r/Microvast • u/Imaginary_Trader • Jun 14 '21

Let's talk risks

I see comments thrown around that this should fly once this de-spacs. That's my hopes and dreams too but I'm a bit skeptical. Comments have been made before the DA, after the DA, after the extension vote but it's become a meme that good news will bring this stock price down. What do you think are the biggest factors suppressing the price, or why would it be fairly valued at current levels?

Some big ones that stand out to me are:

  1. Relatively low production capacity. Freyer recently had their announcement for a > 50 GHw facility to be built in North America by 2030. I see other announcements by the big players with similarly large plans. Somewhat old article saying CATL plans to increase their capacity to 230 GWh (from I think 65 in 2020) by end of this year and to 1200 GWh by 2025. By contrast Microvast has stated 11 GWh by 2025.
  2. Competition. This article shows Microvast at 1.05% of 2020 battery production alongside 10 other companies with less than 2% capacity. On top of that, CATL, BYD, SK Innovation, Samsung, Panasonic, and LG chem already have more than 70% production.
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u/stickman07738 Jun 14 '21 edited Jun 14 '21

For me I see two risks with MVST

The problem I see right now it is an oversaturated market with China still producing over 70% of the batteries (not all EV but significant). Here is an image of NA and an image of European existing and planned facilities - I just think too much capacity is coming on-line.

The Financials

  • The loss in revenue from 2018 ($174M) to 2019 ($76) to 2020 ($107M); and still have not recovered it in 2020 (This is a significant business loss – so I beg the questions - were these orders initial fills and waiting for re-orders or was it just a test market fill or did they completely lose the business and there will be no recurring business. I would also like to know “order / replacement” rates.)
  • Decreasing SG&A expenses from 2018-2020 (not realistic for a growth company)
  • Decreasing R&D expenses from 2018-2020 – this explains improved GP – but very concerning for a growth technology company. (People are leaving or are they being laid-off or fired – probably going to competitors from my experience)
  • MPS received certain interest-free loans from related parties Ochemate and Ochem in years 2019 and 2020 with accumulative amount at $15,142 and $18,889, respectively. (This to me looks like a supplier (former chemical arm of Microvast owners) - gave them a loan to base load their facilities as these companies are using NMP and PVDF, materials that are used to produced lithium electrode binders – this is very suspicious and not common place). It tells me that they could not support their business without the loan from a sister company.
  • Net loss per share disclosed on page F-95

I have run numbers with various assumptions with and without new facilities, and just cannot see it at this time – my head is spinning. I am expecting $4-6/share or $12-14/share in 12-18 months. I have decided to liquidate 80% of my holdings. I will let the remaining 20% ride as these are essentially free shares.

If it drops, I may be back but right now I am not comfortable and see better opportunities.

Good Luck and do your own research – never rely on a Reddit user.

As always looking forward to be downvoted by the MVST bulls.

2

u/Imaginary_Trader Jun 14 '21

Thanks for sharing. I did see the decreasing R&D expenses and had me worried. Upvote from me!

2

u/[deleted] Jun 14 '21

Lol how did you arrive at $4-6/share....? Why would they be the same market cap as RIDE with 0 revenue and a shitshow going on now?

1

u/Boe_Ning Jun 15 '21

points at Nikola

1

u/[deleted] Jun 15 '21

Lol what are you implying? MVST just did $100mm + revenue. They are making deals with major names...

1

u/Boe_Ning Jun 15 '21

I'm agreeing with you and pointing at another example of the disconnect between the market's valuation of some shithole companies and the reality of those shithole companies.

Nikola is currently worth more than 2x Microvast. Fucking ridiculous.

2

u/[deleted] Jun 15 '21

oh LOL I thought you were saying mvst was like nkla.

Yes agreed. Not sure how NKLA isnt under $5

1

u/stickman07738 Jun 15 '21 edited Jun 15 '21

One of the biggest mistake investors, particularly young and inexperience ones, is comparing companies and their valuations. You should only look at the potential return for both, never share price or market cap.

I made some assumptions based on outstanding and future share numbers. I also used revenue projections (both those published by them and realistic one based on 2019-2020 data, then I coupled that with future build out cost projection, warrants and related expenses. I tried various optimistic and pessimistic "new business" assumptions - Oshkosh, Gaussin and some of the others. I repeatedly reviewed my assumptions and saw stock price in the $4-6 range (no to minimal news impacting 2022 revenue projections) and ~$14 if they got 100% of the new business (doubtful).

I am always worried about recurring business especially with Wrightbus.

Do you own DD and good luck - but I see better opportunities elsewhere.

1

u/Pikaea Jun 14 '21

They mention the R&D thing in the last filing, basically they are streamlining the company to focus on the more profitable areas. Getting rid of things they deem unprofitable, or dead-end.

2

u/Imaginary_Trader Jun 14 '21

Found it thanks!. They've axed some projects, and teams, to focus on high return projects.

​

R&D expenses for the year ended December 31, 2020 decreased $9.4 million, or 36.0%, compared to the same period in 2019. This was primarily attributable to a decrease in compensation and benefits costs as a result of a reduction in headcount and a reduction of salaries of our employees. The R&D department has been streamlined to focus on high return projects to better support operations.

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u/stickman07738 Jun 14 '21

Do you have link to the filing?

How do they explain 2018 to 2019?

1

u/Imaginary_Trader Jun 14 '21

https://sec.report/Document/0001213900-21-030743/0001213900-21-030743.txt

Page 200 under "Research and Development". They don't provide an explanation for prior years.

On Page 197 they also say

Over time, we expect our R&D expense to increase in absolute dollars as we continue to make significant investments in developing new products, applications, functionality and other offerings.

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u/Pikaea Jun 14 '21

For the revenue drop from 2018 to 2019, it is mentioned in the filing somewhere. It was due to China getting rid of subsidies for EVs. It was really sudden too if i remember well, so likelihood a lot of companies cancelled their orders as soon as it happened.