Tesla’s Past, Present and Future With Farzad Mesbahi - 7investing 7investing
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Tesla’s Past, Present and Future With Farzad Mesbahi

August 11, 2022 – By Anirban Mahanti

In this podcast, 7investing Lead Advisor Anirban Mahanti sits down with entrepreneur, electric vehicle (EV) enthusiast, and former Tesla (NASDAQ: TSLA) employee Farzad Mesbahi. Farzad graduated with a degree in Mathematics and Statistics in 2009 and began his professional career with Phillips Pet Food & Supplies. But perhaps most relevant to our conversation was Farzad’s employment with Tesla between 2017 and 2021. At Tesla, Farzad helped ramp the company’s parts distribution network in the US and overseas. An investor in Tesla since 2012, Farzad had the opportunity to see how Tesla works from the inside and realize how fast the business moves. During the conversation with Anirban, Farzad remarked how 4+ years at Tesla felt like 10 to 12 years of life, highlighting the intense breakneck pace of the company.

In this conversation, Farzad outlines his investment thesis, highlights what mainstream media and general investors might be missing when they think about EV adoption, and then discusses some of the challenges that could possibly trip the company.

This conversation is a must listen for those interested in the EV industry, the future of automobiles, and Tesla.


Anirban Mahanti 0:00
Hello! I’m 7investing lead advisor Anirban Mahanti and it is my pleasure today to have Farzad Mesabi. We found that through Twitter, because 7investing put out a message saying, who should we bring on into our podcast? Who should we interview? And Farzad was a suggestion. And he’s well known in the YouTube community. He’s well known on the Twitter community. And he’s well known for those people who have been following Tesla (NASDAQ: TSLA) for a while.

And I was suggested as the person to host this interview so its been my pleasure to do that. And it’s actually I thank Farzad for agreeing to come on the show. So Farzad has a wide background. So he’s an entrepreneur, he has a BI background, he’s actually an ex Tesla employee, spent several years working at Tesla, and has been an EV advocate for a long, long time. So far. So welcome to the show.

Farzad Mesbahi 0:57
Thank you very much for having me. Anirban. I’m super excited to be on here. And I’m excited to chat with you about whatever you have. So I’m here for you. Thank you, man, thank you so much.

Anirban Mahanti 1:05
You’re welcome. So So for our listeners, we don’t really have a script and I just before recording this, I told her that these are things we’re going to talk about. So we’re going to try to jam as as we go on. And I find that that sort of brings out the best opportunity. So the first thing I would ask you is to tell us a little bit about yourself? I did a two line intro. But you’ll make it more interesting, I’m sure.

And that’s just for our listeners to know a little bit about you maybe where they can find what you’re doing today. I saw that you’re actually even jamming online, you shared some videos, and maybe some people are interested in that. They might be also interested in following that.

Farzad Mesbahi 1:46
Thank you, man. Yeah, thank you did I really appreciate you calling out the music stuff. So yeah, I’m a former Tesla employee I worked there for from 2017 to 2021, July 2017 to September 2021, for exact sort of periods. That’s how I’m most known for on the online community. I started a YouTube channel about eight, nine months ago that really talked about my time at the company and sort of the things that I’ve learned about Tesla.

Before that, I was at a pet food distributor for seven years called Philips Pet Food and Supplies, and then my career there as the Director of BI in pricing. And so a lot of my sort of experience comes from the data side and strategy and things like that, that are really related to growing out of business.

I’ve been an investor in Tesla since 2012. So I caught that train relatively early, especially if you compare it to some of the other investors that have come in a little bit later. But I’ve been following this story for a long time, like you said, an EV advocate, so I do think that there’s a lot of opportunities there to grow that market. And, yeah, I have a YouTube channel if you just search for my name, Farzad Mesbahi, that will come up right there. Same thing on Twitter, if you just search for my name, it will come up there as well. And then we just started a band a few weeks ago, here in Austin, I just relocated to Austin a couple of years ago.

And back before my life got crazy with all the career stuff, I used to play a lot of guitar. And ever since I left the company, ever since I left Tesla in September to really pursue my passions. After I gained some financial independence, I really made it a point to play a lot more guitar, and we just started a band. It’s named chat city, we have a YouTube channel for it, if you’re interested. We played our first gig on Saturday. But yeah, just I think I’m just on a journey right now to really follow my passions. And to really, really, every single day, when I wake up, I want to work on things that I want to work on.

