TESLA IS A DATA COMPANY, NOT AN AUTOMOTIVE MANUFACTURER.

If you are like me, you are always trying to make sense of all the information available today to work out how to make investments for the future. But you are also busy operating a family business with anywhere from five to a couple hundred people. The reality is we are so busy, and family requires a lot of time, so we must outsource investment management to professionals we trust to monitor our investments.? There is still some time however to invest based on your own instincts and perceptions. After all, as owner operators we know what works in business and what does not.? Owner operators of international SMEs do not get the press that large multinationals get.? Many people therefore who are not owner-operators have an incorrect understanding of how business actually operates, especially for Owners of international SMEs.

Strategy emerges from the trenches; it emerges from doing. Strategy ultimately determines whether economic value is generated in the medium to long run.?

Owner operators must manage for cashflow, but they also must grow and build recurring cash flows.? Growth does not only mean the most or largest multinational corporation. Growth can be in recurring cash flows that are resilient and long term.

Many companies are offering professional investment services.? However, there are still many examples of fraud and professional investment managers not delivering the returns they promised. For these reasons owner operator will not entrust all of their investment management needs to professionals.?

The truth is that owner operators live and die by their decision making and their families depend on that decision making. I have been in business for myself since 2005. I am the first in my family to own and operate a small business.? All of my clients are owners of small businesses.? I am very much aware that the rules work much differently for multinationals than they do for international SMEs that are owner managed.? So, my view is that owner managers should use their perspective to make some investment management choices themselves, when they can.

Who? Me? A retail investor? Yes, me.

Owner operators of international SMEs who are families with US25M in a US private bank, are treated like retail investors by large financial institutions.? Yes. The so-called retail investor service level applies even to people with millions of dollars. Retail investor service level with large financial institutions means you are given a choice of “structured products” for your portfolio based on your investment profile.

Many retail investors have investments in portfolios with large, trusted, and reliable financial institutions. For example: pensions, insurance companies, and some direct holdings of securities and real estate.? When it comes to financial products and large financial institutions, a major concern for retail investors, is the amount of fees they are being charged by investment management service providers.?

Quite often fees are not entirely clear.? But there is a tradeoff for using a large trusted financial services provider that is regulated as you can outsource your investment management requirements while you build your international SME business.? The opportunity cost of higher investment management fees is worth it.? When the international SME is generating enough surplus wealth for you and your family, you will move to a private client service type professional investment management.

With all these problems of in the world of investing, we retail investors have to take action and deploy savings and investments. We must build an understanding or perspective of today's economy and begin to make informed choices.        

The owner operator is so busy running their other international business, they don't have time to really get into the details of an investment portfolio that consists of hundreds or sometimes thousands of securities. So how do we retail investors survive in today's investment world where there is so much information and low trust.? The only thing I think I can do is continue to educate myself. Continue writing and develop my perspective and understanding myself so I can make better and more investment choices.

There is so much information out there.

Investment managers are human beings. They, like all humans, truly cannot predict the future. Some people however have enough information to know what is going to happen.? That is not predicting the future, that is acquiring information about what is going to happen.???

Machines built by humans cannot predict the future. Only a few people have access to professional investment managers called hedge funds managers, who are the closest to predicting the future.? Retail investors typically cannot afford access to those hedge fund people. So, education and developing perspective is all retail investors can do to improve their investment management situation. So, let’s get on with that.

Today's economy is being continuously changed by the internet, Space, connectedness, and technology drives these phenomena.? The nature of today’s technology is majorly different from the economy fifty years ago.? We can start considering the impact of these differences by looking today at car company Tesla.

What is a data company?

Many researchers, and investment analysts state that Tesla is overvalued. You can read quite a number of reports that addressed this fact.? Tesla is actually not overvalued. It is just that the valuation of Tesla does not take everything into account when traditional discounted cash flow, and present value techniques are utilized.? Traditional valuation methods and traditional financial accounting do not take into account Tesla’s economic nature as a data company.

Tesla is a data company that also makes cars. Another way of saying this is that Tesla is a data company that is also an automotive manufacturer. Tesla is not just an automotive manufacturer like say the Ford car company.

We know that Tesla is a manufacturer but what we must realize here first is that a large part of Tesla’s strategy approach, and existence is due to the digital platform which includes:

1.???? The cars that it sells to people.

2.???? The amount of historical and ongoing data that it collects from Users.?

When you buy a Tesla, you use its digital platform, which comes with the car for a range of activities and tasks.? The Tesla car can collect all the data generated by the customers use of the car and send that data back to Tesla.

A data company is a company that operates a digital platform that has thousands or millions of users. Those millions of users upload vast amounts of user generated content like:

·?????? Information,

·?????? Knowledge,

·?????? Data creations,

·?????? Data that is created by the user when they actually use the platform.

The cars Tesla sells are a part of its digital platform.

Users supply digital labor to digital firms which then use that digital labor to generate profits. This article is about investment, but as I am an international tax lawyer,? one of the largest issues in the international tax world is that the international tax system is obsolete because the companies are able to generate profits across multiple jurisdictions that are not measured collected, valued, and or taxed by today’s tax authorities. This is because today’s tax laws do not even envisage or conceptualized the way that data companies generate profits.

