Thomas Motors (1)
Even though it looks easy when you’re making ten times your money on a momentum play, the market is a place where even doubling your capital can be hard.
The larger the capital, the lower the returns tend to be.
If you can squeeze out an annual return of 20 percent, investors will throw both hands in the air and cheer.
“If you happen to have any good ideas, please don’t hesitate to share them.”
After a brief silence, Edward spoke to David.
“There was that project we worked on together before. I think it might be worth digging into further.”
I let curiosity show on my face.
“What project?”
David said, “When I was at Victory Investment, I once investigated a company.”
“What company?”
“A company called Thomas Motors. They make hydrogen trucks. Have you heard of them?”
That was it!
I barely managed to hold back the urge to cheer and asked, “I’ve heard the name. What kind of company is it?”
“Let me start by explaining Thomas Motors.”
If you picked three industries that would grow explosively over the next ten years, mobility would have to be one of them.
Right now, the transformation of mobility was moving in two directions.
Hardware change and software change.
Replacing gasoline cars powered by engines with electric vehicles powered by electricity and motors was a hardware shift, while autonomous vehicles driven by AI programs represented the software side of that change.
Electric vehicles themselves were divided into two types.
One stored electricity in a battery and ran on a secondary-cell system; the other generated electricity directly from hydrogen fuel and moved on that power, which made it a fuel-cell electric vehicle.
Both were technically electric vehicles, since both ran on electricity and motors, but for convenience people usually called the former EVs and the latter hydrogen cars.
“Passenger cars have already essentially been won by EVs. But commercial vehicles are a little different. Unlike passenger cars, which mostly travel short distances and spend a lot of time parked, trucks that run long hauls may be better suited to hydrogen than to battery power.”
Several companies had already released electric trucks, but none had become a major hit.
The long charging times and short range had held them back.
One might think the answer was simply to add more batteries, but that made the vehicle more expensive and heavier.
More batteries also meant longer charging times, and the loss of cargo capacity was another problem.
Hydrogen vehicles, on the other hand, didn’t differ all that much from conventional internal combustion vehicles in those respects.
Unlike EVs, which had to recharge their batteries, they only needed to fill the tank with hydrogen, and their range was far greater than that of electric trucks.
It wasn’t easy to build that system into a passenger car, because high-pressure hydrogen tanks, fuel-cell stacks, radiators, and the like took up too much space. But for large commercial vehicles, it wasn’t much of a problem.
“But hydrogen cars have one fatal flaw.”
“The charging infrastructure?”
“That’s right.”
No matter how good a car was, it couldn’t run without fuel.
Electric vehicles had faced the same criticism in the early days.
Fortunately, EV charging stations were relatively cheap to install, since all you had to do was bring in electricity, and if it came to it, you could even charge from a household outlet.
Because of that, charging stations were now widespread, and more were still being built.
Hydrogen charging stations, by contrast, were so rare you could almost say they didn’t exist.
If there were no hydrogen cars, there was no reason to spend the money building stations. If there were no stations, hydrogen cars wouldn’t sell.
To spread hydrogen cars, you first had to build the stations. But the installation cost of a single station was at least two million dollars.
“Producing and transporting hydrogen is a problem too. Hydrogen is the most common element, but in nature it’s bonded to other elements. To obtain pure hydrogen, you have to use electricity to split water. And unlike gasoline, which is liquid, or natural gas, which can be liquefied, hydrogen exists only as a gas. Because its molecules are so small, it leaks easily, so storing and transporting it requires substantial technology.”
In short, the related infrastructure was virtually nonexistent.
For hydrogen cars to actually run on roads, those problems had to be solved first.
Bread Button, CEO of Thomas Motors, had proposed a solution. It was to supply not just hydrogen vehicles, but the entire infrastructure around them.
Thomas Motors had established a subsidiary called Thomas Energy and announced plans to build every part of the system through it, from hydrogen production to transportation and charging stations.
“Thomas Motors is positioning itself as more than just a hydrogen vehicle company. It wants to be a comprehensive hydrogen infrastructure company. Their claim is that hydrogen is the green, next-generation energy source.”
“But if you use electricity to make hydrogen anyway, isn’t that not really green?”
David nodded.
“They say they’ll produce hydrogen using solar power. That’s why they joined hands with Hwaan Group in Korea. Before launching the hydrogen car, they plan to build hydrogen production facilities and charging stations all across the United States together with Hwaan Energy.”
Hwaan Group was one of Korea’s top ten chaebols, alongside Yuseong, Daeyeon, LK, and GL.
Its core businesses were manufacturing, defense, construction, energy, and finance. For several years, it had designated eco-friendly energy as its next flagship business.
The early mood had been good.
As the twenty-first century began, global warming and environmental issues surged to the forefront, and the whole world entered into agreements such as the Kyoto Protocol and the Paris Climate Accord to cut carbon emissions.