And right now the YouTube channel, sort of talking about Tesla, the thesis behind Tesla, all the positive things that can come out of moving to a sustainable future. And all those things have become passions of mine. And now that I have a platform to share my ideas and involve others to come in and also talk a little bit about what the implications are not just from an investment perspective, but from a cultural perspective. It’s been super fun. And I’m very happy to sit down and talk to you about that stuff today. So thank you very much again.

Anirban Mahanti 4:01
Thank you very much, actually, for the introduction. You hit the nail. We’re going to talk about Tesla, a lot of Tesla today. And you’re an early investor, right? So when you started in 2012, this was a sub $10 billion company then this is one of the ultra mega caps today. And a lot of people think a lot of the gains have been had, maybe it’s overvalued and things like that. Can you unpack for our listeners, what your thesis is?

When you continue to hold like I’m a shareholder and a shareholder for a long, long time. The only portion that I sold is to pay a down payment for a house, but otherwise at one point I had a ridiculously very high allocation of roughly 40%, which is irresponsible, probably. It was all basically from the growth of the shares over time, so I’m just curious to hear what your thesis is? And assuming you’re holding now, what do you see in the future?

Farzad Mesbahi 5:11
Yeah, great question. So, I’m the same way in that almost a very unadvisable percentage of my net worth is still in Tesla to this day. I have reduced that a little bit over time, but it hasn’t really shifted much and may have gone from 50 to 40%, or something like that. And a lot of the reason why I used those proceeds from that was, again, like, invested in like real estate and other things.

So a significant portion of my net worth is in the company. And so the way I think about sort of the the thesis of Tesla moving forward you kind of prefaced it and said in the last 10 years, you said the last 10 years there’s been a lot of growth, it’s gone from a 10 billion to almost a trillion dollar company now, from a market cap perspective. And so what people think about in their head is like, wow, it had such a crazy valuation increase already, there’s no way that it’s going to go any higher, it’s going up too fast.

And so with the background that I have, the fact that I’ve been following the company for 10 years, worked at it for a little over four years, and I feel very plugged into the community and sort of what Tesla is trying to do, I really do think that the next 10 years are going to be probably an order of magnitude bigger than the last 10.

And the way I think about that is the future implications of the technologies that Tesla is working on that right now that the public doesn’t believe are reality. And then the addition to that is the expertise that Tesla has that I think folks are still not valuing properly for the company. So let me start there first. So what I mean by that is really scale. So Tesla, in my opinion, is really the only company right now that’s in the EV space, that has the capability to scale to 10 million, 20 million cars a year, based on the current supply chain that’s set up for the company.

So if you really think about what is the company trying to do, what is the company constantly talking about day in and day out, is how many batteries can we make so that we can sell as many cars as humanly possible. So that’s point number one, they’re really working on supply. Point number two, the demand that is out there for the company is 100% organic, it’s in a gigantic backlog right now. And Tesla has used essentially zero levers to create that demand, right?

They don’t market, they don’t really go out of their way to really push the product, everything’s word of mouth. And all the demand is stemming from just people seeing the cars on the road saying that looks like a cool car, then they hear a friend that has a Tesla, their friends like get in my car and check out how cool this thing is. That person gets in the car, they’re like, Okay, I’m going on my phone and ordering one right now. So that’s typically how Tesla’s are sold. And you compare that to any other car company, that is very, very different.

These car companies or whoever else is in that industry, they have budgets that are allocated to marketing, and going out there and actually trying to convince you why you should buy the product. So the product is the king for this car company. And so if it continues in that trajectory, which I think it will, then you have a formula that basically says that this company could have a recipe for essentially unlimited demand, until they reach a saturation point, which in this case, will be the entire car industry. Now I’m not saying we’re going to have 100% market share. But that’s how I think about its potential until somebody comes along, that matches that type of approach when it comes to selling vehicles.

In addition to those two things, having worked at the company, I got an exclusive look into how the company actually runs day in and day out. I saw the culture, I saw the problem solving capabilities of the company, I saw the talent, I saw how vertically integrated the company was. And the thing that my biggest takeaway from that and honestly, for me, it’s probably going to be the biggest variable as to why I think Tesla right now is positioned to be really the perfect company to take advantage of, to really be able to scale into the future, is that culture of innovation and speed and change exists everywhere in the company. And it’s so embedded into how everybody works, that it was truly eye opening, it was almost like a new way of running a company.

