[00:03] Well, here we are again with Elon Musk calling fake news the rumors that Tesla might end up getting rid of Giga Shanghai. We need to talk about this and what it potentially means for the valuation of a combined SpaceX Tesla.
[00:16] What it means for actually potentially setting up the merger of Tesla and First of all, let's just be very clear up front. As usual, Elon Musk is denying
[00:28] these rumors. The problem with this is that Elon Musk has a history of denying rumors. And in my opinion, in order for you to understand the present, you must understand the past. It's kind of like, you know, the people who have been
[00:42] around here and our course members know that when the coupon expires like one does today at meet.com, the price goes up. But when it comes to Elon, when Elon says news is fake news, he usually hangs his hat on a tiny little
[00:58] detail in an article that might be slightly off to where the entire article slightly off to where the entire article is, let's say, 95% accurate and he calls the entire thing fake news because one little detail might be off, whether it's
[01:13] slight bit on timing or a number or whatever. Uh but unfortunately then you know people hear that and they're like oh well it must all be fake news then uh we can start with facts. We're not trying to bag on Tesla or SpaceX. We
[01:27] just want as investors to understand what the reality is. So uh in April of 2024 uh Reuters reported that Elon Musk had uh Reuters reported that Elon Musk had scrapped the $25,000 car the model 2. uh
[01:41] and uh insiders apparently were shocked that Elon Musk called this fake news because Elon was the one who canned the very project. So they were blindsided and later investigation revealed Elon of course reported this all as fake news.
[01:55] Uh and then of course at later events Elon Musk said, "Yeah, we're not doing a $25,000 car basically killing the Model 2 because we're doing the cyber cab. Duh." It was sort of like gaslighting people like what what 25K why would we
[02:12] do that? We're going full self-driving, baby. So, it turns out it was true news that the Model 2 was canned. Another one was uh XAI is not raising money right
[02:24] now. Literally like the day after they filed a $1 billion, we're raising a billion dollars SEC filing and Elon's like, no, we're not raising money. Uh and then later they announced they were raising $6 billion because they had
[02:39] round. So this is an example where I think when the numbers are slightly off, Elon just says the whole thing is fake. We're not raising money. Uh then uh the same thing happened again when CNBC reported a space a sorry SpaceXi was
[02:54] raising at a 10 billion or raising $10 billion at a $200 billion valuation. Elon called it fake news again. And then it later turned out they were actually raising $15 billion. They're raising more money. And then of course the the
[03:09] people who say Elon could do no wrong uh say oh well I mean in fairness the article was wrong. It was off by a factor of 50% in this case. Fair. But Elon said fake news were not raising money and they were raising money. Yes,
[03:22] said some were not raising money, and they literally were either raising money or in the process of raising money. Maybe at that very second, they were But it kind of seems to me like it was happening at the same time. And that's
[03:37] often when these fundraising discussions are happening, they're happening and because you have investors that say, "Hey, we're interested or capital funds or whatever. We'd like to deploy more capital." which means you're actively in
[03:51] the raising money discussion. Uh then of course uh in uh April of 2025 um Trump told Elon Musk that uh Elon was kind of going to be uh slowly walked out
[04:04] of his role. You know, as tensions kind of expanded, uh JD Vance, the White when the mainstream media reported on it. Sure enough, he was gone within a it. Sure enough, he was gone within a month. So, let's just say when we hear
[04:17] talk about, oh, Tesla Shanghai might actually be separated or somehow sold off to enable the SpaceX Tesla merger. And then Elon comes out and says it's
[04:29] absolutely fake news. You should know by now not to trust the media. What we really should know by now is that when Elon calls it fake news, what specifically is fake news about it? because the odds are it's more true than
[04:42] because the odds are it's more true than it's fake based on history. So, uh let's take a look at this. Uh what we've got is this idea that you can't end up merging SpaceX and Tesla if there's a factory in China. Now, I've regularly
[04:55] talked about this with Tesla. I think I've been pretty on point with my predictions on Tesla. Uh in fact, I called for a top at Tesla 481. I said now is just the time to wait and stay out of the stock. And we we rapidly lost
