JPR007 Profile picture
23 Oct, 19 tweets, 4 min read
HOLON INVESTMENTS - REPORT ON TESLA - 2021

This week Holon Investments published a very interesting and well laid-out report on Tesla

- with a headline Target Price of $3,369 per share

How does this valuation look when reviewed under our criteria for Real Equity Investing ?
They are clearly not framing their recommendation based on current performance

And with a time horizon of 2050 they are certainly looking out far into the future

So let's take a closer look at how they came up with a $3,369 valuation
They have developed a very detailed financial model with clear assumptions

And they have used an internal Discounted Cash Flow analysis to establish their valuation

Here is their summary Income Statement
And here are their Operating Metrics
They evaluate several different scenarios

So let's look at their own words

The most notable thing here is the use Discount Rates that range over 7.9% to 9.7% per annum

- compared to our use of a 15% per annum rate
Let us assume that we start by accepting all of their Operating Metrics and their projected Income Statement

So how would we value the company based on using their projections ?

Let's look at a few scenarios
1. BUY AND HOLD UNTIL 2050

In 2050 the Projected Net Income is $886,307 million

At a P/E Multiple of 20x this gives us a future Market Cap of $17.77 trillion

- at a 9% Discount Rate this is equivalent to $1.460 trillion today, or about $1,460 per share
But at a 15% Discount Rate this is equivalent to $0.308 trillion today, or about $308 per share

And yet Tesla is currently priced around $900 per share

What is the problem here ?

1. They are using too low a discount rate

2. 2050 is too far out into the future
To understand this second point better, let us look at their Revenues projection

This is Tesla's Revenue history in Blue

And their future projection in Red

Notice how the growth rate drops off over time, especially after about 2030
Once the Revenue and Net Income growth rate declines below your Discount Rate, any future valuation starts to shrink

So let us try a shorter-term scenario
2. BUY AND HOLD UNTIL 2030

In 2030 the Projected Net Income is $153,271 million

At a P/E Multiple of 20x this gives us a future Market Cap of $3.065 trillion

- at a 15% Discount Rate this gives us $0.870 trillion today, or about $870 per share
Which is right around today's actual Market Cap

So they have just delivered a simple confirmation of today's stock price

Now let us see what happens if we go out in several 5-year increments
3. BUY AND HOLD UNTIL 2035

In 2035 the Projected Net Income is $309.155 billion

At a P/E Multiple of 20x this gives us a future Market Cap of $6.183 trillion

- at a 15% Discount Rate this gives us $0.875 trillion today, or about $875 per share
4. BUY AND HOLD UNTIL 2040

In 2040 the Projected Net Income is $524.966 billion

At a P/E Multiple of 20x this gives us a future Market Cap of $10.499 trillion

- at a 15% Discount Rate this gives us $0.740 trillion today, or about $740 per share
So 2030~2035 is basically the Value Plateau for Real Equity Investors

Value growth after that will be less than 15% per annum on a Market Cap basis
Please note that I have only conducted this analysis with respect to Market Cap

Any Share Buybacks like APPL does could keep the per share values moving upwards at 15% per annum for a long time after 2030

But that is a second-level analysis requiring additional assumptions
CONCLUSIONS

1. Choose your Discount Rate carefully

- if you want Real Equity returns of 15% or better, then be sure to use a Discount Rate of at least 15% per year
2. Choose your Measurement Year carefully

- too early and you will not capture enough of the future Market Cap

- too late and the value of the future Market Cap will be too much discounted in the present
The key is the decline in Net Income growth rates

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More from @jpr007

23 Oct
REAL EQUITY INVESTING

Investment analysts and money investors frequently make many different kinds of mistakes when valuing companies as Real Equity Investments

These include :
And there are more, although the others are mostly secondary errors rather than primary errors

Now let's take a quick look at each point
1. INVESTING BASED ON THE COMPANY'S CURRENT PERFORMANCE

Real Equity Investing is all about where the company will be in the future, not in the present

This is most fundamental

Without a future view any activity with the stock is just trading and not investing
Read 17 tweets
23 Oct
EUROPE BEVs - 2021 Q3

Here are the charts to go with the data

1. While the European BEV market in 2021 is much bigger than it was in 2020, the growth surge has stabilized to some degree

- probably because of constraints on vehicle supply
2. The Chinese BEV market continues to be both larger and growing more strongly than the European BEV market

- with important implications for participants in each market
3. VW AG Group has now taken the largest BEV market share in Europe

- but both their volume and market share are showing an unstable and declining trend

*** Note : we have not yet found a number from them for 2020 Q4
Read 9 tweets
22 Oct
TRYING TO DO THE IMPOSSIBLE

- when you have no scale

Apple's negotiations with the Chinese companies CATL and BYD about supplying batteries for its rumored electric vehicle have mostly stalled, Reuters reports.
macrumors.com/2021/10/22/app…
The talks reached an impasse when CATL and BYD refused to set up teams dedicated to Apple and manufacturing plants in the United States
It has previously been reported that Apple is keen to bring at least some of the manufacturing related to the vehicle to the U.S., with particular focus on the batteries
Read 12 tweets
22 Oct
EUROPE BEVs - 2021 Q3

ACEA just reported the sales of Battery Electric Vehicles for Europe in 2021 Q3

The number is 309,239 units, up +56.8% from 197,617 in 2020 Q3

For 2021 YTD the total is 801,025 units, up +91.4% from 418,483 in 2020

Many markets had >100% growth QoQ
This gives Tesla 14.9% Market Share with 45,953 units in Europe in 2021 Q3

- up from 12.3% Market Share with 35,744 units in 2021 Q2

Tesla Market Share was :

- 13.8% out of 88,121 units in Germany

- 14.6% out of 51,248 units in UK

- 16.9% out of 34,426 units in France
VW AG Group reported 81,700 units in Europe for 2021 Q3

- giving 26.4% BEV Market Share for the quarter

This is down from 84,326 units in Europe for 2021 Q2

- which gave them 29.1% BEV Market Share for the quarter

VW AG Group had 25.9% Market Share in Norway in 2021 Q3
Read 5 tweets
21 Oct
Volkswagen is addressing members of the Bundestag with a lobby paper calling for gasoline and diesel engines to remain available on a transitional basis
handelsblatt.com/unternehmen/in…
VW paper to politicians calls for continued promotion of plug-in hybrids and rejects "de facto ban on combustion engines"

The Wolfsburg-based group is investing a high double-digit billion sum in alternative drives and networking over the next few years.
At the start of negotiations on a possible traffic light coalition in Germany, the VW Group is calling on politicians to create better conditions for the expansion of e-mobility
Read 16 tweets
21 Oct
TESLA DELIVERS ANOTHER RECORD QUARTER

German auto expert Ferdinand Dudenhöffer was heavily impressed by the quarterly report :

"Tesla is bursting with power, and Grünheide hasn't even started yet," the industry expert said
n-tv.de/wirtschaft/Tes…
While other carmakers have to announce short-time work due to chip shortages, Tesla continues to defy the disruptions in global supply chains in the third quarter

The group posted its third quarterly profit in a row and achieved a record result in the process
Tesla earned more in the third quarter than it ever has in a quarter before, despite the global chip crisis and supply problems
Read 15 tweets

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