Mad Hedge Technology Letter
August 9, 2023
Fiat Lux
Featured Trade:
(YOU’LL BE DRIVING CHINESE SOON)
(BYD), (TSLA), (GM), (LCID), (SAIC), (GEELY), (CATL)
Tag Archive for: (TSLA)
You’ll most likely be driving a Chinese car soon.
It’s not because I want you to.
The trend is headed that way and the trend is usually your friend in economics and the stock market.
In the past year, China has blazed past Germany and Japan to become the world’s biggest exporter of cars for better or worse.
They shipped 1.07 million abroad in the first quarter of 2023.
At the same time, net zero rules are set to outlaw the sale of conventional petrol cars from 2030 in the UK and 2035 across the rest of Europe.
This is a golden opportunity for entrenched Chinese brands including SAIC, BYD, and Geely.
With rivals such as Volkswagen, Ford and Toyota scrambling to catch up, Chinese manufacturers are poised to offer cars costing as much as €10,000 (£8,600) less than their European, Japanese, and American competitors.
Beijing has sought to dominate the electric vehicles global market as part of its Made in China 2025 strategy.
More than half of the electric cars on roads worldwide are now in China, according to the International Energy Agency, while in 2022 the country accounted for around 60pc of all BEVs sold.
They have been focused on having an industrial upgrade in China, moving from lower value-added production to higher value-added, higher-technological production.
The strategy has worked like clockwork as Chinese-produced cell phones have achieved flagship levels.
Contemporary Amperex Technology Limited (CATL), based in the city of Ningde in the Fujian province, is now the world’s biggest lithium battery manufacturer.
In 2023, the country is set to export 1.3 million BEVs, up from 679,000 last year when government lockdowns were still in force.
Not only are these vehicles tick the box of high quality, they also boast long ranges, attractive designs, and smart interiors, they are also extremely cheap.
One brand British motorists should expect to see more of is BYD, which recently unveiled an electric hatchback that it plans to sell for less than £8,000 – far cheaper than many petrol-fueled models.
The approach contrasts sharply with that of America, where Joe Biden is showering firms that set up BEV factories with subsidies and hitting Chinese car imports with tariffs of 27.5%.
Ominously, however, China’s lead in EV technology is now so great that it “cannot be bridged” by 2030 – when Britain and Europe will impose restrictions on the sale of new petrol cars – and Europe should cut its losses by encouraging Chinese car makers to set up factories here instead.
For US EV makers like Tesla, the protectionist restrictions placed on foreign EVs will mean that it will take longer for the Chinese EVs to penetrate the US vehicle market.
However, the tsunami of deflation is coming whether the Chinese need to add an intermediary or not before they can start pouring the products into the United States.
If China is able to breach the US market, this would pose a severe test for US EV makers like GM, Tesla, Ford, and Lucid.
The Europeans are asleep at the wheel and could expose their consumers to a bevy of Chinese cars.
Don’t be shocked to see a stream of Chinese EVs when you cruise around Rome instead of Fiats and Vespas.
I expect restrictions to ramp up even more against foreign-made EVs and lithium batteries in the short term.
This could also set the stage for Tesla getting kicked out of Shanghai and a massive forced technology transfer which the Chinese are famous for.
The Chinese are playing the long game and that’s highly negative for American EV makers who are hell-bent on short-term profits.
Mad Hedge Technology Letter
August 4, 2023
Fiat Lux
Featured Trade:
(SELF-DRIVING CARS ARE HERE)
(TSLA), (FSD)
Isn’t it interesting that self-driving cars and the software that launched this phenomenon are not required to pass a driving test, yet humans are?
I am here today to challenge the basic premise that software backed by artificial intelligence can drive a car better than a human.
Take left turns without a traffic light:
Artificial intelligence has consistently failed to successfully complete this standard objective.
This somewhat riskier driving maneuver must take into account drivers on the other side of the road, which humans can do, but the back-tested data in the self-driving software cannot predict external variables that could come into play.
This is why the software malfunctions on a left turn when a bird defecates on the windshield believing it’s an accident worthy of a full stop and yes a full stop right in the middle of oncoming traffic.
These types of poor decisions occur more often than you think with this “cutting-edge” technology.
The truth is that self-driving car technology has been very slow to develop.
Elon Musk has been talking about Tesla's Full Self-Driving technology for years. In 2016, the CEO said that Tesla's driver-assist feature Autopilot will be able to drive better than a human in two to three years.
He also said that by 2018, it would be possible to remotely summon a Tesla (TSLA) across the country.
In 2019, he said that Tesla could have a fleet of a million robotaxis by the end of 2020 if the company pumped out hundreds of thousands of FSD cars.
FSD is currently under investigation by the federal government in 2023.
Twenty years on from the start, no real product to show for except many unintended road deaths and rich Silicon Valley software engineers that peddle this false theory that software is better at driving than humans.