Today’s international tax laws do not consider digital labor, users acting as employees of data companies and generating fast amount of very valuable data for data companies. Rules do not measure or have any special treatment for our characterization for data that is generated by users for Digital data companies. The accounting rules do not also measure or value the dynamics of millions of users using a platform and continuously generating data for a data company.

What we can say is that Tesla is developing a self-driving car, and is selling hundreds of millions of dollars worth of them. Tesla has sold hundreds and thousands of cars. But these cars are a data collecting mechanism and a part of Tesla's digital platform. That means each car is a part of the Tesla digital platform because the data that the car generates is transmitted back to the Digital platform of the data company.

The data company is able to use this data to train its self-driving algorithms and platform capabilities. The value of this data to Tesla is therefore massive. Tesla does not pay users for the data that they generate for the company. This is the same across all data companies and today’s economy. Very few to none of today’s data companies are paying users for the data that they generate.

Neither the tax authorities or investment analysts of today are focusing on the amount of profits that are generated by digital companies due to the data that they receive free of cost from Users.? Most firms must pay for their inputs and materials. In today's economy and internet, digital companies receive User data free of cost from Users.

Users supply digital labor or to digital firms like Tesla.

Tesla uses the data received from Users. It does not have to pay users. The more data Tesla gets from Users the better its self-driving service becomes.?

Valuation of Tesla taking into account the User data it receives continuously.

A data company like Tesla has a digital platform that is continuously harvesting data from customers. As customers use the cars, they generate Uber data that is sent back to Tesla via the digital platform.?

Tesla is able to use that data to improve not only the self-driving service but other features and services like GPS and maintenance and operation.? These additional improved services can be used to justify higher prices.? These improved services can encourage new and more customers to buy Tesla cars. These new customers also start generating User data for Tesla increasing the service improvements. This ensures the self-driving machine learning algorithms get better and learn more from more user data. What we can see here is a positive feedback loop. ?More user’s data, means more Users, means more User data.

This positive feedback loop is described in economics as network effects.? Many technology companies that operate digital platforms have these economic phenomena: Google, Facebook, Tik Tok, etc.

These network effects are valuable in a number of ways.? They increase the profits and valuation of the company. We described the network effects as continuous. There are also interdependencies. For example, the amount of cars sold depends on the improvements of the services which get better the more cars Tesla sells and the more User data that Tesla receives.? More User data is dependent on users, and services are dependent on User data, and more users data is dependent on learning from accumulated user data.? These parameters are interdependent.

The mathematics needed to determine the economic value are called Nonlinear dynamic processes.? The main point that we need to know here is that nonlinear economic processes are not determined using normal arithmetic.? The mathematics required is much more complex. A computer and algorithms need to be used to reflect the economic behaviours described above.

User data drives the economic value of Bundled tangible products and intangible services.

User data is dynamic and nonlinear. Because it is connected and interdependent with services and the Tesla product, User data also leads to improvement in the physical car product.? So, the value of Tesla cars has to take into account the bundle of services and physical products that are interdependent on User data.

You cannot value data companies using arithmetic.

Investment analysts have been valuing digital firms like Amazon, Facebook and Netflix for years. Financial statements have to be produced by the companies.?? I am not sure that the User data these companies have accumulated is provided into their valuation.

Most valuations are driven by financial statements. The market price reflects the value of the stock. I think when investment analysts explain the network effects of digital companies and their accumulated user data, we will see different valuations.? These economic intangible benefits of network effects can’t be squandered, not all digital companies have utilized their network effects. When Users stop using the digital platform, less User data is available, and the firm begins to make less profits or lose market share to firms that capitalize on the network effects they have generated.

The Ford motor company.

Recently Ford Motor company had a market cap 48 billion and enterprise value of US$158billion.? Tesla has a market cap US$ 618 billion and an enterprise value of US$636billion.? Ford Motor company is over 100 years old, does not have a digital platform like Tesla, and is not accumulating User data the way Tesla is.? Ford Motor company has outsourced its electronic components while Tesla relatively manufactures its electronics and digital platform, especially the software in-house.?

If Ford is outsourcing the software, they use they cannot have a cohesive digital platform as they integrate software from hundreds of vendors. Tesla produces its software, algorithms, its digital platforms in-house. Tesla can collect vast amounts of User data in a way that Ford cannot. Ford has sold and sells millions of cars, but their advantage is going to be eroded.? Tesla can earn hundreds of millions of dollars from monetizing user data in advertising.

The fact that Tesla is a data company is responsible for the difference in valuation and enterprise value.

What can we do with this information?

We can look for other companies that are selling products or services but are really data companies.? We can look for data companies that are being well run.? Companies that bundle physical products and services but also have a User driven digital platform.? Peloton is a company that has products, services and a digital platform but until recently Peloton was not being run very well.?? We all know about Apple. The reason Apple is a trillion-dollar company is because it is a data company with products and services.? Airlines are services companies that increasingly have digital platforms. Many people use airline apps and smartphones to buy airline tickets and fly.?

When you know... You can Trust