Hey, I’m Steven and this is Solving The
Money Problem. If you’re new, welcome. If you’re not,
welcome back. Tesla knocked it out of the park in Q4 2019. I’m not surprised, but Wall St was and the
stock reacted strongly, moving up around 12%–or $70–in after-hours trading following the
results. Tesla’s financial health continues to grow
and the company is now far, FAR beyond the point of needing to prove its products are
amazing and it’s business, viable.



Here's the Video Transcript:

Tesla is leading the EV industry by miles,
and it’s here to stay. They’re banking billions of cash annually, raking in revenue,
scaling production, executing ahead of schedule, approaching industry-leading margins, embarrassing
their supposed “competition” and just winning at everything. What else is there
to say? Q4 2019 marks a tipping point for Wall St
sentiment. Even the most arden detractors now face the choice: Should I remove my head from my ass, look
at the facts and capitulate, accepting that Tesla is in a dominant position and poised
to retain a huge slice of the burgeoning EV market as the world transitions to sustainable
transport? Or Do I try–in sad desperation–to cling on
to my absurd bearish view in the face of a torrent of contradictory evidence? I don’t say this lightly but you pretty
much need to be on the wrong end of the intelligence bell curve to doubt Tesla’s long term viability
now.

I’m not trying to be rude, I’m just telling
it like it is. So, in this video we’re looking under the
hood to see why I have the gall to say that anyone who doubts Tesla today is either missing
information, the ability to reason, or both. Another Billion In The Bank Tesla produced a billion dollars operating
cashflow (less capex) and added another $930 million in cash. They've now got a $6.3 billion
warchest, capable of seeing them through unexpected catastrophes, a global financial crisis and
in more likely scenarios, continued global expansion without the need to raise capital. Elon Musk has said one of Tesla's biggest
challenges going forward will be finding ways to spend money effectively. This sounds kind
of crazy but it makes sense. There's only so many incredible engineers to hire and there’s
only so many factories to build when you’re battery constrained.

Tesla will be producing enough cash to build
multiple gigafactories PER YEAR moving forward, should they choose to. This matters. Fat Profits Tesla produced $359M GAAP operating income
in Q4, making it 4 profitable quarters of the last 6. This, despite aggressive growth,
including the construction of Gigafactory Shanghai. One of the most popular bear theses on Tesla
was that they'd never make a profit. Admittedly, these comments came mostly from extremely
ignorant analysts who were incapable of grasping the idea of investing in scale for future
profitability, and who ignored the declining cost curves Tesla was riding, along with the
world's inevitable transition to sustainable energy. That's fine. Most of them didn't get
Amazon until recently either. Tesla expects to see quarterly profits going
forward with possible exceptions around product ramps/factory builds. The "profitability" argument is dead. This matters. Model Y The Model Y will make Tesla billions, remember? The Model Y production ramp started in January
2020–almost a year ahead of its original schedule and just 10 months after the prototype
reveal.

This shows how far Tesla has come and how
ludicrously fast they're able to bring new products to market. First deliveries are expected
in Q1 2020 AND Tesla says the Model Y has better margins than the Model 3. Let that sink in. Like I said, Model Y will make Tesla billions. On top of this, Tesla also announced they've
increased the Model Y EPA range to 315 miles up from 280, apparently from battery and powertrain
improvements. Model Y was already going to run circles around other vehicles in its category.
This is icing on the cake. Records. Everywhere. As I predicted, Tesla announced a slew of
records, including record production, record deliveries and record storage deployment. Do I even need to say anything else? Fat Automotive Magins The single most impressive number in Tesla's
Q4 earnings was its automotive margin, at 22.5% vs 22.8% over the previous quarter.

At first glance, this looks flat but if we
account for the fact that Tesla built a freaking factory and began ramping production in the
quarter, we realise the underlying margins have improved substantially enough to not
be dragged down by Gigafactory Shanghai. Tesla's automotive margins are marching steadily
towards 30%. Economies of scale combined with declining battery and technology costs make
this all but inevitable. Fat margins = fat profits. This matters. Operating Expenses Tesla’s operating expenses were flat at
$1.032 billion vs $1.029 billion in Q4 2018, yet production and deliveries grew substantially. This shows how efficient Tesla is becoming
with its use of capital and there’s no reason to expect they won’t continue to optimize
the business further.

Capacity Expansion Planned production capacity is a useful proxy
for future revenue. Tesla tells us Fremont will reach combined
3 & Y capacity of 500,000 by mid 2020 and it’s already at 90,000 S & X annually. Let’s
call it about 600,000 total. Tesla also aims to increase Model 3 capacity
in Shanghai beyond 150,000 a year AND it’s already broken ground on the next stage of
the Shanghai factory which will produce the same or higher numbers of Model Y. Let’s call it 300,000 combined 3/Y capacity
in China. The China Model Y ramp may take about a year
or so. When ramped, Tesla’s global production will be around 900,000 per year.

