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talk about EVs. Yes. And not just Tesla. Yes. Is it good news for Tesla what's happening in Detroit right now? Um yes, because if there's a strike, of course, there will be more production shortfalls. Um you know, I think that there's just now that the supply chain has freed up. So, unfortunately, we'll have all kinds of questions about that.
But, you know, I don't I don't think it has anything really to do with the strike. It has uh everything to do with a consumer preference shift towards better vehicles, electric uh that are falling in price. Tesla is leading that uh that price decline simply by passing cost declines on to its uh customers.
Uh so I think that's what's good for Tesla. The complaint we hear is that people can't afford these vehicles. Uh that is changing in the UK. As you can see, Rishi Sunnak is pushing back targets to get rid of all of these internal combustion engines to 2035 from 2030. Are we being unrealistic about this transition and how difficult this is going to be?
No, no, no. We do not think so. We actually the total cost of ownership now this is in the United States. It's a little bit different here, but the total cost of ownership of an electric vehicle uh fell below that of a gas-powered vehicle about 2 to three years ago. soon sticker prices. Does that include insurance?
Yes, includes insurance. Yes, in as I said, local differences, but yes, in the United States, that does include insurance. And in fact, Tesla is so sure that its cars will have fewer accidents and fewer fatalities that it's well willing to provide insurance. So, yes, that does include everything. All in.
You were at USC. You didn't get a B. Laugher called up Robert Kirby at Capital Group and said just shut up and hire her. So you walk into Capital Group which is the land of an R squ to 98 Washington Mutual Fund Investment Company of America. Everything is completely diversified out. You're the polar extreme.
They threw you out. You almost fell into the Pacific Ocean. They were so upset with you. So you go out and you say, "I'm not going tight R squared to SPX. I'm going out and do my own thing." Yes. People have prospered off of innovation and technology. How does that continue in America? Can you be less diversified and win five years out?
Well, you mentioned Capital Group and that is where I did start my career and that is where um I saw tremendous research and a long-term time horizon. So really what we're doing with ARC is just going back to the future. my initial experience which was in the late '7s when I was in college and uh we're doing deep research first principles-based white sheet of paper
but you're away from an R squar like Washington Mutual of the other funds what's your R squared right now uh to be honest we're the correlation of our uh performance to broad-based benchmarks is very low uh for better or worse what it tells what it tells our clients and prospective clients is We we have a very good diversification strategy.
Our our funds the active weight if you're comparing to MCI World or S&P or NASDAQ the active weight is less than 5%. So really good diversification strategy focused on companies uh that are going to transform the way the world works. uh we look at the broad-based benchmarks and sure there are companies that are sustaining innovation like an Apple but they are not going to transform the way the world works from here.
Our companies are we we've always invested for the long term and uh what interrupted what was a very nice move up in innovation stocks especially disruptive innovation was a massive increase in interest rates the likes of which we have never seen 24fold increase. So all long duration assets especially in 2022 were destroyed including bonds which are usually a flight to safety.
They had their worst year last year since the 1700s. There's no way in that environment that our strategy would have done well. But I do think that what's happening this year is that the market is starting to look over the Fed's moves whether there's one more or not uh into uh falling interest rates.
You know, we started underperforming in 21 just with the anticipation of rising rates and even more so in 22. So, how are you going to change? I want to know how you're going to change the sobering quarters you've been through. What is the new Kathy Wood approach to macroeconomics, frankly, pandemic economics intruding on your belief in innovation?
Uh, if anything, innovation gains traction during tough times. And if you look at how the reason our our portfolios are outperforming this year is and they are and they are is it is because they are gaining share in what is becoming a difficult environment right and so uh one by one we're going to earn our way back and it's all about revenue growth margin expansion
in the Wall Street Journal they do a fabulous thing with old farts like me and it's people with over $5 million and They believed in Kathy Wood to a person. Those retirees bought innovation. They bought tech. They bought Apple Apple and they didn't listen to financial TV or radio. Can you do the Kathy Wood approach for one, three, five years given the volatility you've seen?
Yes. I think we're on the other side of that massive interest rate increase which did destroy a lot of performance. That's the most important thing. And we are ready for prime time. Many people are concerned about our kind of strategy and uh and uh the company we just acquired rises because in Europe in London here uh for all of Europe and UK uh uh they're focused on global mega trends as well and you know interest rates hurt everyone in that space.
If we are right uh and rates are going to come down at some point in the next year, you know there the market is a discounting mechanism uh then uh I think that uh the muscle memory that that hurt our strategy and it all has everything to do with the tech and telecom bust and people thinking oh my gosh are we here again?
