how to get inside the minds of Wall Street it's research note from Morgan Stanley Tesla Q3 earnings preview plus feedback from a bull bear investor lunch we hosted a bull bear lunch with investors yesterday in Midtown Manhattan sentiment around Tesla earnings estimates the third and fourth quarter skew cautious many are wondering if Tesla can grow earnings at all in 2024 for the record I will be surprised if that doesn't happen although not an enormous amount potentially the impact of dojo and AI is difficult to quantify and easy to ignore so it sounds like Morgan Stanley from some of their discussions at this investor lunch discovered a lot of folks who are disinterested and even paying attention to the potential of Tesla Dojo Tesla AI FSD Robo taxis so on which is about right cuz it's Wall Street after all a few high level takeaways from the lunch unanimous sentiment that there is downside consensus earnings revision risk for the remainder of 2023 in other words many analysts potentially revising their estimates down in terms of earnings because volumes are lower than they might have expected probably Fair after all shut down to the refresh model 3 potentially slower than you'd hope cyber truck ramp to be expected two caution around Tesla's share price performance through the end of 20 sorry there every time through the end of 2023 which is basically what 3 milliseconds from now we're already in October who cares not me noted slightly less pessimistic view of Tesla share price performance versus the market over the next 12 months I wish they would have asked about the next 5 years the next 10 years the next 20 whatever three commentary on the forward Outlook was scene is more consequential than the Q3 result itself so a lot of these investors here expecting whatever Tesla says about the near and medium term it's going to make more of a difference in the actual Financial results in Q3 four 2024 seen as volatile I mean what year hasn't been for Tesla downside risk of volume I really doubt this some think earnings potentially may not grow at all cyber truck Tru very little enthusiasm on Tesla's next model now again the whole reason I'm sharing this with you guys is to give some insight into the minds of the folks on Wall Street the big money very little enthusiasm on Tesla cyber truck just as deliveries are about to commence why I don't know maybe they're unaware of the 2 plus million reservations the fact that this thing is going to absolutely disrupt the automotive industry redefine what a truck is make a mockery of the So-Cal competition act as rolling Billboards blow up on social media in viral video after viral video become a hot toy for celebrities rappers athletes I mean never mind when these things hit work s sit so people see what they can actually do the F-150 may be in trouble but of course it's Wall Street so of course there's very little enthusiasm regarding cybertruck if cyber Tru is delayed and ramped slowly then Tesla will be seen as continuing to resort to price cuts which has been the recent Trend again it's in there a God damn it dude okay just one more time Tesla will make as many vehicles as they can as fast as they can and they will sell them all for whatever is the necessary market clearing price at the time the end doesn't matter if there's economic turmoil doesn't matter if for some strange reason there's a surge in orders and they can't keep up it doesn't matter they will do whatever they need to to keep producing and selling as many vehicles as they can as fast as they can it is that simple and one line I wanted to get back to I just jumped ahead there for a reason teething issues seen as perpetuating Tesla's relatively stale model line up God damn it bro okay so one they've just refreshed the model 3 stale my ass there other of the two volume Vehicles the model Y is literally the world's best selling vehicle period now in case you haven't figured it out model Y and model 3 will be Main Stays for the next decade plus over time their features will continue to get better their prices will continue to come down and they will continue to sell an absolute ton and dominate their respective categories SUV and sedan period water Y is now already at analized rate roughly a million or so vehicles per year the world's number one selling vehicle it's well on its way to two then three maybe even 4 million units per year and yes I know that sounds crazy because to date the world's bestselling Vehicles cap out at probably around a million units but just imagine in the future Mo y being 20 30 40 50% more affordable and better more range more performance more Tech cuz it will happen over time and this isn't to say that Tesla isn't introducing a much more affordable vehicle the subsequent generation that thing you think a few million units per year sounds ridiculous for model y you have no idea what is going to happen when Tesla's next gen $225,000 each vehicle comes out so the idea that Tesla has a stale vehicle lineup this is ridiculous the snx were recently refreshed The Plaid versions exist you can now literally play Elder ring in a Tesla also go 0 to 60 faster than most of you people go Z to I'm sorry I'm not usually that fast uh sorry uh uh and with the refresh model 3 Highland now in some regions and soon that will also be