What’s the current situation today?
100% self-driving technology amounts to little more than a bunch of glorified tech demos. FSD isn’t the real deal.
In demos, you see what the creators want you to see, and they control for things that they'd rather you didn't.
To an AI, a slight change could be catastrophic. After all, how is it supposed to know what an appropriate response to a slight or sudden change is when it doesn’t understand everything it’s looking at?
How will it handle when the weather goes from sunny to hail, or when there’s deer in the headlights at the edge of the road?
It is unequivocally wrong to believe that software is better at real-time driving than a human, and therefore this industry will never mushroom into what investors think it might.
Self-driving cars are a 2-ton weapon ready to kill pedestrians, cyclists, and little kids.
The interesting thing to look for is whether these venture capitalists and investors double down on failed technology and pull strings to get this circus on public roads with the rest of us.
It’s entirely possible that this could happen in limited areas like the states of Arizona and California.
At the very minimum, if all 50 states do green-light such technology, we will need to wait another 15 or 20 years.
It’s not as imminent as Elon Musk tells us.
Don’t believe self-driving is the secret sauce that will be the next leg in revenue for Silicon Valley.
The benefits of this are not coming any time soon.
Outdoing the smartphone is proving to be almost impossible. Who would have known that the smartphone would have such staying power and longevity?
Tech is still utterly reliant on smartphone revenue until someone can supplant it and package it nicely in a consumer-friendly way. The road to that type of achievement is littered with good intentions.
ANOTHER LONG WHILE FOR SELF-DRIVING TO HIT THE MASSES
Global Market Comments
July 28, 2023
Fiat Lux
Featured Trades:
(MY TRIP TO INTO INFINITI)
(TSLA)
CLICK HERE to download today's position sheet.
Don’t worry.
I didn’t fail to send off a newsletter yesterday because I fell off some Alp, although there were some close calls.
This high up in the mountains, there just wasn’t enough Internet to transmit my heavyweight ideas around the world. Here in Trento in northern Italy, the broadband hasn’t been upgraded since the Roman Empire, but at least it works.
Last year, I thrilled you with my aerobatics flying a WWII Spitfire over the White Cliffs of Dover (click here if you missed it).
Then I one-upped myself.
In appreciation to the early buyers of Model S-1’s, Tesla invited me to submit a photo to be etched on the side of a satellite launch into space. Having purchased chassis no. 125, I certainly qualified. Those who referred 25 other buyers were allowed to send videos.
Of course, I had to send a picture of me piloting a 1929 Travelaire D4D biplane, which you can find below. The photo was inserted into the mosaic below. I sent the Spitfire video on an SD card and it’s in orbit as well.
The blast-off took place at Cape Canaveral, Florida on August 4, 2022.
You have to hand it to Tesla, they really know how to do PR, and their advertising budget is nearly zero. The Detroit Big 3 spends $50 billion a year on advertising and gets a lesser result.
To watch a video of me blasting off into space on a Space X Falcon 9, or at least my laser-etched image, please click here.
Oh, and buy (TSLA) on dips as well. It just has a heck of a run.
As for me, I’m off for a bottle of prosecco.
Some 14 months into my enforced home quarantine, I am resorting to some oldies but goodies for home entertainment. They’re not making movies anymore, so oldies are all we get.
I just finished watching Von Ryan’s Express (1965), and Frank Sinatra got shot in the back. It was a timely movie for me to revisit because I rode the exact Italian Alpine rail lines used in the film only two years ago and recognized some of the precise scenery and rail junctions used by the filmmakers.
What would you do if I recommended an investment strategy that would cause your accountant to disown you, your inheritance-anticipating children to sue you, and your wife to file for divorce?
Chances are you would designate all my future mailings as SPAM, unfriend me from Facebook, and tear my card out of your Rolodex.
Well, here it is anyway. I’ll call it my “Ignore All Risk” portfolio. It’s really quite simple. This is all you have to do:
1) Buy stocks that have already gone up the most, boast the highest year-to-date performance, and have momentum overwhelmingly on their side. Only do what everyone else is doing. Go for the easy trade.
2) Buy stocks with the highest price earnings multiples. I’m talking mid to high hundreds.
3) Lean towards stocks with the highest short interest. GameStop (GME) was a perfect example of this.
4) Put every free penny you have into cryptocurrency bets, like Bitcoin. In fact, avoid all financials, period.
5) Ignore all valuations and fundamentals. Don’t waste a minute reading a single page of research, especially from an old-line legacy broker. Seeking Alpha, where none of the information is independently verified, is a far better source of information than JP Morgan (JPM).
6) Big institutions should allocate all of their assets only to their youngest traders and portfolio managers. Old farts, or anyone with any memory or experience whatsoever, should be completely ignored. A person who’s never seen a stock go down is now your best friend.