You have essentially the best talent in the world that has joined the company in the last decade. Tesla and SpaceX are continually ranked number one and two for attracting the best engineering talent. And what the company does is that it empowers these employees by essentially given them a key to run the business. And it’s not really hierarchical. There’s very little with any politics. So you essentially have 100,000 people that work at the company that are empowered to go out there and make the right decisions and move the company forward.

Oh and by the way, every single one of these employees also has stock in the company that they’re they’re compensated by being invested in the company. And so that already gives them an incentive to try and do as best as possible because that will increase the value of the company which increases their net worth. So you have this perfect sort of setup for employees to really be incentivized to do the right thing.

When you have the smartest people there, and the company understands that if we empower them, they’ll make the best decisions for the company, then you have another recipe for success. And I saw that with my own two eyes while I was there. So that’s, that’s the today thing. That’s why I think today, Tesla is super, super good. And so when you think about the future, and how it gets to 10 trillion, who knows 100 trillion market cap, I don’t want to throw out crazy numbers out there. But the variable of full self driving and self driving cars, and AGI and robotics, these are things that are still foreign to people, most people still don’t don’t truly understand specially call it the masses, the whatever mainstream, the mainstream doesn’t understand that to this day.

They’ve heard of self driving cars, they’ve heard of Waymo, they’ve heard of this autopilot thing. But really the idea of full self driving technology taking hold, I would argue is still super not well understood and not well accepted. Because there’s still that sort of separation of people having experienced that technology. So what’s happening this year, what I’ve noticed with Tesla, is that they’ve really making some pretty significant improvements on their technology from a full self driving perspective, or they’re getting better, basically, every single month, they have a release that comes out and improves a car in some measurable way.

And so at some point, given Tesla’s track record of being able to execute at a very high level, in other words, anything that Tesla really starts and says they’re going to work on, they get done, they’re never on time, but they get it done. That sets the stage for full self driving, say, level four, or level five autonomy to exist, say within the next 6 months to 2 years, I really think that’s really the timeline we’ll think about.

And then once that technology exists, then you have a recipe for such incredible profitability, you think about what the self driving means to the company. Right now, the software is $12,000, which is essentially 100% margin, if you do have the utility of a car that can drive itself or you can rent it out, and other people can use to move around, you essentially have a chauffeur that’s driving this car 24 hours a day, seven days a week.

And if you use a simple math of saying you have a chauffeur running around 30 bucks an hour, 18 hours a day, 365 days a year, and you rent that service out, that’s about $200,000 a year if the car were to run 18 hours a day. So even if you say 50% of that that’s still $100,000, a year that you add to the value of the car, and then you can kind of see how these numbers get insane, especially when you have a scalability to get to 20 million cars, blah, blah, blah, blah, blah.

So that’s my thesis, and sorry, it’s very long winded and deep. And there’s a lot in there, I’m sure to unpack. But these are things that I’ve thought about quite a bit. And it’s a combination of what we know exists now and what the future potential of the company is. But given the track record and the execution level of the company in the past, I’m convinced, I shouldn’t say convinced, I’m highly confident that these things will come to fruition. And we haven’t even talked about the bot and AGI but that’s how I think about the company. Yeah,

Anirban Mahanti 13:11
Fantastic. So let’s unpack some of that. So let’s say Tesla. So Elon Musk says about 20 million by 2030 I think was sort of the goal, right? 2030, 20 million. That’s where the 50% compounded growth for production comes into play. But let’s say they do 15 million that puts them in sort of the level of a Volkswagen in terms of total output, it’s not that they have 100% of the market, even at that point, right. I think people have a hard time seeing how Tesla gets there. I guess they’re a couple of different things here.

I mean, they have clearly on a price point basis been able to sell a lot more of these higher price vehicles, to consumers versus when you compare with what Toyota or Honda or Volkswagen. Volkswagen needs to make the golf to actually make those numbers. Tesla is not making a golf equivalent yet, but I guess there is the total cost of ownership into the equation as well, which brings a lot of cost parity into play.

And so I guess one of the things I think about is Tesla, in many ways runs like an Apple like model, right? I mean, it has got a small set of products that you can buy. Very small iterations in terms of or differentiations, right. I mean, you buy a model three, or model three that are basically identical, except for maybe a little bit different on the interior and the battery pack. Right.

Farzad Mesbahi 14:43
Speed, going faster.