[05:08] multiple different support levels. We did have a very I was surprised by this. I will say I was I wasn't expecting that we would pop back to 435 after we fell into the 300s. Uh but I maintained my belief that hey this is uh this is a
[05:21] bearish time for Tesla. Things are only going to get worse for Tesla. And I personally came up with this because I think it's part of the design. I think the design for Elon is the cheaper Tesla gets, the easier it is going to be for
[05:35] SpaceX to acquire Tesla. I think the acquisition target is going to be like $100 a share for Tesla. And you know, I had somebody in my comments on my Tesla SpaceX video. If you didn't see that, uh, just type into YouTube meet Kevin
[05:47] Tesla SpaceX. I go through the valuation estimates for the companies individually or combined. Uh, I thought it was a very good and detailed video with with sort of my expectations and I encourage you to watch it. But somebody left me a
[05:59] comment said, "Kevin, there's no way the Tesla board would approve a Tesla stock share sale at $100. That's crazy. you're smoking crack. And then I'm like, smoking crack. And then I'm like, if the stock is trading for $80
[06:13] and they can sell it for nearly a 30% premium for $100 to SpaceX, they're going to take it. It only sounds ridiculous today because, you know, at the time of the video, the stock was trading for like $360, $370 or whatever.
[06:28] You know, now it's trading for $300. It's on that trajectory. Part of what we we've talked about previously, I call it Elon Musk's evil plan. The evil plan is if Elon can sandbag Tesla stock, it makes it easier for SpaceX to acquire
[06:44] it. And we know that's the goal. We know the goal is Elon wants control of Tesla. That's the number one goal. We know he can't easily get control of Tesla, but what we know is that he's got like 81% of the voting shares of SpaceX. And if
[07:00] of the voting shares of SpaceX. And if SpaceX has the hype uh the optimism and the momentum or profitability or whatever the assets to acquire Tesla, whatever the assets to acquire Tesla, then Elon reverse engineers a way to
[07:12] gain control of the company Tesla Motors. Now, regarding Shanghai, this idea that the Wall Street Journal talks about that, oh well, you know, this isn't going to work. You can't have a factory inside of China and you can't
[07:26] have data on all these Chinese vehicles that are driving around in China and then also be a US uh uh you know classified defense contractor for the United States government. This is not going to work. And when you think about
[07:41] going to work. And when you think about it, that kind of sounds reasonable that that business is going to have to be spun off into some form of separate spun off into some form of separate entity uh or sold or just straight up
[07:53] liquidated. And I hate to say it, straight up And I hate to say it, straight up liquidating Shanghai kind of would suck business, I mean, Shanghai has historically been one of the most
[08:05] profitable production points for Tesla. They manufacture a massive amount of cars nearly somewhere around a million cars uh and and a lot of these for export markets and I think Tesla Shanghai substantially increases margins
[08:19] at Tesla. In fact, there have been occurrences where Shanghai shut down for a week or two whether it's employee related issues or upgrades or whatever. And in the quarter Tesla ends up missing margins because of the Shanghai
[08:32] shutdown. It's a pretty critical facility for manufacturing cars. But many of us already recognize that Elon's passion for manufacturing cars is passion for manufacturing cars is waning. Uh Elon doesn't seem so much to
[08:44] care about cars anymore. We just lost the Model S. We lost the Model X, which were fantastic cars. Uh and I know there's I I mean I personally think want to buy these vehicles, but you know, they're doing their business
[08:58] decisions. They're sticking to just the model uh uh wise and the threes and then of course Cyber Cab. I don't think the Cyber Truck will last much longer, even it's a great car. I I think they're so focused on Robo Taxi, uh that uh that's
[09:12] and their money are going to go. And as a result of that refocusing, they will don't need Shanghai anymore because we're making the leftover cars in Texas
[09:25] and we're making the robots in Fremont after we got rid of the X and S facility. So, what do we need Shanghai for if it enables us to join SpaceX? So, announcement that would come anytime soon. I think it would come much closer
[09:40] to the SpaceX acquisition time. And I do think when it gets officially announced, it will hurt Tesla stock because you're taking like 50% of the production capacity of the vehicle business away, which also takes away full self-driving
[09:54] which also takes away full self-driving revenue. And that'll be the perfect time for Tesla to go, "Oh no, our stock price has collapsed. I I don't know what happened here. Maybe somebody can acquire us.
