Small Cap Value Report (Wed 5 Feb 2020) - TSLA, LOOK, TST, DOM, RDW, BDEV, FDEV

102

5th Feb by Paul Scott

78 comments 8913 reads

Good morning, it's Paul here with the SCVR for Wednesday.

See the header above for the running order. It's a mix of small caps & mid caps, as there's not much news today, and I like to look at housebuilders in particular, for read-across on the economy & consumer sentiment/spending. It's fine for us to deviate from the small caps remit when there are other interesting things going on! Reader feedback is that most people actually like it when we veer onto current topics outside small caps, so why not!

Estimated time of completion - probably about 1pm

Edit at 13:26 - today's report is now finished.

Time filler as I wait for the 7am RNS releases

It was certainly an interesting evening yesterday, watching Tesla go even more parabolic, soaring to a peak of something like $970 per share. Then suddenly lurching down by about $100 just before the US close, then settling after-hours (where the US has an active market) at around $900.

This is a very peculiar situation, and reminds me of the late stages of the TMT boom & bust in 1999. Although this time around, the companies that are booming and reaching huge valuations, seem a lot higher quality than the dross that went crazy in price back in 1998-2000 - then eventually joined the 90% fallers club, and often eventually the 99% fallers club - people forget now, but the 2000-2003 bear market was really brutal!

When share prices go parabolic, as Tesla has done, they don't tend to settle quietly settle at a multiple of their previous price (unless it's something like a drug discovery company that has had a major breakthrough). They tend to reach a stratospheric peak, and then crash back down just as fast, often giving up most of the original gains.

Elon Musk should be rushing through an equity fundraising right now, to take advantage of the mania in Tesla shares, but I doubt he will as he seems to not only create, but also believes his own hype. There again, it's difficult not to admire what he has achieved, against the odds, even if the valuation of Tesla is clearly ridiculous.

EDIT: here is a test where the actual range of a Tesla Model 3 turned out to be far lower than claimed, and only marginally ahead of the stunning new electric Porsche Taycan;

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Edward John Canham

5th Feb

Tesla is down 13% at the mo. - Analysts beginning to downgrade it evidently

Tonysaparito

Thank you Tagware for providing the excellent link to Tony Seba, its beyond words

-2

shanklin100

I do wonder whether plug-in EV are the Betamax of car development and hydrogen will prove to be the market-dominant VHS of next generation cars. Instead of this inane vehicle charging through electric points which clearly cannot be supported by the National Grid, you just pop along to the garage as currently, only now you put hydrogen in it.

I have no idea why so much money is being put into loading huge heavy batteries into cars when this seems completely inane approach.

The world, well certainly the mass media, seems to have collective group-think on this; at least some manufacturers such as Toyota are investing heavily in developing hydrogen fuelled cars.

Thornabian

Sounds like someone bought Tesla at 960...

rmillaree

There could be some German bias too - e.g. choose a speed & driving style that flatters the German offering?

Am i misreading the picture or was this test done at 150 km/ph speed? 93 mph? - if that is the case it shouldn't be surprising that the range is way down. From checks i have done the Tesla actual mileage seems to normally hold up reasonably well compared to the quoted EPA figures unless its silly cold weather - or one is driving particularly fast speeds. I would ignore the non EPA quoted figures as they are a bit of a con job.

Howard Marx

It could be worse.. I bought my first Electric Vehicle in 1984 :(

2ShedSam

I'm all good with tagware! A bit blunt & charmless at times but makes some good observations. Really good range of views on Tesla. Best discussion board for a while. Even made a lurker post lol

Paul Scott

Hi bluecurve,

Thanks for posting all that info about the generous subsidies for electric cars, especially the tax breaks, I had no idea they were that generous. I stopped to talk to a neighbour who had recently taken delivery of a new Tesla. He mentioned that he could write off the entire cost against tax of his business. Sadly, he crashed it not long afterwards, stoving in the nearside front end of the car.

Another friend took me for a spin in his Tesla S a couple of years ago, and it was highly impressive.

I've driven a BMW i3, and liked it, but why did they make it look so weird/ugly? Same with the ungainly Nissan Leaf.

So looking at the other electric cars available now, the only ones I would personal consider buying would be a Tesla or a Jaguar i-pace (road test here).

But the point is, we're just at the start of mass market electric cars. Tesla spotted the opportunity & proved up the market niche. Now the Germans are coming, and when BMW and Mercedes properly attack this market (imminently) then they're probably going to leapfrog Tesla.

A friend has ordered a Porsche Taycan. He never even considered buying a Tesla, saying "I'd rather wait for an EV with Merc/BMW/Porsche build quality".

Anyway, I see the share price is doing exactly what I thought it would do - parabolic rises nearly always do this;

Graham Ford

Tagware

The cobalt used in sulphur removal is as a catalyst so not consumed in the reaction. Perhaps it is worth checking the Wikipedia page on cobalt itself. That says....

“ Cobalt is primarily used in lithium-ion batteries, and in the manufacture of magnetic, wear-resistant and high-strength alloys.”

So, it looks like your analysis there may not be correct.

Martin Verlaine

Paul
any chance we could have a moratorium on Tesla for the rest of the weekI am sure this is a stock that divides opinions significantly but it is least of all a small company,,,,,,,,,. the smell of burnt bear is evident

dmjram

The bears seem to be back - stock down c25% from yesterday's high.
Short squeeze looks to have played itself out and reality is returning to the valuation.