Anirban Mahanti 14:44
Or speed so yeah, so doing more per single motor, is it a bigger battery, and things like that, but it’s a pretty simple structure. Do you think Tesla would need to produce other models to actually get to the 20 million number?

Farzad Mesbahi 14:59
Yeah, of course, yeah, they’ll need to release the cybertruck. That might add, say super optimistically half a million to a million units a year, maybe a million and a half. But you still have a gap there. Right? So I do think the total addressable market that Tesla has built right now with model 3, Y, S and X is probably close to 4 million, if they had the capacity for 4 million cars right now, between those four, I really do think they would sell 4 million cars right now.

And if you layer in cybertruck, that’s another million. So let’s say right now with cybertruck, next year, and everything they have right now with every single factory, that they need to ramp up the supply to meet demand, given their current strategy of doing zero marketing and advertising, I think it’s 5 million cars a year, excuse me. So you need 15 million to get there. Right.

So that’s van, smaller vehicle, that’s semi, right. So there are some ones but really, the smaller vehicle is the big one is the $25,000c ar. But here’s my point about the scalability, what other company is going to have the supply chain, and really the the capacity and the expertise built out in this technology, which is batteries, to be able to generate enough batteries at a super cost competitive level, that it’s going to be able to allow them to get to 15 to 20 million cars a year?

If you take a Volkswagen or a GM or Ford as an example, these companies, their entire supply chains, and the entire capacity is built on an old technology. And they’re not really compatible with EV technology. There’s a reason why Ford is losing money on the Mustang EV Mach-E when they were selling it before the crazy inflation went up. There’s a reason why they were losing money on that.

Anirban Mahanti 16:49
They don’t have enough scale, yeah.

Farzad Mesbahi 16:50
Exactly. They don’t have it. That’s what it really comes down to is that is that yes, they’re not going to be they’re not 20 million yet. But the only one that can get to 20 million EVs per year is Tesla because they actually have the foundation and the capability and the expertise to get there. And so I really think the way investors should be looking at this is not that Volkswagen and Toyota are making 10 million cars a year is who is making the most EVs right now? Because that’s really what the product is. The internal combustion engine is broken. Exactly.

Anirban Mahanti 17:27
Yeah. So one of the things I think a lot of investors initially thought, I think, that has now been totally debunked, which is what you’re talking about here is that the old guard knows how to make, they have the factories, they can scale very easily. But what turns out to be the case is, those factories actually make ICE vehicles or ICE vehicles, they don’t actually make the EVs and the supply chain for EVs works differently.

And if you want to optimize that further, you’re looking at cost and things like that, you probably make the cheaper vehicle just in a single cost, right? You’re getting the experience along the way, and maybe you use exoskeleton because an exoskeleton is gonna make it even cheaper, we don’t know. But maybe those are the things that due to the advances in manufacturing technologies that are going to enable that.

And of course, the smaller vehicle requires a small amount of battery company with the biggest amount of battery supply and battery production facility, and whether it is the new type of cells that they’re working on, clearly has an advantage over any others. And I think that is beyond doubt. I wanted to just get your thoughts on the smaller vehicles because I bet there’s got to be, there has to be something that’s hidden somewhere that there has to be.

I want to touch upon something else, I think, I think you hit it. You’re right on here on the money. When you’re saying I think that with self driving and maybe even with the things the robot and stuff they’re doing with dojo, a lot of those things are at that stage, where there are the 2010 stage where people think, Oh, this is a sideshow, this is a gimmick or this is just a passion project. And Tesla’s ability to execute exactly as you pointed out everything that they say that they’re going to do they have done, they might be late by a couple of years, but the promise big and you’re delivering couple of your be couple of years late actually is not a big deal.

How do you think about Karpathy leaving? So I have a couple of different thoughts. I’ll share my thoughts and I’ll let you then debunk my thought. So one of the things I think about when I think about the FSD suite, so they had Jim Keller, for example, work on the hardware component, he came to design, he left. Jim Keller has a history of doing that with different companies. And he’s a builder who builds these crazy things and then moves on to build the next crazier thing he can build. So he left, and a lot of other people, a lot of significant people have come in and left. And Tesla’s FSD has continued to evolve over time. So that’s one aspect to say that Karpathy leaving is not a big deal.

The counter argument that is often made is if FSD is that close to being done, it’s kind of foolish to leave before peak fame arrived, and a smart person is not going to be so maybe the timeline actually, is not six months or two years, but maybe it’s five years to get done. And that’s a long time for a young, successful individual. And maybe as you said, they’ve gotten a lot of stock over the last five years, and therefore, maybe wants to pursue academic interests and therefore wants to go back to academia.

