Newsletter - January 2020

February 6, 2020

 

 

 

As a typical 40 year old I used to watch cartoons like the Jetsons when I was a kid. Flying cars were the norm for the Jetsons and everyone used to believe that when we are adults we too would have flying cars. It's now 2020, which is certainly the future and flying cars are not available. Infact the basics of cars have not changed too much in the last 50+ years. They have 4 wheels, an engine powered by petrol and a steering wheel to drive.

 

Last year I bought a new VW and the difference between it and my first car 23 years ago (a Datsun) is massive. It drives better, its safer, it's luxurious. But at the end of the day the basics, how it works, its environmental impact, is not much different from the Datsun.  

 

Enter Tesla. We all know about them and certainly in my neighbourhood Im seeing quite a few on the roads. Last year when I was in LA, I was surprised at how many I saw on the clogged freeways of California, they were everywhere.

 

Still, Tesla for years has had many doubters. many believed the company was beholden to their superstar founder Elon Musk and would eventually run out of cash.

 

The chart above shows theTesla stock price since July 2019. You can see the value of the company when from around $220 per share to close to $900. So why the sudden change? why are so many now backing Tesla? One investment manager has even predicted a $7,000 share price in 5 years. Clearly many believe Tesla has a strong future.

 

For me there are 3 reasons why Tesla could be the most important company over the next decade.

 

1. People are becoming aware of their environmental impact, affecting consumer habits.

2. Tesla has fundamentally changed how cars work - no more petrol, no emissions.

3. Home batteries are becoming cheaper.

 

Tesla is perfectly situated to make the most of these factors to sell even more cars in the next 10 years. Here is a example of a typical Australian:

 

They own a home - They are worried about the environment - They have solar panels or considering them - They wont buy a home battery yet as they are just too expensive ($10,000+).

 

Once a battery is installed, for most homes using power off the grid will not be required. So it's possible to cut your electrical bill to $0. Once you have a battery, then surely you would consider an electric car? Why not let your panels and battery also power your car, saving fuel costs and the environment?

 

Once batteries get to the $5000 cost, then I believe that many people who were considering an electric car will purchase one. And Tesla is the most well known brand in this market. (Tesla also sell batteries and roof top solar too)

 

Regardless of what happens to the Tesla share price, I believe that there is very little stopping them to sell many, many more cars over the next decade.

 

Im not alone, below is the market capitalisation of a few major car makers. Market cap is the value of all the shares issued, so how much it would cost you to buy the whole company:

 

As you can see Tesla is now worth more than VW. 

 

Tesla's value = $159.8 Billion US dollars

 

Ford's value = $36.39 Billion US dollars

General Motors value = $49.1 Billion US dollars

VW value = $93 Billion US dollars

 

 

 

 

 

 

 

 

 

 

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