30 May 21 update I posted this valuation just a month ago when the price was over $2 - but the capital raise had just been announced. In it I said "I think they will get there and I wouldn't be at all surprised if the market gets sick of waiting and gives me an entry sometime between now and then." Here we are a month later with the share price at $1.09 and yet I'm still not biting. Since then they've disclosed a temporary reduction in one of their existing agreements due to superconductor shortages. But given their gross margin is negative all that means is their loss is likely to be slightly less this year than it otherwise would of been. So what gives? I think the answer is that I need to see execution. The promise of this company is undeniable, the potential scale is compelling, but they're years from being profitable. I don't need to wait until then but I need to see delivery on two things: - efficiencies to reduce their COGS per wheel below the price - successful implementation of the first megaline OR - further share price decline to the point that the valuation is so compelling I can accept the risks above. Note: I love that this an innovative manufacturer creating jobs in regional Victoria but I suspect this megaline is an extension of their proof of concept and subsequent ones will be built in a lower cost jurisdiction (probably Asia). If they get to that point without completely blowing up the business they could really start to look like the right company - with a wide moat - at the right time. *** Updating my valuation following 4C and announcement of cap raise. This is a business I really want to like. They are the only manufacturer of one-piece carbon fibre automotive wheels in the world. Others have dabbled with carbon fibre rims etc. but putting it all together into a single cast wheel has only happened off the back of years and years of research supporting by university and government (taxpayer) funding. The main benefit of carbon fibre construction is weight. They're considerably lighter than the next lightest option, which is aluminium. Lower weight means better performance and efficiency and being unsprung weight the benefit gets amplified. The problem is cost. It currently takes 31 labour hours to produce a single wheel. Think about that - it takes one person more than three weeks to produce a set of four wheels (I'm tipping even Saudi princes baulk at speccing the spare as carbon fibre). In dollar terms it currently costs them somewhere between $3,000 and $3,500 to manufacture a single wheel. That's more than they can sell them for - they sell them for around $2,650ish to the vehicle manufacturers. The implications of this are pretty obvious. First, if your gross margin is negative you don't really have a business. Second, even if you can dramatically reduce COGS they're still going to be pretty niche. (I've seen raw carbon fibre being made and unless someone up with a dramatically new method it's always going to be pretty expensive). The cap raise they announced yesterday is a significant one and will increase the share count by roughly 44%. It will fund the installation of a 'Megaline' (which narrowly defeated 'Sooper Dooper line' in a head to head naming competition), which ultimately is expected to reduce labour hours per wheel to around 10 hours. I've reduced my valuation from $1.76, which is mainly share dilution. I think they're still a couple of years from getting to break even at a GM level (FY23) and on my model not making meaningful profits until FY25. However, I think they will get there and I wouldn't be at all surprised if the market gets sick of waiting and gives me an entry sometime between now and then.