It remains to be seen whether Tesla, for example, if he goes back to academia does he become a Tesla chair or something like that, an arrangement where they actually work with him, because they’ve done that in the past with for example, a battery group in Dalhousie.

So I’m just wondering, how do you think about this is the most significant department, Andrej’s Karpathy’s departure? I used to call him the God in the computer vision world, and having that talent leave is a significant thing. How do you look at that versus, say, the progress of FSD that Tesla has made? Especially FSD Beta?

Farzad Mesbahi 21:44
Yeah, this is a really good question. So I agree with you 100% that Karpathy leaving is definitely a big loss to Tesla 100%. If it wasn’t a big loss to Tesla, then he wasn’t the right talent to be at that helm. Right. So that’s kind of the way I think about it. So good people leave all the time. Right. So but the way I view his contribution is the one thing to keep in mind with Karpathy is that, and I’m not an AI expert, but from what I know of what his background is that his expertise, his vision.

So my, my alternate thesis to this would be that I think his piece of the puzzle has been solved. And now it’s just a lot of computational sort of AI work that has to go in to take the vision data set that has been collected through the cameras that’s being fed into Dojo or whatever systems they have. And then that work that goes in there has to be done by a different team, which doesn’t really encompass what Andrej’s expertise is necessarily. So they’re almost hitting the next generation of full self driving development. Right.

So that will be one counter that I would say, I don’t know if I’m right, It’s a hypothesis. I’m just saying that. But really what I think what it truly comes down to is that I think, I think Andrej, like I was there for a little over four years, it feels like you worked there for 12. It feels like you’ve been somewhere for 12 it there’s a huge like, compounding factor when you work at a company that moves so fast on unrelenting force, like it’s just unreal, it does not let up. So you go hard every single minute that you’re there. And I still to this day, I don’t know how Elon can do it for I don’t know, it feels like 15, 20 years, however long he has been there superhuman ability.

So I think different people just have different sort of limitations of how long they want to be in that environment. That’s one variable. The other one is passions, passions change who knows what Andrej, maybe he’s like, I want to do something a little bit differently. But ultimately, I think what it comes down to is Tesla can hire the best talent. So even if Andrej leaves, I think that opens up the door for somebody even better to come in and take over.

Think about JB Straubel. So JB Straubel was the one of the founders of Tesla, and he left around, I think, 2017, 2018 in the middle of the model three ramp, which he was a crucial piece to get going because he was the battery guy, and Gigafactory Nevada was his thing. And he left right as they were ramping up. And then when when he left what happened, the company ramped, right?

That’s sort of the parallel I would draw to that is that Andrej leaving could very well signal that his work is done. And now he’s gonna go to the next stage of the thing and it’s just a matter of time, just get the data in there and get it going. And then the next generation of leadership that comes in his shoes is going to take the company to the next level. And this is what Drew did when JB Straubel left is Drew is now taking the company to the next level from a scaling perspective. So it’s just a hypothesis, but I tend to view it that way because I know what kind of talent Tesla can bring in and and there’s, there’s never going to be a gap. They’ll find who they need.

Anirban Mahanti 24:46
I think I agree with that. So one of the things I think about great leadership, great leadership is not about just being great yourself, right? Because you cannot carry an entire movement right?

Farzad Mesbahi 24:58
Everyone has to add value

Anirban Mahanti 25:00
Exactly, and you have to be training people to replace you. In my one of my previous jobs, I used to say that I’ve done my job well, if I can leave and you can replace me immediately, because that means I’ve done my job well, right? Not that, oh, this person is leaving, we need to keep this person at any cost. That actually is, yeah, that’s a red flag that is basically building fiefdoms. And and that is actually very bad for a company that creates politics that creates power plays.

So I think the JB Straubel example is a fantastic one, because he had trained Drew Baglino and nicely stepped up and taken up that role here that the the AI team or the FSD team is 120 engineers strong. So yes, a big loss. I agree. But I think in a true Tesla way, that should be easy to easy to fill.

Okay, I want to jump I guess we’ll get one more thing to talk about. And I want to get your view on this. I think one of the things that people so, I look at a lot of earnings as an investor, and one of the things that surprises me is that Tesla has got positive free cash flow, in generates plenty of free cash flow, people just don’t realize it has the highest operating margins in the industry, that is actually increasing at a crazy pace. So this company is actually going to be printing cash at record numbers as it continues scaling up, and it’s probably not going to know what to do with that cash.