And of course hydrogen will enable fuel duty to be replicated at the pump....

Hi Ken

I agree, there will be competition from the legacy ICE vehicle manufacturers, after all, their business is dead if they don’t. And as I implied before, I’m sure that there will be large numbers of people who want a bit of Teutonic solidity or Italian flair or French je ne sais quoi. (The Tesla’s are not exactly pretty to look at - my view and eye of the beholder and all that).

I agree, there will be competition from other energy sources. Buses in particular are much more likely to run on hydrogen as they cannot be parked up several times per day to recharge. However, the cost and environmental impact of the hydrogen production is also an issue. But we should allow for some market share gains by hydrogen powered vehicles.

But in some ways this is all a bit by the by. Tesla stand a fair chance of success even with competition from legacy ICE companies and hydrogen.

Apple only has a minority share of the smartphone market and look how much profit they’ve made from that.

And while you and I being European may have an affinity for European car brands and the higher end ones in particular, the USA is already in love with Tesla and Tesla are looking like they will have a strong presence in China. Considering the volume Tesla do already against a backdrop of EVs only having less than 2% market share, is it really so unlikely that they stand no chance of increasing their volumes by 10 or 20 fold or more?

ken mitchell

Hi Graham

Agree with everything in your post this time. Thanks too for replying again.

Mike888

hmmm, wish I'd taken out that short I suggested first thing this morning, you win some, you lose some, you miss some,

-1

Gromley

Ranging wildly off-topic.

I would have thought that buses (cross country coaches might be a different matter) were in fact more suited to batteries than private vehicles.

Just thinking about one of my local services - a single bus probably covers the c. 10 mile round trip twice an hour so even if you think of a 16 hour working day then that's a max of 320 miles. In fact much less than that given there are less services at both ends of the day.

In fact given that I would guess the majority of buses probably spend a disproportionate amount of time travelling relatively slowly through town and city centres, there might be a case for hyrbid trams / battery buses.

All depends on the relative efficiencies or battery vs hydrogen vs some other form of energy storage that we have not yet considered. Both batteries and hydrogen fuel cells have their downside,so perhaps there will prove to be a third way.

Nursemaid

Hi Paul,loving the extra macro-picture /commentary on the non-small-caps. Very insightful.Keep it up please.
ATB,
NM

JTG

Paul, if you have time, do look at the Tony Seba presentation tagware provided. I have followed his thinking for a while and find a lot in it, because I was involved in helping the digital imaging disruption of the photographic industry. This is is about transportation rather than just cars, and it's a much bigger market than most dream of. I am NOT a Tesla investor, but should have been, as I saw Google early on and have kicked myself ever since.

Useful points have been made by various people, so I'll try not to repat them. On trivia like charging, we moved house, have NO fast charger and plug into a convenient 13A socket. Just like a mobile phone. Ours is only a second-gen Nissan Leaf, but it accelerates as fast as my Audi A6 2.7TDi, is quiet, simpler to drive, and that's just a Nissan! And as someone pointed out, subsidies only for a while. They'll be on price parity in about two years at this rate, besides costing very little to run (c. 20 moving parts in total powertrain) . For those worried about the Grid, ask National Grid, they aren't. And even with a Nissan you can sign up this year for smart charging that uses the car battery as a store, to charge up at low times and sell it back at peak times. I don't think everyone realises this means that wind becomes more valuable, as it doesn't have to be shut off anymore. Power companies are having to change their models fast, as peaker power stations could become obsolete quickly.

Tesla is an energy company first and foremost. Their sales are now constrained by battery availability. Their Cybertruck took 250,000 reservations in the first 48 hours, but actually they have to make decisions at the moment between cars and Megapack utility scale battery packs and personal Powerwalls...

Anyway, it's a big topic, and I write as someone financially nervous about when oil demand peaks, because of an investment long ago only just coming to fruition. My big contention to all is, decide yourselves whether EVs are or are not the hardware part of a technology disruption to transportation (Amazon committed to 100,000 delivery vans from Rivian, which will of course have the tech to make them safer and more efficient in their particular mission). If so, it will follow an S-curve, not be linear. I've seen this play out before. The bottom takes longer than you think, some start to lose faith or run out of money; then a tipping point is reached and sales do indeed go parabolic till you're getting to market saturation. And those who unwilling or unable to 'eat their own lunch' fall by the wayside, e.g. Kodak and Polaroid.

Many more than Tesla would be affected.

Not small cap, but thanks for airing it :)

mcfly46

6th Feb

i remember reading the porsche has two gears, different to nearly every other ev, so this could (if its comparable to ICE cars) allow it to cruise more easily at higher speeds.

Jimbonambo41

7th Feb

bit late here but just to add that not all of the listed dealerships companies provide or have provided car finance - eg Vertu Motors (LON:VTU) & Cambria Automobiles (LON:CAMB) (I hold). so, for some, the generic bull points (low PE, good asset backing) hold true without any that unwelcome FCA drag. again i am biased but you could very easily construct a very bullish case for Vertu Motors (LON:VTU), Cambria Automobiles (LON:CAMB), Marshall Motor Holdings (LON:MMH) since they would remain very cash generative in a struggling sector allowing them to further consolidate.

Small Cap Value Report (Wed 5 Feb 2020) - TSLA, LOOK, TST, DOM, RDW, BDEV, FDEV

Time filler as I wait for the 7am RNS releases

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Paul Scott

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