No. What happened during the 20 years that ended in the tech and telecom bubble is the seeds for for what is happening now were planted. So while Tesla is shifting into a slower growth mode, the growth is still there and the stock is at a reasonable price right now. I think this is what makes it more appealing.
the stock is much more affordable which means that if you buy the stock right now and if everything goes as planned for Tesla the amount of return you could make by buying the stock right now is much more is a lot higher than what it would have been if you bought this stock say 12 months before so the stock is at very a very reasonable price right now you know a lot and lot of the businesses like the full self-driving and potentially growth of the insurance are being heavily discounted as well as future cost savings that management can still implement as it ramps up factory and as it accused its 2020 battery day goals that will still drive margins higher.
So I expect proper growth in excess or revenue growth even if revenue growth is more in the high teams over the next 10 years instead of management 50% target. So we see a lot of upside of the stock at current price. Show me a stock the way. What's interesting is yes, they did miss their targets, their own internal targets to deliver more than 50 growth, 50% growth in terms of deliveries last quarter and they missed it.
They've got in but 40 is still strong. So we need to have more clarity, more real sort of basic analysis and future guidance coming from Tesla. So we can get our sides a little bit more realistically. Yeah, I think that certainly would help. Management just for saying that we expect to grow 50% year-over-year in deliveries over a multi-year period horizon does not really help with year-to-year guidance, especially as Tesla's now big enough to start seeing a demand impact from an economic slowdown.
You know, now that they've noticed they're out 1.3 million vehicles annually, they're going to start to see some consumers who may want to hold off on that next big ticket item and then wait till the next year. So while we're in a slowdown so you know I think management guidance and more sort of confidence they can give us around specific targets and numbers from year-to-year basis will certainly help the stock because I think right now what the investors are searching for is the right growth rate with high growth stocks like Tesla.
Even small changes in a growth rate assumptions can materially change your evaluation for the stock. Yeah. I mean talk to us about incentives that we'll be having to be dangled in front of a US buyer. Is that a warrior? is that a shining of a light on a fact that the price point is going to have to change.
We do think there's going to be some small price cuts as Tesla is going to want to make sure that many of its vehicles as possible, specifically some Model 3s and Model Y's will ultimately qualify for the inflation reduction tax credit and heading into an economic slowdown. I think that is going to be a way Tesla can generate strong demand growth.
So we are modeling some price decreases for that platform next year and this year to selfgenerate demand growth and that's going to help Tesla grow to what we are forecasting is a little over 1.6 million deliveries in 2023. I think my point here is that just because Tesla said few years before that they're going to they're expecting 50% growth rate yeartoear over a multi-year horizon.
That's a promise to make but in reality the reality is often disappointing than the dreams. And it's not just the reality, it's the circumstances and the global economic slowdown. You have to factor all of that in. And factoring all of that in, I think Tesla is still doing well. It's not how it is in the Wall Street, is it?
You make some promise, you miss on that. You see your stock down 20% next day. So, but is that the reality? That is the reality. So with all the daily sort of tussles that you get whether it's on social media or whether it's on air or whether it is about if 40% is still a pretty good growth rate whether or not we should be looking at deliveries rather than the demand from your perspective what is the main thing that we should focus our eyes on now when it comes to Tesla is it China is it the deliveries is it the demand which side should you be looking for I think there are two key things that we should continue to focus on one is as we go into 2023 what will be the growth rate I still expect you said double legit growth rate.
I'm forecasting I'm forecasting 24% growth next year in deliveries. Then what do the profit metrics look like? If you remember back the first quarter of last year, that's where it achieved nearly a 30% gross margin in the automotive segment and that was before the opening of the factories of Berlin and Austin as f and as factories productions ramp up I do expect the gross margins to go higher and the margins will improve sequentially.
And so if that's and a couple of days before Kathy would bought Tesla stock on the day of its biggest plunge since September 2020 reaffirming her conviction in the electric vehicle maker and that many other investors have gone into and the funds backed by Katywood's firm ARK Investment Management bought more than 176,000 shares of the automaker in the first US trading session of the year.
According to ARK's daily data, the purchase came as tech Tesla stock plunged 12% of the company after the company missed estimates for the quarterly deliveries despite offering hefty incentives. Kathy Wood exchange traded fund have acquired slightly more than 938,000 shares of the EV maker since October 3rd and when they started the latest buying streak according to ARK trading data compiled by Bloomberg.
And after Tuesday's fault, Tesla has is down 65% over last year due to the concerns including rising interest rates and inflation weighing on the demand for electric vehicles. So that's it guys from here today. Thank you so much for watching. Please hit the like button. It really helps me a lot. And do subscribe if you haven't already.
Thank you so much for watching guys. I hope you all have a great day and a great year ahead.
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