cyber truck will be very high in the first year. If you like what you've seen so far, please click the like, subscribe and notification buttons so that you will be notified when I post my next video. Thank you very much. Let's continue. We have a lot of interesting stuff to cover. Then there is a Tesla Roadster, which will probably be launched in 2024. The Roadster is a very expensive, high performance vehicle. Tesla will be able to sell at most a few thousand Roadsters a year. The Roadster will be what they call a halo vehicle, which will enhance the image of Tesla in the automotive world as a technology leader. Unlike the cyber truck, the Roadster will not help Tesla's profit margins much in the next few months. Tesla also markets products to convert and store energy. Tesla's energy business is growing quickly, but it is only a small portion of the total revenues for now. Recently, Tesla also started to provide auto insurance for Tesla car owners. Because of today, Tesla auto insurance is offered in only about a dozen states out of the 50 states in the United States. Insurance generates only a very small percentage of total revenues for Tesla for now. For Tesla's stock price to move up quickly in the next few months, I believe they will have to rely on ramping up the production of the cyber truck quickly. Other strategic initiatives that will improve Tesla's profitability include the potential licensing of Tesla's self-driving system or FSD, which is a type of autonomous driving system. When we hear about autonomous driving, we need to understand what people mean when they say the words autonomous driving. According to SAE, the Society of Automotive Engineers, there are six levels of autonomous driving. They are level zero to level five. Level zero is completely controlled by the human driver, like the way people drive cars 20 years ago. Level five is when a vehicle can drive itself without human intervention under any conditions. As of today, Tesla has only achieved SAE level two autonomous driving. At level two, the car can act autonomously under some conditions but requires a driver to monitor the driving at all times and be prepared to take control at a moment's notice. Even Tesla admitted that their FSD full self-driving system sold by the company today at $15,000 apiece is only a level two system. Tesla has been investing a lot of money in building the dojo supercomputer which will enhance their full self-driving system. In my opinion, for Tesla to achieve truly level five autonomous driving, it will take at least a few more years. In the next couple of years, Tesla might be able to license its level two FSD system to other automotive manufacturers and improve their EPS by a few percentage points but not much. Tesla started a limited robot taxi service in Las Vegas in 2022. In spite of what Elon Musk has claimed, it will be years away before robot taxi can generally substantial impact to the company's bottom line. That's because the robot taxi would need level five autonomous driving. The dojo supercomputer built by Tesla is one of the most powerful supercomputers in the world. It is dedicated to artificial intelligence training for autonomous driving. This is certainly a very important project for Tesla because the dojo supercomputer will widen the technology lead between Tesla and its competitors which will effectively build a protective mold around Tesla for the long term. But as I mentioned a minute ago, it will be at least a few years before Tesla's autonomous driving can reach level five and make substantial contribution to Tesla's profitability. A piece of bullish information for Tesla's self-driving system is their safety records. According to this chart published by Tesla and reported by Insight EV, the frequency of accidents for cars with the Tesla self-driving system is 4.85 million miles per accident as of Q4 of 2022. The US national average is 0.652 million miles per accident. That means the Tesla self-driving system is almost eight times safer than the national average. The management consulting from McKinsey recently predicted that passing a car advanced driver assistance systems and autonomous driving system could reach 300 billion to 400 billion dollars in revenues by 2035. To put things into perspective, the 2022 total revenues for Tesla was 81 billion dollars. If Tesla can continue to keep the technological lead in autonomous driving, they can possibly increase their annual revenues to more than 200 billion dollars in the next maybe five to ten years not by selling more cars but by licensing their self-driving system. There's a much longer-range project being worked on at Tesla, which is a humanoid robot. Based on Tesla's plan, each household can possibly use one or more of these robots for tasks such as making coffee or doing household cleaning. In