Break down the Tesla reviews and nothing makes sense

Photo: Tesla

Tesla’s rating is so sky high that as soon as you break down the individual business components, you realize that none of it makes sense. All of that and more in The morning shift for 08/25/2021.

1st gear: none of this makes sense

Tesla’s share price is inflated. We all know this in general, but it’s hard to say how the perception doesn’t match reality this new report from the Financial Times helps. It focuses on Morgan Stanley’s most recent “bullish writing” about Tesla’s post-AI Day rating, the Elon era got someone on stage in a morph suit claiming he was building robots to colonize Mars. Amazingly, Elon was not laughed at out of town.

Here is Jonas’s review:

Our PT of $ 900 is made up of 6 components: (1) $ 375 / share for Tesla Auto’s core business with 5.6mm units in 2030, 8% WACC, 14×2030 Exit-EBITDA-Multiple, Exit- EBITDA margin of 20%. (2) Tesla Mobility at $ 75 on DCF with 500,000 cars at $ 1.7 / mile by 2030. (3) Third-party powertrain Tesla at $ 88 / share. 4) Power at $ 78 / share. 5) Insurance at $ 30 / share. & 6) Network services for USD 255, 17 million networked fleet, USD 100 ARPU by 2030, 20% discount

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And this is what the FT says about it:

Despite the fact that there are literally no two of these businesses, we were drawn into the insurance segment. While it seems relatively insignificant at just 3.3 percent of the $ 900 billion price target, you might be surprised that 3.3 percent of the $ 700 billion price tag is actually quite a change.

As a reminder, Tesla’s own in-house insurance is currently only offered in California. And the car company doesn’t take the risk itself. Instead, it acts as a broker for State National Insurance Corporation, a subsidiary of insurance giant Markel. The business area is therefore likely to be a rather low-margin brokerage business for a car brand that currently has a market share of 2 percent in the USA. We say “likely” because the disclosure around the insurance business is thin: it was only mentioned four times in the most recent 10-Q filing.

So back to the assessment of Jonas’ Tesla insurance. Take those Tesla shares outstanding – 990,015,158 – and multiply that by $ 30 and what do you get? $ 29.7 billion

If that sounds like a lot, that’s because it is. In fact, it would make Tesla’s insurance business the 21st Most Valuable Insurance Company in the World. More valuable than Aviva, Arthur J. Gallagher and Hannover Re – the third largest reinsurer in the world. In fact, at that valuation, Tesla Insurance would be worth about two-thirds of AIG, a company with an asset base of $ 395 billion.

Again, we see that there is no way Tesla can be worth more than established auto giants like Ford or Volkswagen, but it’s interesting to see a more detailed view of how the valuation doesn’t make sense. It’s generally so exaggerated that the individual pieces of Tesla’s business cannot sustain it.

2nd Gear: There are still a lot of killer Takata airbags out there

This report from Bloomberg is interesting in that it cannot tell exactly how many explosive, recalled Takata airbags there are around the world, in part because other countries don’t really track this data:

From the beginning of July, more than 14 million still had not been resolved in the US alone, in addition to an unknown but likely sizable number in the rest of the world. This means that millions of car owners like Drisaldi – especially in countries with weak consumer protection – may not be aware that the propellant used in their car’s airbags will degrade due to heat and moisture and leave their vehicles in potential risk of explosion.

At least 37 deaths and 450 injuries were reported to U.S. auto safety officials around the world, allegedly related to the defective parts. Of the deaths, 19 occurred in the United States while others were reported from all over the world, including French Guiana, Nigeria, Brazil, Australia and China.

[…]

[A]Auto safety recalls, even if fatally flawed, can go under the radar in parts of the world with weak regulatory regimes. In the United States, the National Highway Traffic Safety Administration (NHTSA) has taken unprecedented steps to not only monitor but also coordinate the industry’s campaign to replace the tens of millions of inflators. An independent monitor has also urged companies to introduce more effective contacting techniques that go beyond what is required by law. Nothing similar is happening in Mexico, where companies say there isn’t even an effective registration system in place to track down used car owners.

