Tesla and Netflix Updates

Tesla (TSLA) is down about 9.5% at the time of this writing after releasing an earnings report that was less than great.

As expected, vehicle deliveries and margins were both down slightly from last quarter but worse was Elon’s commentary about the economy. The higher interest rate environment is a problem if you’re trying to sell high-priced goods like cars that most people have to borrow money to buy. The biggest concern I had was hearing Elon say that he considered this current environment to be “really high interest rate environment”. Historically speaking, this is still an average or even lower than average interest rate environment. Depending on where you live, the Tesla Model Y (which is the best-selling vehicle in the world right now) costs between $36,500 and $31,500 when federal and state tax breaks are included. The Toyota RAV4, for comparison, starts at $28,475. So even though Tesla reduced the average price of its vehicle by about 20% since this time last year, it still has a ways to go before it reaches cost parity with some of its primary competition in the legacy auto market. Tesla reduced its average cost to produce a vehicle to $37,500 in Q3 and we expect this to continue to trend lower as its newer factories continue to increase production and become more efficient.

Meanwhile, Elon’s comments about it taking 12-18 months for the Cybertruck to deliver meaningful positive cash flow seemed positive if not just expected to us. Of course we would love this to be faster, but reaching full scale production in less than two years for what is probably the most Revolutionary update to the automobile in 100 years would be impressive. The first Cybertrucks should start shipping next month, and the company will probably reach a run rate of about 10,000 per month early next year. Elon ultimately expects to crank out around 250,000 Cybertrucks per year starting in 2025. We still did not get any indication as to what the Cybertruck will cost.

All of that said, nothing on the earnings call really changes anything for the long-term story here. Tesla is going to keep innovating, it is going to sell millions of cars and Cybertrucks in future years, most every police force in the US will be using Cybertrucks as their primary vehicles, the Next-Gen cheaper/utilitarian cars will be rolling out in the next few years, Tesla is one of if not the leading AI company on the planet and they most likely will be the first to solve fully autonomous driving, and the Optimus Robot will be a trillion dollar kicker. I’m a buyer of more TSLA near $200. We covered a lot of our Tesla hedges today in the hedge fund.

Turning to Netflix, the stock is rocking today (currently up about 16%) after the company reported better than expected earnings and subscriber growth. Netflix indicated that it is raising prices in the US for both its premium ad-free plan and its ad-supported plan. The company reported around 247 million paid global subscribers. For reference, Prime Video has about 200 million subs, Disney+ has 146 million, Paramount+ has 61 million, Hulu has 48 million, and Apple has 40 million. Unlike all of these other services that are still trying to grow their subscription base at all cost, Netflix has already reached critical mass and is now cranking out billions of dollars in profits every quarter. Netflix will grow revenue about 10% y/y next quarter and is trading at about 27x next year’s consensus earnings estimates which will probably ratcheted higher in coming days closer to $20 per share making the stock’s P/E about 20x next year’s earnings. We trimmed some of the NFLX calls that we bought recently for a nice profit, but we are holding tight on the common and some of those calls for now.