my opinion, the robot might not generate substantial revenues for Tesla until five to six years from now. However, once it is successfully produced, the potential revenues can be as high or even higher than the revenues for cars. Aside from Tesla, Elon Musk also has controlling interests in SpaceX, Boring Company, Neuralink, Starlink, and Twitter. In the long term, there will be synergy among these companies which can possibly evolve into a powerful conglomerate that will dominate several industry areas. After seeing all those good things about Tesla, I have to be cautious and mention some of the potential dangers related to Tesla. Because Tesla has opened new factories and ramped up their production in the last couple years outpacing the growth of demand for their cars, the order backlog has decreased. At this point, they need fresh products such as the Cybertruck or a refresh of the Model 3, which hopefully will also happen in the next few months. According to this chart, Tesla's global EV market share started with 15% in Q2 2021, dropped to 12% in Q4 2022, and finally went up to 16% in Q1 2023. Volkswagen's EV market share seems to be shrinking. The Chinese car maker BYD, however, has been growing its market share faster than Tesla. Unfortunately, BYD's market is primarily in China, which is not as profitable as the markets in the US and Europe. Let's figure out how much Tesla's stock is worth. These are a few financial charts from the betterinvesting.com stock selection guide database. As you can see, Tesla sales, the black line, has been growing very impressively in the last few years at a approximately 50% annual rate. The EPS emerged in the positive territory in 2020 and has been growing quickly. Recently due to price cutting to gain market share, Tesla's operating margin has deteriorated. That means the EPS will not be growing as fast as before unless Tesla can launch the Cybertruck or have the refreshed Model 3. You might notice that BYD represented by the purple line has been expanding their sales and growing the EPS impressively. As a Tesla stockholder, I would definitely be monitoring BYD going forward. Tesla's debt to capital ratio has improved significantly in the last couple of years, which is a good sign. Their return on equity has also been improving and is better than industry average. This is a chart from the July 19 Tesla quarterly earnings press conference. Not surprisingly, their vehicle deliveries have been growing steadily. Their quality net income seems to have hit a plateau since the second quarter of 2022. That's why they need to have new products in order to improve their profit margins and their EPS. For Tesla's Q1 financial reports, we can see that the automotive segment is by far the main revenue generator for 2022 and 2023, although the energy segment grew from 3% of total revenues in 2022 to 6% in 2023, which is very impressive. The US is Tesla's largest market and contributes to 48% of the total revenues. China is also very important, which contributed 21% to Tesla's total revenues. These are the revenues and net income numbers on a quarterly income statement. By dividing the cost of revenue with total revenue, we can see that the cost as a percentage of revenue has been getting higher in the last two quarters. That's mainly because of price cutting in order to gain market share. To figure out how much Tesla stock is worth, I first compared the stocks for the leading car companies. I looked at their trailing and forward PE ratios and PAC ratios, as calculated by Yahoo Finance. We can see that Tesla's PE ratio is much higher than their competitors. That's because of the high growth rate of Tesla. Tesla's PAC ratio is also very high at 7.36. Many retail and institutional investors have been very bullish on Tesla. That's why the PE ratio and PAC ratio for Tesla is so high. If that halo effect is weakened, Tesla's stock price can collapse rather quickly. Therefore, as a Tesla stockholder, I will be very sensitive towards any drop in Tesla's stock price. I will try to understand what costs it and whether the price will continue to drop or maybe it will rebound quickly. If you are also concerned about this type of problem, please subscribe to my YouTube channel and my Twitter account to learn what my latest thoughts are on Tesla going forward. I assume Tesla's earnings will be growing at 20% rate every year for the next two years. The earnings grew at 75.99% in the last five years. However, Yahoo Finance estimated Tesla's earnings growth at only 10.35% a year. I believe the 10.35% number is too conservative. If you're taking into account the earnings potential from the Cybertruck, from the Model 3 refresh, and from licensing the self-driving system, I believe 20% growth rate is a reasonable assumption for the next couple of years. I