Tesla - 2020 Results

Tesla is the global market leader in the electric car market with around 75% of the US EV market and 25% in China. Over the past year the share price has increased by 700% giving a market cap. of $825 billion which makes it the largest global car maker. The stock has now joined the S&P 500 which means it will now be held in all the major index funds/ETFs.

Tesla's lead in battery technology should help it to maintain this position as it continues to make improvements and new models and also looks to reduces prices as it scales up production. It has its main plant in California but has expanded into China and is expanding with new production factories in Berlin and Texas.

The shares were added to my portfolio at $282 last July however after a rapid surge, I sold half my holding a month or so later to release some funds for my house purchase which completed in November.

Results

The company have released Q4 results (pdf via Tesla website). It's been a good year on most fronts with their target of half a million EVs delivered over the year combined with increased profits and cash-flow. They expect to increase production/deliveries by over 50% in the coming 12 months.

Vehicle revenues increased 31% to $27.2bn with gross profits up 58% to $6.98bn. After operating expenses, this is the first full year of net profitability for the company.

Tesla made $400m from the sale of regulatory carbon credits to other motor companies which they need to meet carbon emissions legislation. This bonus has grown significantly over the past year or two but is likely to become less valuable as other manufacturers increase their own EV roll-out. For example Renault/Nissan and Volkswagen are moving quickly to step up production of their EVs and they currently have a combined 40% share of the EU electric vehicle market compared to around 15% for Tesla.

Tesla remains the top holding in the £17 billion Scottish Mortgage trust and accounts for just over £1.8bn or 10.7% of the SMT portfolio.

Clean Energy

In addition to cars, it offers solar+battery storage solutions for domestic and commercial customers. This has the potential to become larger and more profitable than the auto division.

In 2019, the company declared an ambition to become a global energy distributor. Battery storage capacity is transforming the traditional electricity grid and will be a crucially important part of the global transition from fossil fuels to clean energy. Tesla have designed and manufactured a utility-scale storage system called "Megapack". These can be installed in as little as three months to provide 250MW of clean energy at a fraction of the cost of a traditional gas-fired power station.

Indeed, they have now obtained a license to generate electricity in the UK. Obviously the battery technology used in cars can be used to store energy from renewable energy such as solar and wind. The firms software called "Autobidder" enables the company to trade renewable energy more efficiently.

Growth in Energy Deployments (click to enlarge)

Over the past year, energy storage deployed has grown by 83% to over 3GW whilst solar PV increased by 18% compared to 2019.

It is this part of the business that persuaded me to add the shares to my portfolio last year despite the significant increase in the share price since the start of last year.

The shares have obviously had had a good run in recent months touching a high point of $890 last week so I am prepared for some volatility and pull-backs but I am hoping the longer term prospects remain positive. When a share price is rising very rapidly over a relatively short period it is very tempting to sell and bank the profit before the 'bubble bursts' so I am pleased that I have managed to resist this temptation so far.

Currently the shares are $835.

Update 9/2/21:  Shares sold today on news that $1.5bn of reserves to be held in Bitcoin...sale price $854 and return since purchase last year is 201%.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in individual companies can be rewarding but is higher risk compared to collective investments - always DYOR!

Sunrun - Portfolio Addition

Founded in 2007, Sunrun has grown rapidly and is now the largest installer and also owner of solar systems on homes in the US with a market share of around 20%. The current market cap. is $16.5 billion. The business is driven by the increasing weather-related climate events - from devastating wildfires in California, floods and hurricanes along the eastern seaboard - all of which are leading to extensive power outages. More and more people are looking for ways to reduce their dependence on the large utility providers and turning to solar panels and energy storage solutions. In addition a growing number of people are concerned about climate change and just want to make the switch to clean renewable energy.

The upfront costs of installing solar PV and maybe battery storage can be up to $30,000 and therefore only an option for the relatively wealthy homeowners. To counter this hurdle, the Sunrun business model offers the homeowner the benefit of solar PV with no upfront cost. Therefore the homeowners save on energy bills and pay monthly payments to Sunrun who install, monitor and maintain the system and retain ownership.

