8 ms·

This is dizzying. Over the summer Ford Motor Company had a valuation of <$24B (currently $46B), and yet in comparison to valuations across tech and especially t

by laser 6y ago

This is dizzying. Over the summer Ford Motor Company had a valuation of <$24B (currently $46B), and yet in comparison to valuations across tech and especially the EV industry, doesn't seem far off what the market will accept for promises of tech-driven progress and growth. SPACs in theory seem like a great escape from the horrors of IPOs, but in the current manic climate it's all but inevitable that millions of retail investors are going to get fleeced when the SPACs collectively fall short of generating the necessary free cash-flow to justify their collective valuation. This could be years out, though, still, so hopefully there'll be some growing into valuations and a gradual come-off instead of a complete meltdown, but history shows we tend to make markets go boom and bust, so don't count on it.

rsj_hn 6y ago
Yep. I'd say the traditional auto makers are way undervalued relative to Tesla. But what do I know? The only thing that I can see as an investment thesis is: 1. The whole auto industry is going to rapidly transition to electric only cars (not hybrid, but plug-in) 2. The established automakers are too slow, due to their size, bureaucracy, and relationships with component suppliers, unions, and dealers, to be able to efficiently make this switch 3. Therefore nimble electric vehicle startups are the smart bet. I disagree with this thesis -- for example it will take several decades just to improve our electricity grid to handle a real rush of PEV, and those electricity utilities are a lot slower and more bureacratic than the mainstream automakers. And that's just one of many arguments against this thesis. Moreover there isn't enough data to suggest that people will accept PEV - you are talking about minuscule volumes so far and are betting everything on extrapolating exponential growth from a small base. But at least it's not a crazy thesis. A case can be made to a rational person to justify these valuations, even if most rational people are going to be skeptical of this case.
- Swizec 6y ago
  > 2. The established automakers are too slow, due to their size, bureaucracy, and relationships with component suppliers, unions, and dealers, to be able to efficiently make this switch Literally every major car maker has an EV on the market or is launching one this year. The problem isn’t the car makers, it’s that the market is still early. Give it 10 years. There’s lots of kinks left to figure out that we take for granted in modern cars. Most notably cold weather performance, weight, resell value, range, and longevity. Can a modern EV be expected to work fine in 20 years? An ICE can. And no matter what everyone says, EVs are still kind of impractical. I rented a Tesla for a weekend (in SF) and it was terrible. We spent the whole time chasing chargers and ultimately almost destroyed the car according to the dashboard warnings. Finally found an available charger in the city with 3% battery left.
  - rsj_hn 6y ago
    Yup. Car market moves slowly and requires massive infrastructure. I've never bought a car that was less than 7 years old and I drove it for about a decade. Average vehicle age is 12 years and 1/4 of vehicles on the road are older than 16 years. New cars are only 6% of the market and cars are lasting longer every year, since quality and durability keeps increasing. Really they keep getting better and better. My best guess is that in 30 years, the majority of cars on the road are still going to be ICE. But in 100 years? Who knows, we might get a fantastic battery breakthrough or perhaps we'll be driving fusion powered cars :P
    - tigershark 6y ago
      Not in decent countries. UK is banning new ICE car sales in 9 years. Norway is aiming for a ban in 4 years. Several other EU countries are planning for a 2030 ban.
      - midasuni 6y ago
        Tesla don’t really cater for the U.K. or euro market - where’s the fiesta/corsa/golf size range? Or even the focus/fabia/astra size? The model 3 is too big and too pricey compared to things like the leaf.