Then there’s Gigafactory Berlin, whose initial
stage is expected to produce 250,000 vehicles a year (with later expansions to 500,000 and
beyond). The first made-in-Europe Tesla’s are expected
in 2021. Tesla has a very clear, short term plan to
reach global production capacity of about 1.15 million units a year. This matters. Bigtime. This is almost exactly a TRIPLING of what
Tesla delivered in 2019. Tesla has guided that they’ll comfortably
deliver in excess of 500,000 units in 2020.

I expect this will fall closer to 600,000,
unless there’s multiple disasters. Energy Elon Musk believes Tesla’s energy business
could grow larger than its automotive business. We’re seeing signs of progress in that direction
already. In 2019, Tesla deployed 1.65 GWh of energy
storage which is more than they did in all prior years combined. This is largely
due to the release of its grid-scale MegaPack. We also got a huge clue about Tesla’s Solarglass
roof plans.

You don’t hire hundreds of employees for your solar factory if you’re not planning
on selling many thousands of solarglass roofs. If you’re thinking to yourself “Who cares
about Tesla solar? It’s a tiny part of their business”, let me point something out. A solarglass roof is roughly the same price
as a base Model 3. This matters. The Outlook Let’s look at what Tesla guided for 2020,
in their own words. Volume – For full year 2020, vehicle deliveries
should comfortably exceed 500,000 units. Due to ramp of Model 3 in Shanghai and Model Y
in Fremont, production will likely outpace deliveries this year. Both solar and storage
deployments should grow at least 50% in 2020.

Cash Flow – We expect positive quarterly free
cash flow going forward, with possible temporary exceptions, particularly around the launch
and ramp of new products. We continue to believe our business has grown to the point of being
self-funding. Profitability – We expect positive GAAP net
income going forward, with possible temporary exceptions, particularly around the launch
and ramp of new products. Continuous volume growth, capacity expansion, and cash generation
remain the main focus. Product – Production ramp of Model Y in Fremont
has begun, ahead of schedule. Model 3 production in Shanghai is continuing to ramp while Model
Y production in Shanghai will begin in 2021. We are planning to produce limited volumes
of Tesla Semi this year. If you take Tesla at their word, 2020 is going
to be a MASSIVE year.

Wall St is starting to realise this. Analysts
are tripping over themselves to upgrade the stock. Some to save face, others because they
finally get it. Now that we’ve run through the numbers,
we’ll listen to some highlights from the earnings call, starting with my absolute favourite. Elon talking about us. Kinda. [I do think that a lot of the retail investors
actually have deeper and more accurate insights than many of the big institutional investors
and uh and uh certainly better insights than many of the analysts. Uh, you know, it’s,
it seems like, if people really looked at some of the smart retail investor uh, analysts,
uh, and, you know, what some of the smart smaller retail investors predicted about the
future of Tesla, you’d probably get the highest accuracy and remarkable insight from
some of those predictions.] Allow me connect the dots. Elon is talking
about Tesla YouTubers. And he’s saying that the smartest among us know more than Wall
St.

Tesla Q4 Earnings Analysis (crushed it!)

It’s true. He’s right. But you already knew that or you wouldn’t be learning about
Tesla from a retail investor on YouTube. And here’s Elon talking about the Maxwell
acquisition. [It’s an important piece of the puzzle,
yes. I mean like, some of this, the, sort of retail investors have managed to put together
several pieces of the puzzle. They seem to have the most insight.] Let’s move on to the Cybertruck. [We wanted it to look like something that
just came out of a sci-fi movie set from the future. And uh, the demand has been incredible.
We’ve never see, actually such, a level of, a level of demand at this…we’ve never
seen anything like it, basically.

I think we will make about as many as we can sell
for…many years. You know. We’ll sell as many as we can make. It’s gonna be… pretty
nuts.] [Can you remind me how many you think you
can make and any thoughts on the cost of production um, for making those Cybertrucks?] [I, I, you know, I think, we don’t want
to comment on those detailed numbers except.. Demand is just far more than we could reasonably
make in the space of you know, I dunno, 3 of 4 years–something like that.] Did you catch that? Tesla will need YEARS
to produce enough Cybertrucks to meet existing demand. We must be talking well, WELL in excess
of half a million reservations. Elon was coy on the manufacturing costs of
Cybertruck but Sandy Munro–who knows manufacturing better than most–recently ran through his
estimates on the Autoline Network (I’ll put a link in the description) and as I said
in my Cybertruck Is Engineering Genius video, the cost, space and time needed to produce
Cybertucks is astonishing low compared to a conventional vehicle.