So that’s one of the things you could actually say. This is a company where you can actually do a DCF model and see what what does the market forecasting for free cash flow growth, and my thesis has always been that, oh, they are under balling, what the free cash flow growth is going to be for this company.

That aside, and let’s think about a little bit about the risk, right? What do you think are the biggest impediments to Tesla being, say, double or triple or quadruple from here, and continuing to win market share continuing to print that free cash flow? What are some of the big risks that you see, that the company has that it hasn’t yet addressed? I think the factory was a big one. I think that’s being rapidly addressed right now with multiple factories. But I’m just wondering, what are the other big risks that you see?

Farzad Mesbahi 27:36
Yeah, I mean, honestly, I view Tesla’s risks, as 100% macro related, I really do believe that Tesla, when it comes to massive risks that could? Well, let me rephrase that. I think the biggest risk for Tesla’s future growth is lack of visibility into how they get to 20 million. We don’t know how they get to 20 million to this point, like they’re talking about 20 million, but they’re, they haven’t really shown their cards.

Now you can make an argument that the reason why they haven’t is because they still have two years yet to go their internal, like the actual production capacity they have right now, once everything fully ramped up between four factories, each of them can probably do a million cars a year realistically, that gets you to 4 million, that’s 4x where we are now. So their whole thing is like why the hell do we need to tell you what we’re doing when we were already we have 4x to go like, give us a year, like we’ll get there.

But if we don’t hear that, say, in the next six months, six to 12 months, then that’s one potential risk, especially to the stock price, is that investors don’t see visibility into maybe 10, even 10 million cars, though, 20? How do you get to 10 million? Because the a lot of the assumptions is Hey, like a lot of your stock price is based on you continuing to perform perfectly. I’m not really sure that’s the case. But that’s sort of the narrative. So we’ll go with that. But tell us how you’re going to get there. So lets label that one risk is lack of visibility into 10 million 20 million, with the assumption that the stock price performance is tied to that figure. So let’s use that as one risk factor.

Anirban Mahanti 29:10
Can I just jump in a bit here? So sorry, sorry, for cutting you off but hold on to your thought. If we think about the model 3, the model 3 has sold way more than a comparable model in that sedan class would be right. Entry level, luxury, whatever you want to call it, right? I would say that the model Y would easily sell twice, maybe twice of that because that sort of vehicle is just price. It’s the perfect utilitarian vehicle at that price range, right. And they always have some price levers too that they can pull as their battery technology improves, they could be pulling some price levers as well.

These cars have got good margin. We know that. So in my mind, it seems to be that the couple more factories and they’ve become very capex efficient, right? So they’re projecting what 6 billion to 8 billion CapEx spend, I think annually over the next few years based on the last 10-Q. So if they put couple more factories and the factories are becoming more efficient, so that gets us to 10 mil, I think I can see the roadmap to 10 million maybe if they get the cybertruck and again, we probably underestimated how popular the cyber truck could be. Right?

Farzad Mesbahi 30:27
I agree.

Anirban Mahanti 30:28
So, the cybertruck could the vehicle that the tradies use and the vehicle the recreation folks use, and then all of a sudden, you’ve got a much larger market opportunity, right? And we have to remember that the Ford F-150 it’s the highest selling vehicle for Ford, right? So there’s no reason to believe that Tesla can’t do that much as an example. So I think the 10 million roadmap I see but even with 10 million, don’t you think they have plenty free cash flow, though?

Farzad Mesbahi 31:00
Yeah, it’s not a free cash flow question. It goes back to the point of, of people, like people I don’t think are still seeing this clearly. Like they don’t, they don’t

Anirban Mahanti 31:09

Farzad Mesbahi 31:10
For some reason, q3 and q4, is there going to generate so much cash, it’s going to be laughable. They’re gonna make so much money here in the next two quarters, it’s going to be laughable, right? So I’m talking more about the deployment of that cash so that investors know that they’re going to be able to get to 10 million, because they haven’t been quote, unquote, as clear as they should be about getting to 10 or 20 million because Elon has thrown out the 20 million car number out there by 2030. But they’re well, you only have four factories, and looks like you’re only doing half a million per, that’s 2 million. But there’s not enough layers for those people to understand.

