Valuentum Exclusive Analysis for the Discerning Investor

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Jun 30, 2022

Big Changes in the Auto Industry as Chip Shortages, Supply Chain Issues, and Rising Input Costs Complicate Matters; Tesla and Ferrari Our Two Favorite Names
Image: Ferrari’s fundamental momentum has been strong of late. Image Source: Ferrari N.V. 2022 Globe Newswire. The auto industry perhaps has changed more than any other industry the past five years. First, it was Ford that said it wouldn’t make passenger cars anymore, except for its iconic Mustang. Then, the European Union said that it would eventually end the internal combustion engine (ICE) by 2035. Then, Tesla reached over $1,200 per share and over a $1 trillion market capitalization. Can you imagine a world where Ford is not making sedans, the once modern-marvel of the internal combustion engine is dying, and where one car maker is worth as much as the next nine car makers combined? Certainly, a lot has changed in the auto industry during the past decade, and we haven’t dabbled much in the auto sector as it relates to idea generation due in part to the industry’s fast-changing backdrop. That doesn’t mean that we’re not fans of the auto space and its promising long-term opportunities, particularly with electric vehicles (EVs). It just means that we think there are better stories elsewhere, as in ideas in the simulated newsletter portfolios. However, if we had to pick two of our favorite auto names to consider, they would be Tesla and Ferrari, even as we note General Motors and Ford both trade at mid-single-digit earnings multiples. That said, investors don’t necessarily have to take on the risks of automakers, especially as the group deals with chip shortages, supply chain issues, and margin pressures from higher input costs. The cyclicality of many of the operators and the reality that operating leverage cuts both ways (and is quite painful during difficult economic times) are risks that perhaps won’t ever go away. That said, exposure to the auto space via Tesla or Ferrari could work nicely in a broadly diversified equity portfolio should risk-seeking investors be so inclined. These two names remain on our radar.

Apr 27, 2021

Tesla Scaling Up Nicely
Image Shown: Tesla is steadily working towards bringing another manufacturing facility online in the US, this time near Austin, Texas. Image Source: Tesla Inc – Shareholder Letter Covering the First Quarter of 2021. Electric vehicle (‘EV’) giant Tesla continues to impress as it smashed past consensus top- and bottom-line estimates when it reported first quarter 2021 earnings on April 26. The company delivered 184,800 vehicles (182,780 Model 3/Y variants and 2,020 Model S/X variants) and produced 180,338 vehicles in the first quarter of this year, though we note that Tesla only produced Model 3/Y variants last quarter and Model S/X vehicle deliveries were met via its inventory. In the first quarter of 2021, Tesla’s ‘automotive revenues’ of $9.0 billion were up 75% year-over-year, its GAAP revenues of $10.4 billion were up 74% year-over-year, and its GAAP net income came in north of $0.4 billion (up sharply from year-ago levels).

Jan 5, 2021

The Electric Vehicle (EV) Market Is Hot and Getting Hotter
Image Shown: A look at Tesla Inc’s new Gigafactory factory (Model Y body shop) in Shanghai, China. Image Source: Tesla Inc – Third Quarter of 2020 IR Earnings Presentation. The electric vehicle (‘EV’) market is hot and getting hotter. Aided by a combination of supportive government policies such as subsides for EVs (purchase tax credits, manufacturing tax credits), plans to ban the sale of automobiles powered by internal combustion engines (‘ICE’) in the coming years, and shifting consumer preferences (households preferring to appear “green”), the long-term outlook for EV sales is quite bright. Tesla is the posterchild of the EV boom given its first-mover advantage, though competitive headwinds are rising. Legacy auto manufacturers are looking to bulk up their EV offerings while new market entrants such as Lordstown Motors and privately-held Rivian, are set to further disrupt the industry. Ford Motor invested in Rivian back in 2019 to bulk up its presence in the EV market. By the middle of 2021, Rivian aims to begin deliveries of its EV pickup truck in the US, the R1T. Lordstown Motors also aims to bring an EV pickup truck to market, named the Endurance, with deliveries set to begin in early-2021. However, as global EV sales appear set to grow immensely, there is room for a number of winners in this space. Back in July 2020, privately-held Deloitte estimated that global EV sales will grow from an estimated 2.5 million in 2020 to 11.2 million in 2025 and then to 31.1 million by 2030, good for annual compound growth of about 29% in the coming decade, according to the research firm. EV sales in China are expected to represent about half of global EV sales in 2030, according to Deloitte, followed by the European market representing just over one quarter of global EV sales in 2030.