Tesla Discounts $7,500 Per Car, Disaster Or Opportunity? (NASDAQ:TSLA)

Tesla Inc. (Nasdaq: TSLA) is a stock I had absolutely no interest in during the Covid bubble. Finally, that is changing. With stock prices crashing and earnings soaring, we are finally becoming a company that can be fundamentally evaluated. I explained it in detail in my December 15th article Title: 'At a projected P/E of 28, is Tesla now a value stock?'

As prices continue to plummet, the forward multiple for the accounting period ending December 2023 is currently around 22-23x. - teenagers who were previously representatives of Covid mania.

Of course, the counter-argument to what I just said is that BMW (OTCPK:BMWYY) is trading at 4x P/E and even the best of breed Toyota (TM) is 10x. That's it. I started learning that investing was fundamental more than 20 years before him. exclusively Low PER also led to low returns.

Since selling my business, I have lived entirely on my investments. As such, I hold a lot of high-yielding, low-to-no-growth stocks. That's how I classify incumbent automakers and frankly I feel there's a better risk/reward industry for that kind of investment. Instead of ICE (internal combustion engine) manufacturers, they must now cannibalize their sales with loss-making EVs (electric vehicles).

If you disagree, look at their decades of history.YCharts can't produce this for 20 or 30 years, but believe me. If we weren't able to deliver alpha in the 100% ICE era, how will we deliver alpha during the long-term transition to EV?

You shouldn't expect Tesla to trade at earnings multiples comparable to traditional automakers. In summary, the reasons are:

1. Tesla has been an EV company from the ground up. They didn't make the cumbersome manufacturing transition from ICE.
2. Tesla is a full EV company and receives free regulatory credit. they have a surplus. On the other hand, almost all other automakers are in the red, so they have to buy credit from Tesla and others to offset ICE sales.
3. Tesla has cut out middlemen. dealer. Indeed, margins on new car sales are minimal for dealers. Still, it's more money for Tesla.
4. Tesla isn't drowning in debt or pension obligations. In fact, they have net cash. Yes, the majority of automakers' debt comes from financing vehicle purchases. But contrary to consensus, this is the riskier debt. How many people do you know who struggle with flashy new cars and trucks compared to job security and income in boom and bust economies?
5. Tesla has a technological edge. We understand that some aspects of this lead are controversial, but overall, even the bears agree it's true.
6. Tesla also has other bets, including one related to FSD. If that and other bets succeed, it still represents a significant boost to earnings, even if it falls well short of predictions like Kathy Wood's. Hmm.

Sales are so good, why a 12% discount?

A $7,500 discount equates to over 12% on the Model 3 above. That's a lot of money for a company that doesn't typically give discounts.

To clarify, they do not offer fixed percentage discounts.

So why $7,500?

The Inflation Reduction Act is a misnamed law if it ever existed. This includes a $7,500 EV tax credit. But it's not just EVs. It stipulates not only where vehicles are assembled, but also where batteries and materials are sourced. Must be North American or No Credit.

In the past, it didn't matter where the car was made or how much it cost. Even the Bentley SUV Hybrid qualified. Due to his 200,000 vehicle cap per manufacturer, Tesla's sales have been uncertified for quite some time.

That all changes on January 1st as the maker cap is being phased out. Again, anyone who can buy a $80,000 car also gets a $7,500 tax credit. Regardless of this logic, this is great news for Tesla.

But not if you've been buying a Tesla this month or any time since the law was passed in August. If his adjusted gross income is less than $150,000 (he's $300,000 if you're a joint filer), then by waiting until January 1st to get a new car, he's basically $7,500. Saves you dollars.

So, of course, in Q4, domestic inventories began to pile up. Any wonder why Tesla has decided to move this inventory now to coincide with the upcoming tax credit?

They probably would have waited if the stock didn't fall off a cliff. They started giving him a $3,750 discount on December 1st. Since then, it's dropped nearly 30%, so it's understandable why they raised it to $7,500. They know they need explosive deliveries in the quarter to hopefully reverse the trend.

Discount a portion of every sale

How much lower is the average selling price of the Model 3 and Model Y from $3,750 to $7,500?

maybe not much.

They basically waited until the very end of the year for discounts, even though the 2023 credits would be known after August. The question is, how many people postponed their purchases after that, I don't know.

Given the income threshold, for some, future credits were irrelevant because they weren't eligible. It actually makes sense to buy now from inventory, even if it's not the exact color or features you want.

I'm in Los Angeles and got the text:

Yeah, I had to tell the so-called Trevor to stop. This is a general text number for Tesla deliveries and such, not a personal phone number. This is automated marketing text made to sound personal.

When I went to Tesla's website that morning, there were only a few dozen cars within 50 miles. Checking the next day for this article, on Friday the 23rd, he had zero cars available within 200 miles of Los Angeles.

I found a few all over the country within 200 miles of a random zip code, but hadn't found any by Christmas Eve morning.

When they became available, they were all high-cost packages.

With that said, I happened to pass the store in Long Beach on Christmas Day. This is he's one of the few brick-and-mortar stores (not just showrooms) in Los Angeles. The parking lot was busy but there was no inventory to buy so no explanation there.

Take-out?

Tesla has probably cleared its inventory. Yes, there are discounts, but that's a good sign for Q4 domestic shipments.

Meanwhile, China remains a wildcard. They stopped production in Shanghai a little early on the 24th as part of their planned year-end holidays. This has never happened before. No reason given so we don't know if that demand or Covid related.

Q4 shipments should be reported within the first few days of January. Wedbush's otherwise bullish Dan Ives doesn't sound optimistic. Criticize Musk and lower the estimate to 410-415k (against his previous 450k). The street whisper number is about 435k.

If Tesla doesn't disappoint after the discount, it's definitely time to re-evaluate its 2023 predictions. That said, the opposite could happen, with Tesla reporting an explosion in deliveries. Don't be too timid.

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