“While the US recall system is flawed, we are seeing systems in other countries that are virtually non-existent,” said Sean Kane, president of Safety Research and Strategies Inc., an advisory and advocacy organization in Rehoboth, Massachusetts.

Again, it’s hard to tell how big the problem is or not because we can’t really prove it one way or another.

3rd gear: Japan’s new EV problem: Too many chargers

Japan’s dense borders are a great place for an electric car if you have a convenient public charging network that is suitable for a heavily urban population. At least, that’s what the Japanese government thought a few years ago when it flooded the country with charging stations, only to see that the adoption of electric vehicles stagnated at 1 percent of the market. That’s not ideal there Bloomberg Details:

Now, with EV penetration of only around 1%, there are hundreds of aging charging stations in the country that are not in use while others (they have an average lifespan of around eight years) are being completely decommissioned.

The number of charging stations for electric vehicles in Japan fell to around 29,200 in the twelve months to March, after more than 30,300 in the previous year, so Zenrin Co. It’s the first drop since 2010 when the card issuer started collecting data.

“The next year or two will be a highlight for the replacement of charging stations for electric vehicles,” said Tsuyoshi Ito, head of the planning department at Electromobility, a joint venture between Tepco Co. and Chubu Electric Co. Going forward, placing chargers in convenient locations for users and ensuring they don’t all expire at the same time will be critical to keep EVs growing, he said.

I can’t say that I will definitely predict that Biden’s EV charging plan will have similar results, but I would say that this is something to watch out for.

4th gear: Mercedes F1 boss just made a really lucky bet on Aston stock, not insider trading, regulators say

I have no idea what it takes to actually get caught insider trading, at least based on this report from The Financial Times explains how Mercedes F1 boss Toto Wolff is clean and clear and how he was in the right place at exactly the right time:

Wolff bought a 0.95 percent stake in Aston Martin from a controlled vehicle Lawrence walk, the executive chair of the British car manufacturer.

The following month, Aston Martin appointed Tobias Moers, former head of Mercedes’ high-performance AMG business, as CEO. At the end of October, Daimler announced that it would increase its stake in Aston Martin from less than 5 percent to 20 percent. Daimler has owned Aston Martin shares since 2013.

Mercedes F1 said Wolff was not aware of either plan when the shares were acquired and that “all relevant disclosures were made to the UK tax authorities in due course”. Wolff did not buy or trade any Daimler shares or securities in the past year, said Mercedes.

The market watchman, who decided not to pursue the proceedings against Wolff, is German, and I’m sure that has nothing to do with anything. Germany is known not to be corrupt.

5th gear: Biden-Admin accuses EPA of weak auto regulations

I’m not entirely sure what to make of this story that claims the Biden government notified the EPA that their upcoming auto emissions regulations were too weak and the EPA then did nothing about it. from Bloomberg:

The White House and other administrative officials said so Environmental Protection Agency that their industry-backed plan to tighten car emission limits was too lax, but the agency dismissed those warnings and released the proposal with provisions that could mitigate their bite.

The discord was exposed in the thousands of pages of correspondence, analysis and drafts newly released from an interagency review of the measure EPA was presented earlier this month and should be completed by the end of the year. The correspondence underscores the tensions within the government over how aggressively regulations to combat climate change are to be used, especially when the efforts are rejected by industry.

“This shows that many Biden government officials believed that the EPA should have proposed stricter standards for clean cars that are more effective at fighting climate change,” said Amit Narang, a regulatory expert at citizenssaid in an interview

It contradicts the fact that the EPA offers automakers more advantages for every electric or hybrid vehicle they produce with healthy multipliers. Unnamed Biden officials reportedly warned that it might be too easy for automakers to achieve their goals with relatively few electric vehicles instead of making automakers work harder to meet their environmental goals.

Conversely: Rail advocates win an anthem

Less that:

Neutral: How are you?

I was out of town for a week and when I left my cucumbers and eggplants were messed up, withered and attacked by floury bugs. I sprayed them with neem oil before leaving and when I came back they are fully healthy again, with strong leaves and some new fruits. Care and attention: it works!