July 7th, 2017
TRANSCRIPTION: Hi, I’m Steve Dudash at IHT Wealth Management. Welcome to this week’s Wealthcast™. Alright, so here’s the story everyone’s talking about this week, so we got to touch on it. But before I do it, anytime I talk about this subject I have to do a disclaimer or all the crazies come out of the woodwork, and yell at me. I like Tesla’s cars. I like Tesla’s owner. He is a good owner. He is very smart. A very good marketer and does a lot of thinking that’s wonderful. I love the dream that is Tesla, but here’s the problem. And I keep going back to this, they don’t make any money.
I talked about this about a month and a half ago on one of these, and I don’t want to toot my own horn here, but I talked about it being a bubble. And I compared it to the housing bubble that took place, you know 10 years ago. Prices kept going up because prices were going up, that pushed prices up more again. That’s not fundamentally getting better, that’s just artificial, which is what a bubble is. This is what’s going on with Tesla right now. They cannot produce cars at a profit. We’re going to talk about that in a minute, but the stock keeps going up through the roof. They literally need to produce 20 times the number of cars they are currently producing and make them profitable, which they don’t. Don’t believe what people are saying on it, they don’t.
In order to come close to the what the current valuation is. That is the definition of a bubble. Alright. I get calls all week long. Should I buy Tesla? Should I short Tesla? You know, just wanting to debate Tesla for the…crazy. Whatever. I was talking to a guy last week who is a Tesla fanatic. And the big argument that they always make is that Tesla makes 45% on every car that they produce. That is not true. And I am going to give you an example on why that’s not true. If you stripped every piece of cost away from building that car, then yes, that is true.
But I have an iPhone here, right? It costs money to build this. There’s plastic, and glass, and electronics. There’s a manufacturing plant out there with people working on it, robotics working on it. There’s marketing and advertisements and things that go into making this sellable, but then I’ll turn around and buy it. Ok? And I buy it after they profit on it. They mark up that price after the cost and sell it for a profit. Tesla’s cars- if you stripped out the marketing, and you stripped out the plants, and the robotics, and the loans, and the more loans that they have, then made that car. Then you’re right- you would make 45% on it. But you can’t do this in a bubble. Ok? You have to factor all those costs in, in order to get to that pricing of what it is. And when you do that, you lose money on everyone.
So, this week we saw Tesla’s price drop 20%. You know it’s up 50%, now it’s down 20%. Now this is where this ties back to you guys out there. How, when you’re investing do you really know what you’re investing in? Are you really fundamentally looking at it, or are you riding the last 8 or 9 year wave, that is the entire markets going up because of the crash and all that. Because people forget the markets go down, I’ve said this enough times now, I am just going to keep saying it again. People forget the markets go down, and this is a wonderful real world wake up call to people of seeing something that they think is unbelievably perfect in Tesla and coming back to reality and it’s down 20%, it could be up 50% next year, it could be down 50% next year.
It’s not based on fundamentals anymore, it’s just based on the emotions and that’s what you guys need to watch out for and be careful. Are you investing on fundamentals in your world or are you just winging it and going with the flow? Going with the flow will last you for a while but then there’s shocks like what just took place this week that will bring you back to reality. So, hope this helps. I like Tesla’s car, don’t freak out. But I hope this helps, and if you have any questions, call me. Don’t call me about Tesla, but call or email about anything else you want to talk about. Thanks, have a nice week. Bye.