With the introduction of their 'Brightbox' energy storage system in 2019, the company have increased average revenues by over 40% compared to the solar-only offering and expect to double the battery storage option in the coming year.

In addition to the domestic solar offering, there is also 'grid services' which involves power purchase agreements with utility companies to supply energy at times of peak demand. As they own the batteries installed in customers homes, they can use sophisticated technology to tap into the collective unused energy and sell this to the utility company at a premium.This is a virtual power plant. They estimate that grid services can increase the value of revenues from each home customer by 25%.

Results

According to the latest Q3 results to end September 2020, customers have increased by 20% year-on-year to 326,000 with net earnings assets lifted 15% to $1.7bn. Over the 3 month period, the acquisition of Vivint Solar was completed to create a combined customer base of over half million. This consolidated Sunrun's position as leader in home solar and operating over 3GW of solar energy.

The company announced they are expecting continued growth in Q4 combined with improved margins and cost savings from the acquisition of Vivint.

 Conclusion

The home solar business is growing very rapidly and industry experts are predicting solar+storage installations to grow at 7% each year for the next decade. Federal tax credits introduced in 2005 and worth 26% to subsidise solar are due to expire in 2023 however the industry are hopeful that the new Biden administration will extend these as part of it's green agenda.

Obviously the pandemic has slowed growth in 2020 which has been a tough year for most businesses. However, I am hoping we are getting towards the end of the worst effects of the pandemic and businesses can get back to something like normal by the mid-year. In addition, the new administration are pledging $2 trillion for the green agenda to make the transition to net zero so this should be a boost to the renewable energy sector.

Despite the slowdown in the economy, the shares, in common with many in the renewable energy sector, have had a really good run over recent months rising from $20 per share last January and reaching a high point of $98 at the start of 2021. They have fallen back a little this past week and the shares were added to my SIPP at $82. The rise in sterling over recent weeks makes this sort of purchase more attractive.

I look forward to seeing the full year results which are due in February.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in individual companies can be rewarding but is higher risk compared to collective investments - always DYOR!

Inheritance Tax - A Brief Overview

Having recently moved house and also reviewed my end-of-year portfolio and finances, this is probably a good time to expand on some brief notes I made on inheritance tax.

Whilst many pensions are usually exempt from inheritance tax, the total value of any house, cash or investment ISA will form part of your estate and is therefore liable to 40% inheritance tax (IHT) on death. For most people, it's not an issue as their estate is valued well below the threshold. However, as the value of property such as your main residence or buy-to-let properties and also (hopefully) investments rise over the years, it will pay to be aware of the potential liability for inheritance tax as the value of such assets rises over £300,000.

Currently only around 1 in 20 people become liable for inheritance tax but given the rise in property prices, particularly in London and the South East, it is very likely that more people will become liable to the 40% tax in future.

The Basics

IHT, otherwise known as the Death Tax, only kicks in when you die.

There is nothing to pay if your estate - i.e. the value of everything you own - is:

1. Less than £325,000

2. You leave everything over this figure to your spouse/civil partner or a charity.

If neither of the above applies then your family will pay 40% IHT on the value of the estate above £325,000. So, if the estate is valued at £500,000, your estate pays the taxman £70,000 (£500,00 - £325,000 is £175,000 x 40%). Any tax due must be paid 6 months after the date of death.

Main Residence Allowance

If you own your main residence and you are leaving this to children or grandchildren, then you will get an additional 'main residence' allowance of £175,000 (currently) added to the £325K which means that up to £500,000 would be tax-free for estates worth less than £2 million.

So, in the above example, if the estate was left to children/grandchildren and included a main residence then instead of a £70,000 tax liability, no IHT would be due.

A married couple including civil partners can currently leave up to £1 million tax-free as the surviving spouse can use the deceased partner's allowance - £500K if there's a house involved which is common.

Gifts

You can make a gift of up to £3,000 each year to anyone free of tax. In addition, you can make a wedding gift of up to £5,000 to children and £2,500 to grandchildren and £1,000 to others tax-free.