started with the trailing 12-month earnings and current PE ratio of 65.4, with the market cap of $824 billion today and the stock price of $260.02. Then I used the above assumptions and the PE ratio of 60, 55, and 50 for 2023, 2024, and 2025. I arrived at the calculated stock prices of 262, 289, and 315 for the three years. From these numbers, I set my price target to $280 to be reached by the end of 2024. As I mentioned before, I believe the mass production of the Cybertruck will greatly enhance Tesla's earnings per share and will help boost the stock price significantly. Before the launch of the Cybertruck, not so much. Let's see what the professional analysts have been saying about Tesla. First of all, the current price is $20.62. My price target is $280 by the end of 2024. Yahoo Business gave them a hold rating and with a high target of $350 a share, average target of $230 and a low target of $71, tipbrands.com, a moderate buy rating with a high target of $350, average $258, and low $120. The street.com, a C plus hold rating, they did not state any price target. Lewis Navalier gave them a C hold rating with a quantitative rating of C and a fundamental rating of C. These are the upgrades and downgrades since late April. We can see that there were a bunch of downgrades from April to June. Interestingly, Goldman Sachs and Morgan Stanley downgraded Tesla from buy to neutral in June, but increased their target prices. Since July of this year, several analysts reaffirmed the previous ratings on Tesla and many of them also increased their price targets. Based on these rating changes and my own analysis, I don't believe Tesla is a screaming buy for now. However, once the Cybertruck is launched, I will be inclined to want to buy more Tesla shares. This is a chart showing the insider trading activities. Not surprisingly, in December of 2022, when Tesla peaked at about $400 a share, insiders sold a lot of shares. Recently, insider selling has slowed down substantially. That means the insiders don't think the stock is overpriced and that they have confidence in the company. Again, my price target for Tesla is $280 a share to be reached by the end of 2024. From the technical analysis perspective, we can see that Tesla dropped from the upper bullish band on July 19, which looked like a technical correction. But many people also attributed the drop to the lower operating margins reported on July 19. Also today, the price is below the 20-day simple moving average. The price will most likely rebound as it approaches the lower bullish band. If I buy when the price starts to rebound here, I might be able to realize some profit for the next few days. A major risk is that Elon Musk mentioned in the Q2 earnings press conference on July 19. We expect that Q3 production will be a little bit down because we've got some shutdowns for a lot of factory upgrades. So just probably a slight decrease in production in Q3 for sort of global factory upgrades. Elon Musk was probably referring to the Model 3 refresh. If the Cybertruck is not built in large quantities in Q3, Tesla's Q3 result might look worse than the Q2 results because of the factory upgrade activities. That means the stock price can drop below the current level after the Q3 earnings announcement in October. I will be very mindful of that possibility. So what are my strategies? I will hold onto the shares I bought on February 27, 2023, which I bought at $204.90. I might buy more shares when the price rebounds from the lower bullish band, but I will sell before it drops below my purchase price if the price starts dropping in the next few days. I will wait for positive catalysts such as the mass production of the Cybertruck, which will be about two to four months from now, or the licensing of FSD, full self-driving to other automotive manufacturers, or the refresh of Model 3. That will most likely buy more shares when positive catalysts happen. At this point, I'd like to encourage you to subscribe to my Twitter account in addition to subscribing to my YouTube channel. I'll be notifying my Twitter subscribers if I buy or sell Tesla shares in the near future. These are a few examples of my recent Twitter messages. I'd like to remind you again to click the like, subscribe, and notification buttons. As usual, I will very much appreciate your questions, comments, and suggestions. I'd like to remind you that I'm not a financial advisor. I share my stock trading strategies and analyses for educational and entertainment purposes only. If you want to buy or sell stocks, you should make your own decisions, and you should definitely consult your financial advisors before you do so. This wraps up my video for now. I will chat with you again in the next few days. In the meanwhile, I'd like to wish you the very best of luck with your financial investments.