Chapter 62. Thomas Motors (1)

When you make ten times the profit in one go, it might seem easy to make ten times the profit, but in reality, the market is a place where it's hard to even double your earnings.

The larger the capital, the more the return rate is bound to decrease. Investors cheer and applaud if the annual return rate is just 20 percent.

"Please don't hesitate to share any good ideas you might have."

A moment of silence followed.

Edward then spoke to David.

"Didn't we work on something together before? I think it's worth exploring further."

I showed my curiosity.

"What was it?"

David said,

"When I was at Victory Investment, I conducted a survey on a certain company."

"What company was it?"

"It's called Thomas Motors. It's a company that makes hydrogen cars. Have you heard of it?"

This is it!

I held back my excitement and asked,

"I've heard of it. What kind of company is it?"

"Let me explain Thomas Motors first."

If you pick the three industries that will grow significantly in the next ten years, mobility is bound to be one of them.

Currently, changes in mobility are progressing in two ways: changes in hardware and changes in software.

The emergence of electric vehicles (EVs) that run on electricity and motors, replacing internal combustion engines that run on gasoline and engines, represents a hardware change. On the other hand, autonomous vehicles that use artificial intelligence programs represent a software change.

Electric vehicles can be further divided into two types:

One is the secondary battery electric vehicle, which stores electricity in a battery, and the other is the fuel cell electric vehicle, which generates electricity directly from hydrogen as fuel.

Both are classified as electric vehicles since they run on electricity and motors, but for convenience, the former is called an electric vehicle, and the latter is called a hydrogen vehicle.

"Electric vehicles have essentially won the battle in the passenger car market. However, the situation is a bit different for commercial vehicles. Unlike passenger cars, which mainly travel short distances and are parked for long periods, trucks that travel long distances are more suitable for hydrogen vehicles rather than electric vehicles."

Although several companies have already released electric trucks, they haven't gained much popularity.

This is because of the long charging times and short driving ranges. One might think that adding more batteries would solve the problem, but this would make the vehicles more expensive and heavier.

The longer the battery, the longer the charging time, and the reduced cargo capacity is also a problem.

On the other hand, hydrogen vehicles are not much different from traditional internal combustion engine vehicles in this regard.

Unlike electric vehicles, which require battery charging, hydrogen vehicles only need to fill the fuel tank with hydrogen, and the driving range is much longer than that of electric vehicles.

While it is difficult to implement in passenger cars due to the space occupied by high-pressure hydrogen tanks, fuel cell stacks, and radiators, it is not a significant issue for large commercial vehicles.

"However, hydrogen vehicles have a fatal flaw."

"Charging stations?"

"Yes."

No matter how good a car is, it can't run without fuel.

Electric vehicles faced the same issue in the early days.

Fortunately, the installation cost of electric charging stations is not high, as it only requires bringing in electricity, and in emergencies, they can even be charged with household power. Currently, there are many charging stations, and the number is still increasing.

On the other hand, it's not an exaggeration to say that there are virtually no hydrogen charging stations.

There's no reason to spend a lot of money building charging stations when there are no hydrogen vehicles, and without charging stations, hydrogen vehicles won't sell.

To popularize hydrogen vehicles, hydrogen charging stations need to be built first, but the installation cost of a single station is at least $2 million.

"The production and transportation of hydrogen are also issues. Hydrogen is the most common element, but in nature, it is combined with other elements. To obtain pure hydrogen, it must be extracted through a process of electrolyzing water using electricity. Unlike gasoline, which is in a liquid state, or natural gas, which can be liquefied, hydrogen exists only in a gaseous state. Because its molecules are small, it easily leaks, making storage and transportation quite challenging."

In short, there is a lack of related infrastructure.

To make hydrogen vehicles run on the road, these issues need to be resolved first.

Thomas Motors' CEO, Brad Button, proposed a solution. Not only will they launch hydrogen vehicles, but they will also supply the entire related infrastructure.

Thomas Motors has a subsidiary called Thomas Energy, and they have announced plans to build the entire system, from hydrogen production and transportation to charging stations.

"Thomas Motors is positioning itself not just as a hydrogen vehicle company but as a comprehensive hydrogen infrastructure company. They argue that hydrogen is the clean, next-generation energy source."

"But isn't it not environmentally friendly if you use electricity to produce hydrogen?"

David nodded.

"They plan to produce hydrogen using solar power. That's why they've partnered with Korea's Hwaan Group. Before launching hydrogen vehicles, they plan to build hydrogen production facilities and charging stations across the United States with Hwaan Energy."

The Hwaan Group is one of Korea's top ten conglomerates, alongside Yuseong, Daeyeon, LK, and Hanjeong.

Their main businesses are manufacturing, defense, construction, energy, and finance. In recent years, they have chosen green energy as their next major business.

