We came across a bullish thesis on Tesla, Inc. (TSLA) on Substack by Antonio Linares. In this article, we will summarize the bulls’ thesis on TSLA. Tesla, Inc. (TSLA)'s stock was trading at $339.64 as of Nov 21^st. TSLA’s trailing and forward P/E were 93.05 and 102.04 respectively according to Yahoo Finance.

Tesla is poised for another major inflection point in its growth trajectory, with its cash flow generation poised for significant growth in the next couple of years, with the company’s efficiency improvements setting the stage for a potential stock surge, reminiscent of the explosive rise seen in 2020. Despite a decline in average selling prices (ASPs) this year, Tesla has dramatically increased its free cash flow (FCF) per operating margin, up 2.25X year-over-year, highlighting significant operational efficiency. Although Tesla remains primarily a hardware company for now, the metrics fluctuate quarterly, requiring a long-term perspective to assess its potential to scale manufacturing, energy, and AI capabilities. As the company enters a new phase of growth, its ability to ramp up cash flow production is expected to surge over the next one to two years, with the stock following suit.

The first quarter of 2024 saw a dip in cash flow due to shipping delays in the Suez Canal and an arson attack at the Berlin Gigafactory. However, this drop in performance was temporary. The company’s growing ability to generate free cash flow relative to operating margins, even in the face of higher interest rates, is an impressive feat that signals Tesla’s operational prowess. In Q3 2024, Tesla reached a new all-time high in cash from operations at $6.25 billion, signaling the company’s ability to overcome challenges and capitalize on efficiencies. If interest rates continue to fall, this will further amplify Tesla's cash flow growth.

Looking ahead, Tesla’s future cash flow generation doesn’t depend solely on lower interest rates; instead, the main driver is its increasing operational efficiency, which is already surpassing 2020 levels. This surge in free cash flow and operating margin is expected to fuel stock growth as the company continues to scale its business. Tesla’s expansion into energy and AI is likely to further amplify this growth. The energy business has seen non-linear growth, with gross profit rising steadily, and Tesla’s Full Self-Driving (FSD) technology is expected to surpass human performance in the next one to two years, enhancing the company’s market position. Additionally, Tesla's focus on AI has led to rapid advances in autonomous driving capabilities, with FSD miles driven increasing exponentially, positioning Tesla to disrupt not only the car market but also ride-hailing services.