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He values both companies using a three-stage discounted cash flow model. That generally forecasts sales, profit margins, and cash available to equity holders far out into the future. All the cash flows are discounted back at a rate of return acceptable to an investor.
Breaking it into three stages growth, consolidation, and maturity reflects the fact there is decelerating growth over time.
Fang sees Li sales going from 30,000 units in 2020 to 1.7 million units in 2030 and 5 million units in 2050. For NIO, Fang has sales rising from 43,000 units in 2020 to 800,000 in 2030 and 3.2 million in 2050.
The discounted cash flow helps value stocks, but the value he sees is in the growth. Fang expects Li to grow 166-fold over 50 years. That’s an average annual growth rate of about 11%. Fang expects NIO to grow 74-fold, expanding unit sales at an average rate of 9% a year for 50 years.