Beyond this, you can give any amounts to family or anyone else but such gifts are regarded as potentially exempt transfers under the seven year rule.

The 7 Year Rule on Gifts

Money or other valuable assets given away before death will still be counted as part of your estate but are regarded as potentially exempt transfers. If you survive for 7 years or more after the transfer then it becomes exempt from IHT. There is a sliding scale of tax due for gifts made less than 7 years before death. Within the first 3 years it will be 40% and then reduces by 8% each subsequent year.

Pension

In the past, pensions were taxed at 55% on death however this changed in 2015. Now, much will depend on the type of pension and also the age when you die.

With SIPPs and income drawdown plans, the 55% death tax has gone and now the beneficiaries will pay no tax if the pension holder dies before age 75 and after that age, they pay tax at their notional rate...usually 20%.

However these new rules do not apply to final salary schemes - also known as defined benefit - which provides a guaranteed income for life and then a reduced pension for a spouse or civil partner.

Shares Listed on AIM

The value of most (but not all) shares listed on the Alternative Investment Market or AIM will be exempt if held for at least two years prior to death. This is because the assets qualify under the provisions of Business Property Relief (BPR). For example, I currently hold shares in ITM Power and Ceres Power which are both listed on AIM so their value would not count as part of my estate provided I had held for at least two years.

Under the same BPR provisions business owners may well qualify for exemption from IHT on the value of their business, including shares in their business if a limited company, provided they were the owner of the business for at least two years prior to death.

Life Insurance and Trusts

Finally, it is possible to reduce or mitigate liablity for IHT by setting up a trust or taking out life insurance.

The basic idea is that some of your assets are given to the trustees via a trust deed for the benefit of others (beneficiaries) such as family members. The property is then held in trust and does not form part of your estate on death. It can be expensive to set up and administer a trust over many years and also, once the assets are transferred to the trustees, it usually cannot be reversed.

Likewise, if a life insurance policy is written in trust, the payment made on death will not become part of your estate but can be paid out directly to your spouse or other beneficiaries.

In the above cases it is advisable to seek specialist help from an IFA, tax advisor, insurance specialist or solicitor.

Conclusion

Some people who have been lucky to accumulate assets in excess of half a million pounds during their lifetime may well not have a problem seeing some of it pass to the taxman after they have gone. After all, our governments are under increasing pressure to pay for our NHS that has served us so well as a nation during the Covid pandemic as well as repaying all the debts - estimated additional £350 billion -that have been accruing over the past year due to paying the nation to stay at home.

Others believe that having worked hard and paid a lot in taxes and national insurance over many, many years, they draw the line at paying a further 40% when they pass away.

I can actually see both points but for the time being it's academic and I do not have to make a choice...but will be keeping an eye on property prices and my investments.

If you have any views in IHT or have taken steps to mitigate future liability, feel free to leave a comment below.

Neoen - Portfolio Addition

It's a new year and I have added another renewable energy company to my green portfolio. Neoen is listed on the Paris exchange. It floated with an IPO in 2018 and has more than doubled it's market cap. over the past year to currently €5bn.

Neoen owns and operates a range of renewable energy operations in 14 countries around the world. They currently have 50 solar energy farms including the largest in France and this is the main source of revenues (47%). Onshore wind farms are operational in Australia, Finland, France and Ireland and capacity is now approaching 1GW. The third and fastest growing sector is energy storage and Neoen operate the world's largest lithium-ion battery plant at Hornsdale in Australia developed with Tesla.

The current target is for 5GW of operational capacity across these three renewable energy sources by the end of this year.

Cestas Nr Bordeaux - Europe's largest solar farm

Results

According to the latest half-year report (pdf) to end June 2020, revenues increased by 33% to €157m and a robust cash holding of €590m. Assets in operation or under construction increased by 20% to 3.6GW over the 6 month period.

Energy storage contributed €24.6m to revenues in the first half, an increase of €16.2m or 193% compared to 2019.

Results for the full year are due mid February.