[10:08] Ooh, pick me." You know, uh I This is why I call it part of the evil plan. And it's one of the reasons why I've been uh and I write this in my alpha report, too, in the Me Kevin report. I'm like, I can't in good
[10:21] conscience encourage anybody hold Tesla stock right now because I per I think Elon is intentionally sandbagging the stock. And of course, he has to deny that because talk about the lawsuits that would come out of that. Uh so he
[10:34] could reverse engineer his control. Of course, HE HAS TO ACT SHOCKED. WHAT? OH MY GOSH, THIS IS FAKE NEWS. NO, we would never make it cheaper for SpaceX to buy
[10:46] Tesla. That's crazy. Uh what what else is in this? Um and moment on this uh to see how much this would cost. Musk in recent years has instructed Tesla executives to organize the company with a laser between the US
[11:00] and China businesses, ensuring that in the event of geopolitical strife between the countries, at least the US, half of Tesla would survive. It's actually pretty smart. But then it goes on to say, "Now some Tesla executives have
[11:13] separation of the China business ahead of a potential merger with SpaceX, which may have been the original intention all along." Uh Tesla advisers have discussed the possible options for separation, including a spin-off closure or sale.
[11:27] including a spin-off closure or sale. Chinese operation transformed it into a consistently profitable global mass market electric vehicle maker. Uh but losing it could potentially uh impact the valuation of Tesla if the merger
[11:41] were to happen. Uh Elon was particularly concerned about Tesla's dependence on China for battery cells. Uh feared access to semiconductors being limited to uh Taiwan would be at risk if Beijing invaded. A lot of this sort of aligns
[11:55] with Elon's concept around having the terapab outside of Austin, Texas anyway, of dollars just to come up with concepts of chips, which a lot of companies are doing. And it's really surprisingly hard to do. This is why Nvidia has such a
[12:08] little image going around and I think it was fantastic. But Jensen Hong is in the White House and um Donald Trump, this was just in the last few days says we are way ahead of China in AI and Jensen
[12:23] Wong does one of these like eyebrow lifts and then like squirms kind of like like where does he get this shi you know for where does he get this crap anything because he's sitting right next or standing right next to Howard Lutnik,
[12:38] commerce secretary, whose, you know, son happens to run a hedge fund that just happens to be able to trade perfectly around Paris. What a coincidence. There's no uh there's no corruption going on here at all. No. Gosh, we can't
[12:52] allege that at all. Disney Cruise, the happiest place on earth. There can be no wrong in the world. Anyway, uh such a deal would aim to create a firewall between Tesla China as a subsidiary and the core business. Basically being able
[13:06] to try to firewall the two. Executives have also discussed creating a separate Tesla Shanghai. Uh there have also been talk there there's been talk about just talk there there's been talk about just shutting it down or selling the assets.