        sjwright 6y ago
        I suppose the BMW 3 series and Mercedes C-Class aren't products which cater to the U.K. or Euro market either? Obviously Tesla doesn't cater to the entire Euro market. But to suggest that Telsa has to cater to all segments in order to be taken seriously is a rather weird bar.
        midasuni 6y ago
        Really minor part of the market.
      - nly 6y ago
- grey-area 6y ago
  Traditional car companies are valued the old-fashioned way, on future earnings. Tesla is not.
- Zanni 6y ago
  I'm mostly on board with your formulation, but I'd tweak it some. I'd say the thesis is: 1. Battery electric vehicles are the inevitable future, so you can invest now (when it's possibly too early) or invest later (when it will definitely be more expensive). So far, the market seems to be on board with investing now. 2. Established automakers are ripe for disruption in the classic sense, not because they're too slow or too bureaucratic, but due to their opportunity costs. They make money now selling ICE vehicles and lose money when they try to sell electric vehicles. It feels like the Apple II to Mac transition but they don't have a Steve Jobs at the helm to force the issue. 3. Therefore, electric vehicle manufacturers are the smart bet for the long haul. And, for what it's worth, as an EV owner, I'm absolutely on board with this thesis. Infrastructure changes will come fast once demand is there.
  - molyss 6y ago
    I'm having a hard time understanding why investing later would be more expensive than investing now. Unless you're taking into account the opportunity cost, I would expect the cost of investing in an electric infrastructure to be lower once the kinks have been worked out by early adopters. On top of having a brand new set of expertise to shop for, the traditional automakers also will have to modify their existing factories. They'll have to do that eventually, but there might be some massive cost associated with adapting factories to the wrong tech.
    - Zanni 6y ago
      I'm talking about stock investors. People tend to buy on anticipation, so the folks who get in early drive up the price for the folks who are waiting for a sure thing.
  - Hypx 6y ago
    And what if fuel cell electric vehicles became the future? Wouldn't you have completely gotten it wrong?
Traster 6y ago
Doesn't this just ignore Enterprise value? Ford has something around $160Bn in debt, so the real enterprise value of Ford is close to £200Bn. A hot new startup is probably still a little over-valued at 10% of Ford, but I don't think you're comparing like for like because Lucid doesn't have a huge amount of debt on its balance sheet (I don't think)
- piker 6y ago
  This doesn't make any sense. These companies are valued at their market capitalization -- i.e., the number of outstanding shares multiplied by the price per share. Enterprise value is a metric, but it's not clear why you're proposing to take 10% of "that" (not sure you nailed EV, either) and compare it to the SPAC's market cap. The parent was talking about free cash flow, from which it is generally agreed market cap should be derived in an efficient market with perfect information.
  - prepend 6y ago
    The market is factoring in that debt. So if Ford magically cancelled out its $160B, its market value would rise significantly. So I guess one could compare its post-debt estimated value to this new startup as a upper bound since the startup doesn’t have that debt. But auto making requires lots of capital so avoiding debt will likely not be possible as the company grows. Although if they keep valuations they can just sell stock and avoid debt.
    - piker 6y ago
      No. The market only cares about Ford's debt in so much as (1) Fords debt service reduces free cash flow and (1) it threatens a potential bankruptcy that could wipe out equity in the worst case. Sure, cancelling the debt would eliminate the debt service and significantly increase Ford's free cash flow, its market cap should increase, but only if doing so was free.