available in the US and like what's stale the only thing they could possibly referring to is the model Y which has recently had a minor update in China and is the world's bestselling car and spoiler we'll also get a high landesque model 3 refresh soon but it would be insane for Tesla to make refreshes to the 3 Andy at the exact same time because I would lose a staggering amount of production in the quarter obviously so I just what are they talking about when they refer to Tesla having a stale oh I know the name why don't they change the name okay here's a good idea so when they refresh the model 3 what they should have done is called it the model 4 cuz now it's new morons why is it that Apple still calls it the iPhone oh didn't think about that as I said these are Mainstay products they'll be around for a long time they continue to do high volume there's nothing stale about them but of course in Wall Street world again the reason I'm going through this is to give you some insights my best interpretation of this is well Tesla needs 12 different model models yesterday otherwise the it's stale the model 3 came out in 2017 and nothing about it has changed since then therefore stale model y 2020 it's been nearly 4 years the model y has been available and nothing's changed stale the model S came out in 2012 it's been over a decade nothing's changed stale you get the point I feel bad for these people sometimes however if Tesla announced a launch event and the start of production with Q3 results EG cyber truck this could be seen as positive for the stock now I'll be very surprised very very very surprised if we don't have a first delivery event for cyber truck by the end of this year for those of you playing along at home you might recall the Cyber truck unveil was in November 2019 I'm sure tesar internally would have been hoping to and by the way Hope's not a strategy but aspirationally hoping to have first deliveries coincide with the unveil whether or not that happens who knows but with earnings less and a week away I'm sure almost certain maybe like 90% chance that we will hear a day for first cyber truck deliveries or at least mention that it will happen later this year after all the recent Tesla cyber truck Baja footage showed that they're doing testing now now I'm not suggesting there'll be a lot of cyber trucks delivered maybe the first 69 or something like that but it's very likely that cyber truck deliveries first deliveries will be later this year and six and this is just God damn it again the reason I read this is just to get inside the head of these folks on Wall Street really not much interest in Dojo or Tesla's Ai and FSD efforts oh again this is going to unlock a decad trillion dollar opportunity I'm unaware of any greater opportunity in the history of public markets coming out of almost nowhere almost overnight relatively speaking the profound implications financially socially Everything Will Change let's read that one more time from the investors at this bull bear lunch really not much interest in Dojo or Tesla's Ai and FSD efforts what planet are these folks on it boggles the mind I'll tell you what there's going to be a lot of interest after the fact as I said when they finally get turkey slapped in the face when the first robot tax is awaken or when Dojo as a service comes online and starts printing insane money like AWS by the way for those who don't know Amazon web services is absolutely carrying Amazon the company their profitability everything carrying the company they have very very thin margins on products that they sell online right Amazon web services by the way that was a huge Catalyst for Amazon stock exploding back in the day yet no interest in that nor Tesla's real world AI nor the r taxis it boggles the mind again I kind of feel like these folks on Wall Street especially analysts see themselves as weather reporters telling people what happened today oh yeah we're stunning in as opposed to what they believe will happen not where the forecasters where the reporters just telling us what's already occurred cool story bro thanks for letting us know after the fact when everyone already saw the opportunity still just a head scratcher I mean bro how can they not be interested like you would think if these folks had any any idea what they were doing they would at least be asking the questions trying to understand if there's something here but it seems that they're not even interested in that they have the opportunity to talk to the folks at wgan Stanley who recently published a note with a huge price Target increase on Tesla based on dojo and what are they more interested in 2024 Q3 results whether the Cyber truck will be delayed Tesla stale product lineup and earnings might be a bit lower than expected over the short term Madness why why are they not interested well it is difficult to predict the event path and because it's difficult and hard to measure let's just ignore it idiots General concern that Tesla's approached autonomy is risky with it idiots oh my God holy okay uh I'm just leaving that in general concern that Tesla's approach to autonomy is risky with respect to relying on passive Optical cameras relative to other F [Music] efforts is there like I don't know maybe there's a term for this but I kind of feel like when your