ELECTRIFICATION
Issue #47
TESLA:
This coming Monday Tesla will become part of the S&P 500. Its weighting will be fixed on Friday and it will likely have the largest market capitalization of any new entry into the index. It will be the 6th-largest company in the S&P 500, which is pretty impressive for a company that was founded in 2003 and began producing cars in 2008.
Hat tip to Jim Reid of Deutsche Bank for the graph below.
The Chinese electric car manufactures BYD and NIO have both passed Ford, General Motors, BMW and Honda in terms of market capitalization. It won’t be long before they surpass Mercedes and Volkswagen too. If the markets are a voting machine they are clearly telling us that the future of automobiles is electric.
To justify the current valuation of $600 billion, Tesla will need to execute like Apple.
Apple created a new category with the introduction of the iPhone and gained a significant first mover advantage. In 2019 iPhone sales accounted for 13% of all mobile phone units sold globally and 32% of mobile phone revenues, but Apple captured a stunning 66% of the industry’s profits. Samsung captured 17% of profits, everyone else had to split the remaining 13%!
Tesla is a technology company and increasingly there is only one winner when it comes to technology. Think Google in search, Facebook in social, Amazon in retail, Nvidia in edge computing, Apple in mobile phones and tablets, etc. etc.
From an investment standpoint the ship has already sailed with Tesla, it could double or triple from here over the next decade or two, but the easy money has been made.
Then there is Space X, I’ll circle back to this one in a future issue.
CHARGING STATIONS:
Another area that Tesla has excelled in is the building of convenient high speed charging stations. You jump in your car, load your destination and the software takes over from there to let you know where to stop to optimize your journey.
I can tell you from personal experience as the owner of a BMW i3 that finding a high speed charging station when you need it can be difficult. Oftentimes when you do find one it is either fully occupied or the stations are down for maintenance and repairs. This is pretty frustrating for non-Tesla electric car owners like myself, but it is also a big opportunity for someone to build out the necessary infrastructure to make charging more convenient.
So I was pretty stoked when I saw this article by Bloomberg that the first all-electric auto service station will open in Britain on Monday.
From Bloomberg, “the station in Essex, southeast England, is the first of 100 electric facilities that Gridserve and Hitachi Capital U.K. Plc. are planning and is part of a 1 billion-pound ($1.35 billion) program to roll out the stations across the country. It includes 36 rapid chargers powered only by renewable energy. The charging technology is among the fastest commercially available in Britain and can top up a battery with 200 miles (322 kilometers) of capacity in 20 minutes”.
There is a BIG opportunity for someone to do this in the United States.
SYNDICATE:
At the end of each year I like to look at how my Angel List syndicate is performing. It looks like 2020 is going to finish out pretty strong with a compounded Internal Rate of Return (IRR) of 29.5% since inception going back to January 2015.
I have syndicated 11 investments in 9 companies on Angel List, 6 of the 9 have had follow on rounds at higher valuations post syndication. Surprisingly, I have not had a company go out of business yet, which probably means that I am due or I am not taking enough risk!
PODCAST:
Naval Ravikant: Is a serial entrepreneur and angel investor who co-founded Angel List. I have had the opportunity to sit down with Naval on multiple occasions to discuss portfolio construction, investment strategy and the future of technology. This podcast is a long one at over three hours, but it outlines his philosophy on life, starting companies and investing in yourself and startups. Check it out!
I hope you enjoyed the letter and as always feel free to share it with friends and colleagues. If you are interested in startups you can join over 750 other backers that follow my AngelList syndicate here.
This is my last blog post for 2020, so until next year Happy Hanukkah, Merry Christmas and Happy New Year!
Be safe and stay well. - Sean Bill / MacroCrunch