by laser 6y ago

rsj_hn 6y ago

Yep. I'd say the traditional auto makers are way undervalued relative to Tesla. But what do I know? The only thing that I can see as an investment thesis is: 1. The whole auto industry is going to rapidly transition to electric only cars (not hybrid, but plug-in) 2. The established automakers are too slow, due to their size, bureaucracy, and relationships with component suppliers, unions, and dealers, to be able to efficiently make this switch 3. Therefore nimble electric vehicle startups are the smart bet. I disagree with this thesis -- for example it will take several decades just to improve our electricity grid to handle a real rush of PEV, and those electricity utilities are a lot slower and more bureacratic than the mainstream automakers. And that's just one of many arguments against this thesis. Moreover there isn't enough data to suggest that people will accept PEV - you are talking about minuscule volumes so far and are betting everything on extrapolating exponential growth from a small base. But at least it's not a crazy thesis. A case can be made to a rational person to justify these valuations, even if most rational people are going to be skeptical of this case.

Swizec 6y ago
> 2. The established automakers are too slow, due to their size, bureaucracy, and relationships with component suppliers, unions, and dealers, to be able to efficiently make this switch Literally every major car maker has an EV on the market or is launching one this year. The problem isn’t the car makers, it’s that the market is still early. Give it 10 years. There’s lots of kinks left to figure out that we take for granted in modern cars. Most notably cold weather performance, weight, resell value, range, and longevity. Can a modern EV be expected to work fine in 20 years? An ICE can. And no matter what everyone says, EVs are still kind of impractical. I rented a Tesla for a weekend (in SF) and it was terrible. We spent the whole time chasing chargers and ultimately almost destroyed the car according to the dashboard warnings. Finally found an available charger in the city with 3% battery left.
- rsj_hn 6y ago
  Yup. Car market moves slowly and requires massive infrastructure. I've never bought a car that was less than 7 years old and I drove it for about a decade. Average vehicle age is 12 years and 1/4 of vehicles on the road are older than 16 years. New cars are only 6% of the market and cars are lasting longer every year, since quality and durability keeps increasing. Really they keep getting better and better. My best guess is that in 30 years, the majority of cars on the road are still going to be ICE. But in 100 years? Who knows, we might get a fantastic battery breakthrough or perhaps we'll be driving fusion powered cars :P
  - tigershark 6y ago
    Not in decent countries. UK is banning new ICE car sales in 9 years. Norway is aiming for a ban in 4 years. Several other EU countries are planning for a 2030 ban.
    - midasuni 6y ago
      Tesla don’t really cater for the U.K. or euro market - where’s the fiesta/corsa/golf size range? Or even the focus/fabia/astra size? The model 3 is too big and too pricey compared to things like the leaf.
      - sjwright 6y ago
        I suppose the BMW 3 series and Mercedes C-Class aren't products which cater to the U.K. or Euro market either? Obviously Tesla doesn't cater to the entire Euro market. But to suggest that Telsa has to cater to all segments in order to be taken seriously is a rather weird bar.
        midasuni 6y ago
        Really minor part of the market.
    - nly 6y ago
grey-area 6y ago
Traditional car companies are valued the old-fashioned way, on future earnings. Tesla is not.
Zanni 6y ago
I'm mostly on board with your formulation, but I'd tweak it some. I'd say the thesis is: 1. Battery electric vehicles are the inevitable future, so you can invest now (when it's possibly too early) or invest later (when it will definitely be more expensive). So far, the market seems to be on board with investing now. 2. Established automakers are ripe for disruption in the classic sense, not because they're too slow or too bureaucratic, but due to their opportunity costs. They make money now selling ICE vehicles and lose money when they try to sell electric vehicles. It feels like the Apple II to Mac transition but they don't have a Steve Jobs at the helm to force the issue. 3. Therefore, electric vehicle manufacturers are the smart bet for the long haul. And, for what it's worth, as an EV owner, I'm absolutely on board with this thesis. Infrastructure changes will come fast once demand is there.
- molyss 6y ago
  I'm having a hard time understanding why investing later would be more expensive than investing now. Unless you're taking into account the opportunity cost, I would expect the cost of investing in an electric infrastructure to be lower once the kinks have been worked out by early adopters. On top of having a brand new set of expertise to shop for, the traditional automakers also will have to modify their existing factories. They'll have to do that eventually, but there might be some massive cost associated with adapting factories to the wrong tech.
  - Zanni 6y ago
    I'm talking about stock investors. People tend to buy on anticipation, so the folks who get in early drive up the price for the folks who are waiting for a sure thing.
- Hypx 6y ago
  And what if fuel cell electric vehicles became the future? Wouldn't you have completely gotten it wrong?

Traster 6y ago

Doesn't this just ignore Enterprise value? Ford has something around $160Bn in debt, so the real enterprise value of Ford is close to £200Bn. A hot new startup is probably still a little over-valued at 10% of Ford, but I don't think you're comparing like for like because Lucid doesn't have a huge amount of debt on its balance sheet (I don't think)

piker 6y ago
This doesn't make any sense. These companies are valued at their market capitalization -- i.e., the number of outstanding shares multiplied by the price per share. Enterprise value is a metric, but it's not clear why you're proposing to take 10% of "that" (not sure you nailed EV, either) and compare it to the SPAC's market cap. The parent was talking about free cash flow, from which it is generally agreed market cap should be derived in an efficient market with perfect information.
- prepend 6y ago
  The market is factoring in that debt. So if Ford magically cancelled out its $160B, its market value would rise significantly. So I guess one could compare its post-debt estimated value to this new startup as a upper bound since the startup doesn’t have that debt. But auto making requires lots of capital so avoiding debt will likely not be possible as the company grows. Although if they keep valuations they can just sell stock and avoid debt.
  - piker 6y ago
    No. The market only cares about Ford's debt in so much as (1) Fords debt service reduces free cash flow and (1) it threatens a potential bankruptcy that could wipe out equity in the worst case. Sure, cancelling the debt would eliminate the debt service and significantly increase Ford's free cash flow, its market cap should increase, but only if doing so was free.