Initially, the atmosphere was positive.

In the 21st century, global warming and environmental issues have become prominent, and the world has entered into agreements like the Kyoto Protocol and the Paris Climate Agreement to reduce carbon emissions.

As a result, fossil fuels, which humans have traditionally used, have been perceived negatively, while solar and wind power have been highly regarded as clean energy.

Thanks to their early entry, Hwaan Energy has grown into a world-renowned company in the solar power industry.

Their prediction that the solar power industry would grow proved accurate.

The problem is that Hwaan Group wasn't the only one who thought so.

Chinese companies flooded the market with low-cost panels, and the Chinese government provided subsidies only to domestic companies.

As a result, profitability plummeted, and the more they produced, the more losses they incurred. However, it was a future industry, and the government continued to support it, so they couldn't pull out.

Fortunately, they managed to start making a profit after enduring the losses. A new breakthrough came with hydrogen energy.

The most important thing in electricity is to produce it appropriately to meet the required consumption. Excess production cannot be stored and is wasted.

However, solar power generation produces more electricity on sunny days and less on rainy or cloudy days. At night, it's zero.

This intermittency was the biggest problem with solar power generation. But what if the excess electricity could be used to produce hydrogen?

It would be a perfect match.

The company that caught the eye of the Hwaan Group, which was looking to enter the hydrogen energy market, was Thomas Motors.

The Hwaan Group, which had been closely watching the growth trend, invested in Thomas Motors while it was still a private company and secured an 8.5% stake.

Hwaan Energy and Hwaan Solution each purchased 4.3% and 4.2%, becoming major shareholders.

As hydrogen economy gained attention, Thomas Motors' stock price rose about 12 times, and the Hwaan Group made a profit of over $3 billion.

Thanks to this, the stock prices of the related companies and the group's market capitalization increased significantly.

It's uncertain whether hydrogen vehicles will become as popular as electric vehicles, but they will undoubtedly play a significant role in the future of mobility.

It's only a matter of time before the age of hydrogen arrives.

And Thomas Motors will be at the center of it!

I continued to pretend I didn't know and asked,

"From what I've heard so far, it sounds like a great company. What's the problem?"

"There's a possibility it's all fake."

"What do you mean?"

"Everything."

I first learned about this from a tip from Morris Pearson's friend.

His friend worked as a researcher at Thomas Motors.

Initially, he thought he would be developing hydrogen trucks, but the plans kept changing, and proper research and development were not carried out.

They were more focused on creating a plausible appearance rather than the internal structure, and even when the design was completed, production did not take place.

David became interested in this story and investigated Thomas Motors. There were many suspicious points.

David then prepared a report and submitted it. However, Victory Investment went bankrupt, and the report was buried.

"Do you still have that report?"

"Yes."

"Can I see it?"

I looked at the report David had prepared.

Seeing the report made by a professional investor on Wall Street, I realized how poor the reports I had made were.

No wonder I got criticized.

"The market capitalization is $32 billion."

"Ah! That was back then. Now it's close to $40 billion."

To put that in perspective, it's larger than the traditional American car company Ford and is among the top ten car companies in the world.

"PBR, PER, and ROE are practically meaningless."

"That's not just the case with Thomas Motors. It's the same for many recent companies."

PBR (Price to Book-value Ratio) is the price-to-book ratio, PER (Price to Earnings Ratio) is the price-to-earnings ratio, and ROE (Return On Equity) is the return on equity.

However, these indicators are practically meaningless for companies with a low proportion of tangible assets and ongoing losses.

"That's why PDR has emerged recently."

PDR (Price to Dream Ratio) is the price-to-dream ratio.

In traditional industries, there are tangible assets like land, factories, buildings, and machinery. However, in recent IT companies, the proportion of intangible assets is larger, and they are willing to incur losses to capture the market.

Therefore, the stock price is calculated based on the expectation and dream of future growth rather than current assets and earnings.

Since it's a hard-to-quantify indicator, there are many opinions that it's unrealistic, but there are already successful cases.

Tesla, which started as a startup, has never made a profit since its founding but has surpassed the market capitalization of traditional car companies. AMZ, a super-large company, is also focusing on market expansion while maintaining a low 1% profit margin.

If you analyze these two companies using PBR and PER, you would conclude that they are on the verge of bankruptcy.

Kulcloud is no different.

The traditional businesses that have led the world are gradually declining.

Tesla's market capitalization surpassing GM's is not because Tesla sells more cars than GM. It's because the era of electric vehicles is coming soon, and there is an expectation that Tesla will dominate the massive future market.

The same goes for Thomas Motors. How many cars has this huge company sold so far?

Zero.

A car company that hasn't sold a single car has a market capitalization of $40 billion.

Seeing this, I can't help but think that Kulcloud's market capitalization is incredibly cheap.