So and I’m just purely talking about what I think the markets perceiving from the company and stock performance. So you and I, I think both agree that they have well over 4 million capacity built in right now in these four factories. And to your point, they deploy, what, $4 billion of cash and they have, I don’t know that may be able to get to six or 8 million cars per year, especially if they introduce a cheaper model, which is going to be way cheaper to build, there’s going to be smaller, less parts, you can get a lot more throughput, right?

You can layer all these things down. So yeah, I agree with you 100%. It’s just I’m trying to put myself in the shoes of say, an investor that doesn’t understand that story. Because it’s such a, it’s such a weird story. If you really think about it, what other automaker can spend $2 billion and build a million cars, nobody, they have to spend $10 billion, and they make half a million cars.

This is a insane story that’s still not well understood right? Now, you would think with Austin and Berlin ramping that that will become clear, but I don’t think that really becomes something that the market truly understands until those facilities are fully ramped up. So this will probably be like a middle of 2023. So maybe when we fast forward the conversation to that date, and we come back to this then we can say, yep, everybody understands what’s going on now.

So now the risk becomes a different conversation. Maybe there isn’t enough raw materials, maybe there’s some conflict in the macro environment. Right. So that was sort of my second thing was some of the instability in the macro environment, especially with the Russia Ukraine thing and the China Taiwan thing. And you got more deglobalization sort of happening on planet earth a little bit right now. And what are the complexities that that brings to a supply chain, so that is a factor that is a risk factor, but that’s not really a Tesla mis-execution. It’s just a changing world.

And Tesla wouldn’t be the only one that suffers from this, it will be everybody. Right? It will be everybody suffers from that risk. So and that, to me is like 1A, 1B, 1C, 1D, 1E, 2A and 2B risk, right? And then somewhere like four or five is the thing that I brought up first, which is Hey, like, I don’t know how you’re gonna get to 20 million, you know?

Anirban Mahanti 33:54
Yeah, so the macro economic, I mean, if, again, looking at results, Apple grew by 2%, Amazon, I think went backwards like 6 or 7%. Google did what 13% and Tesla did what 40% growth, right? Despite its biggest factor, because I mean, their execution in this macro environment has actually been fascinatingly good, right? Part of that is just they are in that different S curve where they’re not in a mature market whereas a lot of these other companies, the big names are generating a lot of free cash flow, but they’re in a very mature market where unless the sort of the market is expanding, so that is driven by consumers to a large extent or businesses then they have to fight with each other to get that share.

So in the advertising market, for example, Snapchat was growing a lot until the budget snapped because it had to fight for those extra dollars which are going to I guess, Alphabet and Meta. So, but that problem, actually, Tesla can just keep eating the share of the ICE makers for a long, long time, and then they’re such a smart company. I was gonna ask you this, do you think I mean, you mentioned this sort of indirectly. And again, if you don’t want to talk about this, that’s fine. Do you think geopolitical tension, because you hinted at, sort of, onshoring of capacities and things like that right to the global supply chain, do you you think geopolitical tension is one of the biggest risks to Tesla?

Farzad Mesbahi 35:36
So, I think so only because I don’t understand it that well, that’s why I view it as a risk for myself. Because it’s so hard to predict what the hell’s going to happen here in the next year or two with the stuff that’s going on, that there has to be something in there that’s gonna impact Tesla’s ability to so far I’ll do the China Taiwan thing as an example. So you have Nancy Pelosi going there, I think tomorrow, right. And China’s saying hey, listen, like this is not cool. Like this is gonna be a problem and the US is like, Screw you. I’m gonna go anyway, China has a good relationship with Tesla, which is an American company.

But what if that relationship with the US really goes super sour what happens to Tesla’s ability to run in China now? So China right now, it’s half of its half of its production capacity, roughly before Austin and Berlin ramp Once those two ramp, it’s about a fourth. But that’s still a fourth of Tesla’s production. I don’t know what happens there. Do they cut off the supply chain and say, sorry, you’re an American car company we can’t send you anything else anymore. You’re gonna have to figure out how to get your own parts from America, I don’t know. I don’t know. I don’t know what happens there. Right. So that’s, that’s one thing that that’s going on there.

Then you have sort of the complexities around Russia and Ukraine and the winter coming up. And I don’t know what’s going to happen there. How is that going to impact the European economy, which is probably I don’t know, 10 to 15% of testis total demand, if I were to guess. So that’s yet another impact. If China goes away and then Europe goes away, that’s 30-35%, maybe even 40% of Tesla’s demand is somehow impacted call that in the near term. But the fact that I don’t know what’s going to happen is what flags it as a risk for me.