Conclusion

Neoen is a fast-growing global renewable energy company with a current portfolio capacity of over 3GW and a target of 5GW by 2022. The shares have had a good run this past few months in common with most other companies in the green energy sector. There may well be some pull back over the next few weeks/months which may have provided a better opportunity to add but as with so many others on my watchlist, they could just as easily keep rising so I have decided to bring this one on board now.

There are lots of positives which will drive forward the sector - the new president in the US and his pledge for a green deal, the EU's €1 trillion green deal which has just come into force, China announced it would hit peak carbon before 2030 and become carbon neutral by 2060 and the general global move towards net zero carbon emissions.

Neoen 1 yr Share Price

Obviously the excellent returns from my green portfolio over the past couple of years gives me the confidence to continue to expand this sector. Fingers crossed Neoen (and others) will continue to benefit from the transition away from fossil fuels.

The share price has risen over 100% from €30 this time last year and Neoen was added to my ISA at the price of €62.5 earlier this week. More on this following the release of full-year results.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in individual companies can be rewarding but is higher risk compared to collective investments - always DYOR!

Portfolio Review - End 2020

 Another year rolls by and this is now my 8th end of year review since starting my blog in February 2013...and what a year - one theme... Covid-19...  coronavirus         social distancing        lockdown       

The news of coronavirus outbreak in China started to emerge in February. The virus soon spread to Europe and the rest of the world, but I don't think anybody anticipated the huge global impact it would have and in such a short period. March saw a one-day fall of 10% on the FTSE and 3,000 point fall on the Dow Jones. At the same time the price of oil fell from $60 per barrel to $25 in the blink of an eye and at one point was trading at a negative price. This was a scary time for investors and one of the most volatile times I can remember. Certainly a good time to re-evaluate asset allocation!

Thankfully the panic subsided over the next couple of months and the markets bounced back led by the technology sector and by July had recovered most of the lost ground....well, apart from the FTSE which had yet another disappointing year.

Just when we thought we may be over the worst, the Covid rates started to increase again in September and by October we were moving back to regional lockdowns followed by another national lockdown in November and then a further tier 4 lockdown just before Christmas as new strains of the virus emerged. 

There was some light at the end of the tunnel when in November when it was announced by Pfizer that their trials were successful and subject to passing the regulation, they hoped to release a vaccine which was 90% effective. A week later and along came positive news from two others including the Oxford AstraZeneca trials. By early December we had delivery of the first batch of vaccine and ready to begin the roll-out starting with the most vulnerable people in care homes and front line health workers. We have 100m of the Oxford vaccine on order and with approval coming at the end of December, this will start to roll-out in January.

Hopefully the vaccines will work on the new strains and we can start to move back to something like normality in the coming months.

Climate Change

While Covid has dominated the year, the climate crisis has continued to get worse and the world gets warmer each year. 2020 is no exception. However, I feel this has been a breakthrough year for the climate - governments around the world are starting to take the issue seriously and everyone is more aware of the importance of the challenges we face and the need to make some significant changes to many aspects of our everyday living.

Here in the UK we saw the governments 10 point plan for climate in November confirming a four-fold increase in offshore wind to 40GW by 2030 and 5GW of hydrogen capacity by the same date. The EU has put in place it's green deal with a €1 trillion green stimulus plan, China has pledged to become carbon neutral by 2060 whilst Japan and S Korea announced plans for net zero by 2050 in October.

The bigly boost was the defeat of climate denier Trump in the US election. Joe Biden has pledged to tackle the climate crisis and will rejoin the Paris Agreement and will spend $2 trillion to support the transition to renewable energy by 2035 and make the US carbon neutral by 2050. China and the US are the world's dominant economies and account for over 40% of all global carbon emissions. Therefore the new pledges from these two countries will have a huge knock-on effect around the world and will inevitably mean increased investment into renewable energy such as wind and solar, energy storage, hydrogen, EVs and lots of other green technologies. Which is all good for my green investments! 

Trump has been one of the worst, most dysfunctional presidents of my lifetime and I was therefore pleased and relieved that Joe Biden eventually came out on top. However, I was really surprised at how many Americans still voted for the former president - more than voted for him in 2016 which shows the influence of carefully targetted social media campaigns and the likes of Fox News.