Given that backdrop, fossil fuels, which humanity had relied on for generations, came to be seen as the bad guys, while solar and wind power were hailed as clean energy.
Because it had moved early, Hwaan Energy grew into one of the world’s leading companies in solar power.
The prediction that solar energy would grow had been right on the money.
The problem was that Hwaan Group wasn’t the only one who thought so.
Chinese companies rushed in from every direction, flooding the market with low-cost panels, and the Chinese government funneled subsidies only to its own firms.
As a result, profitability collapsed to the bottom, and the more they produced, the deeper the losses became.
But it was clearly a future industry, and the government kept supporting it, so they couldn’t simply walk away.
Fortunately, after enduring losses and hanging on, they had finally begun to eke out a profit. And now a new breakthrough had appeared in the form of hydrogen energy.
When it comes to electricity, the most important thing is to produce exactly what you need for consumption. If there’s any left over, you can’t store it, so the excess just gets thrown away.
Solar power, however, produces more when the weather is good and less when it rains or clouds over. And at night, of course, it drops to zero.
That intermittency was the biggest weakness of solar generation. But what if you used that surplus electricity to produce hydrogen?
It was a perfect match.
Thomas Motors was the company that caught Hwaan Group’s eye as it looked for a way into hydrogen energy.
Hwaan Group noticed the company’s growth and began investing when Thomas Motors was still private, securing an 8.5 percent stake.
Hwaan Energy and Hwaan Solutions each bought 4.3 percent and 4.2 percent, respectively, becoming major shareholders.
After the hydrogen economy started drawing attention, Thomas Motors’ stock rose by roughly twelve times, and Hwaan Group made more than three billion dollars in profit.
Thanks to that, not only the individual companies’ share prices but even the group’s overall market cap increased.
I couldn’t say whether hydrogen cars would ever become as mainstream as EVs, but it was certain they would become one pillar of the future automobile industry.
It was only a matter of timing. Sooner or later, the age of hydrogen would arrive.
And at the very center of it stood Thomas Motors!
Still pretending not to know anything, I asked, “From what you’ve told me so far, it sounds like an excellent company. So what’s the problem?”
“There’s a possibility it’s fake.”
“Fake?”
“All of it.”
The first hint came from a tipoff from one of Morris Pierson’s friends.
That friend had worked as a researcher at Thomas Motors.
He had joined, thinking he was going to help develop hydrogen trucks, but the plans kept changing and no real R&D ever took place.
They were obsessed with a flashy exterior rather than the internal structure, and even when they finished a design, nothing was ever produced.
After hearing that, David became interested and investigated Thomas Motors on his own. But the more he looked, the more suspicious things he found.
So David put together a report and submitted it. But Victory Investment collapsed, and the report was simply buried.
“You still have that report, right?”
“Yes.”
“Would it be all right if I looked at it?”
I went through the report David had made.
Looking at a report written by a professional investor on Wall Street made me realize just how much garbage the reports I’d written had been.
No wonder I’d been getting criticized.
“Its market cap is thirty-two billion dollars.”
“Ah! That was back then. Right now it’s closer to forty billion.”
At that level, it was bigger than Ford, one of America’s old-line automakers, and big enough to rank among the world’s top ten car companies.
“PBR, PER, and ROE are practically meaningless.”
“That’s not just true for Thomas Motors. It’s the same with a lot of companies lately.”
PBR, the price-to-book ratio; PER, the price-to-earnings ratio; ROE, return on equity.
But for companies with little in the way of tangible assets and ongoing losses, those indicators were effectively meaningless.
“That’s why PDR has appeared recently.”
PDR, the Price to Dream Ratio.
Traditional industries have land, factories, buildings, and machines. But in the case of recent IT companies, intangible assets outweigh tangible ones, and they don’t hesitate to run losses if it means securing market dominance.
So instead of focusing on immediate assets and earnings, they calculate share prices by reflecting expectations for future growth and the dream behind them.
Since it was such a hard-to-quantify measure, a lot of people said it was absurd. But there was already a successful precedent for it.
Starting out as a startup, Tisla had never once turned a profit since its founding, yet its market cap had surpassed that of traditional automakers. And megacorporations like AMZ were maintaining a thin 1 percent profit margin while pouring their energy into expanding their market reach.
If you analyzed those two companies with PBR and PER, the conclusion would be that they were the kind of companies that could go under at any moment.
Come to think of it, Cooloud was no different.
The traditional businesses that had led the world were slowly fading now.
Tisla’s market cap had overtaken GM not because it sold more cars than GM did, but because everyone believed the age of EVs would arrive soon, and that it would be able to swallow up that enormous future market.
Thomas Motors was the same. So how many cars had this supposedly enormous company actually sold so far?
Zero.
A car company with a forty-billion-dollar market cap that had never sold a single car.
Seeing that, it almost made me think Cooloud’s market cap was absurdly cheap.
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