IQ gets high enough odds are you go one of two ways you have the forking event you either become a super intelligent genius who just absolutely wins at life on everything and dominates you build multi-billion dollar companies you invent products Technologies you absolutely kill it or you turn into like a savant who has extremely narrow abilities you might be really good at math or something but understanding something like passive Optical versus the lighter and you just like very risky strategy is it just me is there a word for this mean the these folks these analysts they're no morons at least academically but when it comes to the real world bro we've been over this I'm just I'm not going to go there again tactical thoughts ahead of Tesla's Q3 due post close next Wednesday October 18th units already disclosed by Tesla at 435,000 which was approximately a 5% Miss versus consensus Revenue we forecast average transaction price AKA ASP 44,500 per unit driving our estimate of $1 19.4 billion in Auto revenue and 23.3 billion in group Revenue for the third quarter gross margin wall Street's favorite talking point excluding Zev credits we forecast underlying Auto gross margin falling to 175% versus 18.1 last quarter and 19% in q1 Zev credits historically unpredictable but we see scope for Zev credit Revenue to play a larger role over the next year as some high volume competing EV plans may be dialed back again we just need to take a moment these zero emission vehicle credits are literally tesa's supposed competition the companies that Tesa will indirectly and inadvertently and intentionally put out a business their so-call competition paying Tesla money to build more factories to make more vehicles to do more R&D to drive the prices of the vehicles down to make them more compelling to yep put these companies out of business the irony of ironies this is basically like paying someone to your wife and not being one of those people who has a fetish for that but paying somebody to your wife that you'd rather nobody your wife other than you operating profit our Q3 forecast of Gap operating margin is 99.3% versus 9.6 in 2 Q and 11.4 in q1 still industry leading EPS our us Gap EPS estimate is 56 cents versus 78 cents in Q2 and 72 in q1 consensus Q3 Gap estimate at 65 so a big gap between consensus and Morgan Stanley there cash flow we forecast just under 1 billion of free cash flow in the quarter roughly flat on a sequential basis versus Q2 tell you what guys I wish I was Cash flowing a billion per quarter be nice we agree with the consensus that the performance of Tesla stock following the print will likely be driven by comments on the forward Outlook and how that may move consensus up down or neutral for 2024 translation if Tesla is very positive and bullish stock goes up if they're cautious stock goes down of course time will tell I really wouldn't rate into it too much certainly if you had to make a bet you'd bet if Tesla has really negative guidance sure it might have an adverse effect but bro the number of times that Tesla stock reacts counterintuitively seems more often than not this is after all the very same stock that opened 2023 at $108 per share and is's currently $262 per share despite the competition coming prices collapsing margins collapsing earnings collapsing delivery volumes collapsing you get it right the point there's not that much of a correlation between Tesla performance versus expectations and the actual stock otherwise there' be a lot of quadrillionaires on Wall Street who' predicted things oh well the earnings are going to go down therefore the stock must go down again I just want to put on the record Tesla stock this year up nearly 100 and 50% once again it opened at $108 per share it's now $62.99 if you want to be exact it's up almost 142. 69% for the year despite estimates coming down all Year how's that work answer it's Tesla stock this is why I just buy and hold anyway fascinating insight into the minds of the folks on Wall Street here I just some of this just does my head in row one more time really not much interest in Dojo or Tessa Ai and FSD efforts cuz it's hard to predict and more hilar than that General concern that Tesla's approach to autonomy is risky with respect to relying on passive Optical camera relative to other FSD efforts you know light ey Geo fencing preap in HD I mean bro it is just hilarious plus very little enthusiasm on Tesla's cyber truck what a clown show is it any reason these folks on average the Wall Street analyst on average have completely missed Tesla since it ipoed and just not understood the story and been constantly chasing after it having the stock surge through periods of time goes flat for a few years then Absol rocket up Suddenly their price targets like 30% of what the stock is that's awward let's reverse engineer an excuse for why our price targets now tripling overnight cuz we don't want to be embarrassed I think this is going to continue for years to come because they still don't get FSD or robot taxi or AI or dojo and around the corner Optimus I don't think anyone on Wall Street understands that either don't forget if you guys would like to see my thoughts for Optimus first Rober taxi Awakening and the financial impact that has on 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