The pledges are welcome but they have to translate to implementation which will be challenging. I guess the coming decade will be a make or break period. We either make the changes to limit global warming or we fail and face the consequences. I fully agree with President Macron when he said that if the world can do the unthinkable to their economies to confront coronavirus, surely it can do the same to arrest the much bigger threats from catastrophic climate change.

But despite the economic slowdown from Covid, 2020 has been the warmest year on record...the past 6 years have been the hottest on record and unless we tackle the climate emergency, the Met Office have forecast that temperatures in the UK could be 3 to 4 degrees warmer on average by 2100.... ( they have risen by just 1.1C over the past 150 years).

Of course, there will be no vaccine to save us. "Once climate change becomes a defining issue for financial stability, it may already be too late." Mark Carney, former Governor of the Bank of England. Tom Slater, joint manager of the £17 billion Scottish Mortgage Trust says "The wholesale shift away from carbon is set to be one of the most significant societal and investment transitions of our lifetime". "What happens next is up to every one of us." Sir David Attenborough. The clock is ticking, the time to act is now.

The simple fact remains that whether we are cautious or adventurous, active or passive, DIY investors are part owners of everything we choose to hold in our portfolios. Back in 2018, I decided I did not wish to carry on being part of the climate-change problem by continuing to hold multinational fossil fuel companies which feature prominently in all the passive index funds, even the so called ESG offerings. I made the changes and feel better for bringing my investments into line with my values. So far, my move to embrace more climate-friendly investing options has proved very rewarding.

I published my "Climate Emergency" book at the start of the year...not yet as popular as DIY Pensions....but I remain hopeful! 

Brexit

It's been a long time coming but following the end of the remainer Parliament and a landslide victory of Boris Johnson last December, we left the EU at the end of January and, against all odds secured a Canada-style++ trade deal in just 11 months. So it was Merry Brexmas for all the 17.4m who took on the establishment in June 2016...democracy remains in tact.

Of course, the full details of the agreement have to be analysed and there is no guarantee that we will be economically better off as a result of leaving but for me, the important element is that democracy has prevailed. We were given a simple choice in 2016...leave or remain. Against all expectations the majority of the people voted to leave and that decision has now been respected. It's now time to move on.

Investment Strategy

So, a dramatic rollercoaster year in global markets. Fortunately, my green/tech investments have weathered the turmoil better than many other sectors. Sadly the FTSE had yet another year of underperformance. I cannot understand why the iShares Core FTSE 100 ETF is consistently the best selling fund on the HL platform.

It's now over two years since I started the move away from fossil fuel investments which inevitably include the global multi-asset index funds such as Vanguard Lifestrategy. I have now adopted a two-themed focus for my portfolio which are

1. sustainable fossil-free & climate-friendly

2. technology.

I expect these two areas to provide the better returns for my portfolio over the coming decade or more.

Unfortunately there are no collective funds which deliver on these themes in a combined way and so I have increasingly assembled my own mini fund which combines many individual company shares as well as some collective investment trusts and funds.

Over the past year I have (reluctantly) sold into the rising prices of many investments during the second half to release funds for my house purchase which completed in November.

Portfolio Returns

I have just put in the final figures for the spreadsheet of my investment portfolios - sipp flexi drawdown and ISAs - for the full year to 31st December.

The FTSE 100 has struggled for most of the year post Covid and has dropped from 7,542 to 6,460 and a total return of -11.5% for the full year. The FTSE All Share index is down -10.0%.

As a matter of interest, the FTSE 100 finished at 6,749 when I did my first annual review to the end of 2013. Not much progress over the past 7 years!

The Vanguard Lifestrategy 60 fund is a diverse mix of global equities and bonds and although I have disposed of my holding, it provides a good benchmark for a balanced global portfolio. The fund is up 6.9% over the past year and the VLS 80 is up 6.6%

Technology - Over the 12 month period, I sold TR Property trust and replaced it with Allianz Technology to complement my other tech trust Polar Capital. I have also added a few individual companies - Google, Microsoft, Ocado and Zoom

The total return for my tech sector over the year was 26.2%.