Speaking of capital efficiency. [In 2019, we managed to generate more than
a billion dollars free cashflow while building a factory in Shanghai in record time AND while
building parts of Model Y production. So I think, first to have this level of free cashflow
WHILE making massive investments in capacity while developing new products while improving
the core engineering is, uh, a testament to the I think, incredible performance of the
Tesla team and I’m just so proud to work with such a great team] Here’s more on spending. [We, we’re actually spending money as quickly
as we can spend it uh, sensibly. So, if there’s any sensible way to spend money, we are spending
it. There’s no artificial uh, holdback on, on expenditures. Um, anything that I see that
is, uh, looks like, it’s, it’s got good value for money, the answer is “YES”,
immediately. Uh, so we’re spending money I think efficiently and we’re not artificially
limiting our progress. Um and then despite all that, we are still generating positive
uh, cash.] And now some clues about Tesla’s financial
outlook for 2020.

[We will produce approximately 1000 times
more cars in 2020 than we produced in 2010. A THOUSAND.] [However OPEX growth should increase at a
lower rate than top line revenue. Overall, we believe this will set us up for our strongest
annual financial performance yet with sufficient forecasted cashflows to support investments
related to our growth and further strengthening of our balance sheet.] Any talk of news products? YES. [Yeah, will, will it make sense for us to
do sort of a mini van or you know, a sort of a ‘Sprinter’-like van at some point?
Probably. But like I said, we’ve gotta solve this battery–we’ve got to scale battery
production to CRAZY levels that people cannot even fathom today.

That’s the real problem.] So, a Tesla van? Yes. Well, probably. Asked about the Plaid powertrain, Elon said
this: [Coming out later this year. End of the year,
probably. That’s our goal. Have Plaid powertrain out end of the year. And then it’s going
to be like…”This is alien technology”. It’s insane.] [It’s all about–] [I didn’t even think we could do, yeah,
I mean honestly I thought there was no way.

This kick ass engineering team. It’s Tesla..
Tesla’s all about hardcore engineering.] And now, some comments about Tesla’s core
technology — its batteries. [Tentatively sort of in the April timeframe,
we’ll do-do a battery day and kinda like go through what the um challenges are, you
know, how do you, how do you get from here to, I dunno, a couple of thousands gigawatt
hours a year or something.

I mean, we are super deep on cell. Super deep. And cell–cell
through battery. So: cell, module, battery. I mean, Drew, is there anything you want to
add to that?] [You said it, you said it all.] [We are super deep.] [Yeah.] [Haha. I mean–] [It’s its–] [That rabbit hole. That rabbit hole goes down
pretty far.] [7 days a–] [Yeah we’re doing 7 days a week battery
production.] [Um, man do we know a lot about batteries.
Geeze.

Haha.] [I think I can–] [haha] [The only thing I’d add is–the only thing
I would add is you know, we do have, a decade plus of experience of not just like what a
cell should be but how to integrate it into the product and that’s really–] [Yeah–absolutely. And how to manage the cell
module and battery, through weather conditions and different environmental and different
charge regimes and WOW, we really, we really know a lot about batteries. Yeah. It’s next
level. Like I said, we’re gonna talk about this in battery day which is probably April
and then a lot of these questions will be answered.

I think it’s gonna be a very compelling
story that we have to present. Uh, I think it’s actually gonna blow people’s minds.
Uh, it blows my mind and I am clo-you know, I know it. Uh, haha. So it’s gonna be pretty
cool.] If this doesn’t whet your appetite for the
battery investor day, rewind and listen again. And finally, this gem from Elon: [A few years ago I said I–I think–i dunnot
when it was but a few years ago I-I said my estimate was, is that Tesla would um grow
at an average–compound annual rate–of–average rate of in excess of 50%. I-I still hold to
that belief.] That is a BIG statement. To sum things up, 2019 was a breakout year
for Tesla. In addition to expanding into China and making early moves into Europe, Tesla
has proven its products and its business are healthy, viable and scaling fast.

They’ve got billions in the bank, growing
demand, no competition, a huge lead on software, batteries & powertrain technology, an army
of fanatical supporters spreading the word, highly profitable products and very few headwinds. Tesla’s ability to execute is no longer
in question, nor are there any concerns about its financial health. The only question I have is, who’s gonna
end up in second place? I’m Steven Mark Ryan, this is Solving The
Money Problem and I love you all. Thanks so much for watching. Let me know your thoughts in the comments
below. What did you think about Tesla’s Q4 and
full year results? What surprised you? What are your predictions for Tesla in 2020? And of course, if you have any ideas for future
videos, let me know. I read ALL your comments. p.s. If you’re still watching, you’re
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