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JPR007

@jpr007

4 Apr

REFERENCE BENCHMARK

Once we have a clear understanding of our Valuation Methodology, it is useful to make a couple of important observations

1. We have never seen a case before like Tesla where the broad direction of the future can be predicted with such confidence

It is quite remarkable and it is a consequence of three things

- one is that it comes from a fundamental disruption of a very large and important industry sector and consumer sector, the sort of thing that happens only once in a lifetime or once in 100 years for that sector

- the second is that this company is being led by a remarkable set of human talents and appears to be accumulating and building even more talent internally

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JPR007

@jpr007

4 Apr

HOW TO INVEST IN STOCKS

1. Let us start with the principle that a stock will ultimately be valued based on its earnings, regardless of how it is priced today

So Future Value = Future Net Income x Future P/E Multiple / Future Number of Shares

It is that simple

2. For a stock to deliver you a 15% return based on its fundamentals, it has to grow its earnings at 15% or more over the investment period

- once its earnings growth slows below 15% per year its discounted present value will naturally decline

3. Normally its Net Income growth must be driven by its Revenue growth

- so this means that you must look for stocks whose Revenues are growing more than +15% per year and which are expected to continue to do so for as many years as possible

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JPR007

@jpr007

3 Apr

WHAT DOES "BETA" REALLY MEAN ?

"Wall Street Analysts" and other commentators like to talk about "Beta" :

“Tesla has to have a higher return because it has a higher risk”

“It has a higher risk because it has a higher beta”

This is not the most useful way to think of "beta"

Beta is a measure of past volatility of an indidual stock relative to the past volatility of the broader market

Now consider this :

1. An investor’s investment risk is not in the past

2. An investor’s investment risk is not in the present

3. An investor’s investment risk is in the future

- once they own the stock, the only uncertainty that matters is "what will be the stock price at the end of my investment time horizon ?"

4.. An investor’s investment risk has nothing to do with present stock price volatility

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JPR007

@jpr007

3 Apr

WHAT SHOULD BE YOUR EQUITY DISCOUNT RATE ?

Answer : it should be the rate that you want your portfolio grow by over the years

So first ask yourself "what result do you want to achieve over your investment time horizon ?"

- if you want to double or 2x the value of your portfolio over 5 years, you should use at least 15% per year

- if you want to quadruple or 4x the value of your portfolio over 10 years, you should use at least 15% per year

- if you want to increase the value of your portfolio by 16x over 20 years, you should use at least 15% per year

You may notice a pattern here . . .

It is that simple

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JPR007

@jpr007

1 Apr

A PRIMER ON UNDERSTANDING CAPACITY IN THE MANUFACTURING SECTOR

When a company builds a manufacturing facility there are a lot of considerations that go into determining its capacity, and even more considerations that go into determining its output

Let us take a look at the case of Tesla

This is the most recent communication from the company on their Installed Annual Capacity

But what does it mean ?

To understand that it is helpful to lay out a more detailed Capacity Map

First, there are currently four relevant locations

- Fremont, California, USA

- Shanghai, China

- Brandenburg, Germany

- Austin, Texas, USA

Tesla also has other manufacturing facilities

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JPR007

@jpr007

1 Apr

AND SO IT GOES

Volkswagen to buy environmental credits from Tesla in China

The deal is the first of its kind to be reported between the two companies in China and highlights the scale of the task Volkswagen faces in transforming its huge ICEV business
reuters.com/article/us-vol…

China is the world’s biggest auto market where over 25 million vehicles were sold last year, and it runs a credit system that encourages automakers to work towards a cleaner future by, for example, improving fuel efficiency or making more electric cars

Manufacturers are awarded green credits that can be offset against negative credits for producing more polluting vehicles

They can also buy green credits to ensure compliance with overall targets

This trade is usually between affiliated companies that share a major stakeholder

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