A Good New Year's Day Walk...

Green - Over the year I have continued to build my climate-friendly section which now represents over 75% of the total portfolio. Many of the investments have not had a full year so I am pleased that the total return for this sector compares very well with the wider market. It shows that you don't have to compromise on portfolio returns when investing for a more sustainable world, in fact just the opposite, returns have been enhanced.

The better returns have been provided by offshore wind specialists Orsted  +95% and  Vestas Wind  + 130%, iShares Global Clean Energy ETF +135%, green hydrogen smaller companies ITM Power +490%, Ceres +225%, AFC Energy (now sold) +325% and McPhy Energy +500% ....and in the US, Tesla 130%, Ballard 120% and Plug Power 135% Unfortunately, my renewable infrastructure trusts have been a drag on overall performance... TRIG -0.5%, NextEnergy (now sold) -11% and Bluefield Solar -1.5%. I will reduce my weighting to these trusts in the coming months.

Maybe some of these renewable energy companies will become a part of the small percentage (1 in 20) of stocks which are responsible for the wider equity market outperforming bonds. Here's the article from 2018...

The total return including dividends from my green portfolio has been 52.5% which is brilliant and shows that it's possible to invest ethically, align my investments with my values and still make a decent return.

Of course, after such a strong run this year, some pull-back is to be expected but I am confident longer term progress will be supported by the underlying fundamentals of a global shift from fossil fuels to renewables.

The Complete Basket

As a whole, the portfolio has delivered a total return of 43.8% over the past year which takes account of all dealing costs. It is my best ever year surpassing the 37% of 2009 which saw a big bounce after the economic crisis. Here's my portfolio returns covering the past 10 years. 

2011  -3.0%

2012 15.5%

2013 13.3%, 

2014   5.4%, 

2015   2.7%  

2016 11.4%

2017 11.3%

2018  -2.7%

2019  21.9%

2020  43.8%

A sum of £1,000 at the start of 2011 has increased almost three-fold to £2,890 and an average annualised return over the past 10 years of 11.3%.

Conclusion

In these times of low interest rates, low inflation and corresponding low returns from cash deposits which have persisted since 2008 - and is likely to continue for at least another decade - for a little more risk, an average annualised return of over 10% over the past decade is obviously very acceptable. Return on my investments have been positive in 8 of the past 10 years and the two negative years have been modest. And the returns from these investments - especially the past two years - have provided the funds for a nice retirement bungalow with garden and conservatory in the quiet leafy suburbs.

Obviously as a grandfather to five, I am concerned about the climate emergency and how badly it will impact the world over the coming years. The devastating images we have seen this past year - wildfires over huge areas of the west coast states of the US, disappearing polar ice caps should  be a warning of what's coming down the line for the planet if we carry on with business as usual. Hopefully in the coming year we will get some real leadership in the run-up to COP 26 and some real action to speed up the transition away from fossil fuels. I am in no doubt that the global economy will be affected including equities which is why I have moved my portfolio to climate-friendly alternatives.

For me at this stage, investing is more about directing my resources towards those areas that are trying to promote a sustainable planet and avoiding the fossil fuel companies and associates which refuse to change and that have little or no regard for our environment. If supporting those greener companies can also deliver a decent return on capital as I have seen these past couple of years, then that is a bonus but it's no longer my primary driver.

I don't have a crystal ball but my strong feeling would be that we passed peak oil in 2019 and the game could soon be up for the big oil companies that refuse to change their business strategies and fall into line on climate change. Likewise the banks and insurers that continue to support their operations. I hope the momentum of the past year can build in 2021 and we can avoid some of the dire consequences which lie in store with warming over 2.0C....as they say, it's going to be very interesting!

Finally, wishing all a happier New Year and thanks to all for dropping by during this challenging year and hoping we can enjoy a much better 2021.

As always, if you keep track of portfolio returns, feel free to leave a comment and share with others how your investments have fared over the past year.