Now, fast forward five to 10 years from now, will Tesla have figured out how to navigate that environment? Absolutely. Because they have the cash, and they have the leader, and they have the talent, and they have the will. Right. So they would have figured this out. But it’s still a risk. It’s still a risk. Is it a likely risk? I don’t know. I don’t know. I would put it maybe like, a chance of it and making some sort of negative impact to Tesla in the near term. I don’t know maybe five 10%?

Because you think about well China does, do they really have leverage to do this whole Taiwan thing? I don’t know, because they have a whole housing crisis going on right now that they’re dealing with? So are they really in a position to ruffle some feathers? I don’t know. There’s just so much crap going on. That’s sort of been kicked off with this Russia Ukraine war that, I don’t know, there’s a lot of question marks. But if there’s a company that can navigate through it, it is Tesla.

Anirban Mahanti 38:02
Excellent. I think I agree with that. Okay, I would ask you something different as the last question, which is, we didn’t talk about this at all today, which is, I think, very interesting. You’re talking about Tesla, we talked about cars, we talked about self driving, we talked about dojo, we talked about AI. People don’t talk about Tesla Energy at all, right?

Farzad Mesbahi 38:22
No one does ever. It’s like the forgotten child.

Anirban Mahanti 38:25
I’ve got two powerwalls at home. And I’ve actually got Tesla’s electricity plan, because I’m part of a virtual power plant, here in New South Wales. And I think that’s one of the most fascinating things that they have going is the ability to completely change this very arcane setup we have from hundreds of years ago, called the electricity grid, right?

Farzad Mesbahi 38:50

Anirban Mahanti 38:50
What do you think about that?

Farzad Mesbahi 38:52
Talk about the mother of all catalysts. Right? So no one’s, not even in the Tesla community, we’re talking about this. That’s how little we’re giving value to this thing. And I think it’s because for this is one of Elon, so if you give him like a negative point here is that he’s been hyping up energy a lot. And it keeps getting sort of delayed in impact because of how much supply they have to move to the auto division, right. So that’s one thing that Elon hasn’t done very well, is sort of like create expectations around energy and actually executing against them so I would give him one negative there and he knows this and everybody and Tesla knows this, like, okay, it is what it is, like, I understand that it’s you gotta get the supply. It’s an impossible thing to grow both at the same time. Got it.

But the long term impact so the fact that you’re a customer who has been able to feel how impactful this technology is, speaks volumes to how valuable a technology like this exists. And who else is doing this? No one. Nobody is even close, to not only be able to execute on this thing, but to have this supply chain to really scale this again across the whole world. Now Tesla has to decide to at some point start moving supply from the auto business to the energy business so they can start making this happen on a larger scale. But that point will come. That point will come.

And I’m curious to see how much of masterplan part three, so those that are not familiar, masterplan part three is every, 5 to 10 years Elon has put out a master plan for Tesla, which outlines like four or five key driving principles for the company, that what they’re going to do for the next five to 10 years call it. And he’s sort of been hyping up master plan, part three, which I’m guessing will be related, or he’s talked about sorry, he specifically said it’s going to be scaling, is going to be getting tested to crazy scalability.

And my prediction is that you’ll unveil it in about two, three days at the investor meeting on Thursday in August of this year, so and I think that’s going to give us true insight into what energy actually means for the next, say, 5 to 10 years for Tesla. It’s a gigantic catalyst, it’s yet another FCF monster that’s going to be added to the portfolio. And the fact that no one’s talking about it, even in our communities tells me that there’s going to be one of these quarters, we’re all gonna look at their earnings, and we’re gonna be like, where the hell did these $2 billion come from? And you’ll be like, oh, yeah, we ramped up energy. And we’re gonna be like, Okay, got it. Oh, and by the way, we’re going to add another 100 billion the next four quarters. Cool. That’s great. So that’s probably what’s going to happen in Tesla fashion. So incredibly excited for it. I have no idea when it’s going to happen. But it’s it’s one of those very, very not known things that are going to again, change the story. Change the story yet again.

Anirban Mahanti 41:44
Farzad, thank you for speaking with me, it was fascinating. And I look forward to this getting transcribed and then posted for people to listen, I’ll send you the link when it’s done, and we’ll share it on social media.

Farzad Mesbahi 41:58
Awesome, and thank you for having me. I really appreciate you having me.

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