[13:19] Um there's also the concern that China might have regarding the dual use for rare earth materials that could get shipped to Tesla uh China and then kind of go through that factory and just end up at SpaceX for you know rockets which
[13:33] you know that's where we get into sort of the defense contractor arguments. Uh so uh and then Elon also has goals not to use Chinese-based suppliers by 2027 from the addiction of cheap Chinese batteries. So putting all this together,
[13:47] what does this mean? Well, it does change. It adds more risk to the potential valuation of a combined Tesla SpaceX company. Uh starting with uh the number of vehicles. So, I'm updating my last estimate. If we do end
[14:02] up losing Tesla Shanghai, I think we end up going from 4 million vehicles sold down to uh really 1.5. Now, that's a lot more than right now Tesla Shanghai produces, but my expectation and anticipation has been that in my prior
[14:17] estimate, I thought vehicles would still be a core for focus for the company and vehicles a year to 4 million vehicles a year. But if we're willing to get rid of Tesla Shanghai, we're sending a clear signal to the market that this is not a
[14:30] priority at all and we're not actually going to try to expand capacity anywhere else. We'll just sell residual vehicles. uh unfortunately that does increase the number of vehicles produced in my opinion by the end of 2030 down to 1.5
[14:43] instead of growth to four. uh so that is a risk factor and then I also think it reduces FSD potential recurring revenue from 2.5 billion down to 1.5 billion substantially fewer cars. Uh and so I think that annual recurring revenue uh
[14:59] has a has a potential fall built into it. Uh well not a fall that's still growth it's just less growth. that's the way to put it. Uh so uh instead of my way to put it. Uh so uh instead of my previous uh target of uh 80 bucks for
[15:13] combined like that's where to buy SpaceX. So, previously I said you buy SpaceX at $80 because I think they'll buy Tesla at $100 and at $80 if they can meet all of the assumptions that we're forecasting with um you know
[15:29] profitability from AI revenue $2.5 billion Starlink income growing at only 35% a year which is way lower than the Wall Street estimates. I put them at $15 billion. Wall Street puts that at $44 billion of operating income which I
[15:42] think is cooped up but okay. launch services. I've got it at two billion. Wall Street is way more bullish than I am. Uh but I, you know, I'm trying to build in a margin of safety and I'm not getting paid by the suits to write
[15:55] Elon turns around and borrows more money from them or raises money or IPOs with them. Somebody yesterday is like, "Well, but Kevin," this was on the uh Leopold video. They're like, "How do I know
[16:09] you're not getting paid by the suits?" And I'm like, dude, I we we haven't even taken a sponsor on the channel in like what feels like more than a year. There's nobody that pays us. Uh like the
[16:24] only thing we got going on here is stuff at megaven.com and expiring coupon code and house hack and reinvest. It should be Look, look at my shirt. Reinvest is my mind. Whatever. Uh anyway, so um then we've
[16:40] got uh we put a little bit in for uh bot revenue. Uh the Tesla bot matters a lot. revenue. Uh the Tesla bot matters a lot. Uh the bot revenue I do think is where the focus is going to go. And so I do build in $25 billion of revenue, $6.25
[16:57] So there are still a lot of assumptions in this estimate and that's why I think it's very important that you still watch the um uh prior video to go through what all of those assumptions are. But I do think this risk uh does justify reducing
[17:13] a combined price target valuation for as an acquisition price for SpaceX and an acquisition price for SpaceX and Tesla from $80 down to $64. I know I hate saying it, but it it just introduces more risk because that's part
[17:27] weakening that part of the formula, then I am willing to pay less because I want this company because I think there are a lot of execution risks. So, um, you know, now I'm at $64 for present value with a future value at the end of 2030
[17:43] with a future value at the end of 2030 of $240. So, the price target, uh, still acquisition price. Uh, like what you're Well, sorry, no, not it's still not 240. That was a different number before. Uh, I'm just reading this wrong. Uh yeah,
[17:57] could watch the prior video and you could see all the details on what the live in this video. It's going to be hard right now. But uh future value of $240 for the combined entity. Present value at 64 gives you about a 39% return
[18:11] per year for the next uh four years. So that does indicate a little bit more that does indicate a little bit more downside, but I think it then includes a decent margin of safety. There are my thoughts. If you like my analysis, you
[18:23] consider joining us over at mekevin.com. You get a lot more. You get the alpha boards, lifetime access to the courses, you get to write it off on your taxes, very likely as well. And if you join the courses, you can always bundle up with
[18:35] well. Let's see you all on the next one. Goodbye and good luck.