7) Oh, and there is one more thing. Go hugely overweight bonds over equities in the face of unprecedented and massive government borrowing at all-time low-interest rates.
Any professional manager pursuing an approach like this would surely get fired, lose all of their securities registrations and licenses, and get banned from the industry for life.
But there is one big offset to these career-ending consequences. They would also be the top-performing money manager of the year, beating the pants off of all competitors. Every investment they made this year worked.
They would be regarded a trading genius on par with my friends Paul Tudor Jones and Appaloosa’s David Tepper. If they invested their own money using this strategy, they would be so filthy rich they wouldn’t care what happened to themselves.
We are now in an environment where EVERY trade is crowded, be they in equities, fixed income, or foreign exchange. There is no value anywhere. The metaphors coming to mind are legion. There are too many passengers on one side of the canoe. The lemmings are mindlessly stampeding towards a giant cliff. I could go on.
Of course, incredible excess liquidity is to blame. That is the only time both stocks AND bonds go up at the same time. The world’s central banks have been flooding the globe with cash for over a decade now, and the pandemic has given them license to increase these efforts vastly.
The end result has been to undervalue all asset classes, be they paper or hard. Cash is trash, especially in Japan and Europe where you have to PAY banks to take your money.
The fact is that shares with the fastest price appreciation over the past 12 months are trading at valuations that are almost 25% higher than normal.
I have traded and invested through all of this before; the Nifty Fifty of the early 1970s, the Great Japan Bubble of the 1980s, the Dotcom Bubble of the 1990s, and of course the 2007 bubble top. And there is one thing all of these market apexes have in common. They inflated a lot longer than anyone expected, sometimes FOR YEARS!
You could be conservative, go into 100% cash, and just stay on the sidelines until mass group think, hysteria, and insanity leave the market. But that could be a very long time.
And after more than a half-century in this business, there is one thing I know for sure. Traders who don’t trade, investors who don’t invest, and newsletters that don’t recommend all have one thing in common. THEY GET FIRED. Just because investing gets hard is no reason to quit the market.
The Japanese have a great expression for this: “When the fool is dancing, the greater fool is watching.” So, I’m going to start dancing away. What will it be? The cha cha, the limbo, or the Watusi?
Hmmmm. Let me see. Let me Google what everyone else is doing.
Mad Hedge Technology Letter
July 17, 2023
Fiat Lux
Featured Trade:
(IS LUCID THE NEXT TESLA?)
(LCID), (OTCPK:BYDDF), (TSLA)
Is it worth it to invest in the “next Tesla” or is it way too optimistic there could even be a next Tesla?
This upstart challenger to Tesla, Lucid (LCID) is more or less what I thought about Tesla a few years ago – buy the car and not the stock.
Like many businesses in the world – it comes down to time and place.
Tesla benefited from generous federal subsidies, first mover advantage and LCID is just a little late to the action.
Why does that matter?
Tesla had its knife and fork at the table by itself when nobody else wanted to join them.
The problem with legacy automakers is that it took them too long to realize that EVs were a tsunami instead of a splash in a pond.
I know with conviction that EV makers like LCID are slogging through because of the numbers that materialize in their earnings reports.
The numbers are a manifestation of the time and place phenomenon that I just mentioned.
LCID continues to face major cash flow issues and will be lucky to exist in a few years.
A high burn rate is a hallmark of smaller EV companies and even Tesla had to be saved at the last second it its early days.
LCID simply doesn’t have the expertise and economies of scale to bring down the unit economics where it delivers a profit.
This achievement is also pushed out far into the future.
We are also seeing a widening gap in its production and deliveries, with approximately 4.76K units undelivered, with a growing inventory value of $1.01B.
LCID's resale value appears to be drastically impacted, with one recently auctioned for $85K, compared to the base model of $110,000.
The intense capital burn has forced LCID management to issue more common stock which dilutes current shareholders and suppresses the stock price.
While LCID may have won the battery competition through its longest driving range and market-leading design, the management's choice to go premium has clearly undermined the mass market.
This is a segment that fellow automakers such as Tesla (TSLA) and BYD (OTCPK:BYDDF) have invested great efforts while improving their supply chain and pricing strategies.
This alone suggests LCID's highly niche market segment based on the hefty price tag of $150K per unit, compared to TSLA at $40K and BYD between $20K to $30K (in China), effectively will stoke higher cash burn levels.
For now, LCID has not achieved break-even, selling every EV at a loss.
This signals weak consumer demand for LCID.
This automaker's expanded annualized production capacity of up to 90K vehicles in the AMP-1 facility and up to 155K in the Saudi Arabia facility.
Production is still miles behind Tesla at a time when supply chains and material costs are squeezing EV makers even more.
When we consider that the stock was trading at $20 per share just 1 year ago, the stock languishing at $7.50 today represents quite a pitiful performance.
I do acknowledge they make quite a nice EV.
However, it’s still highly debatable whether its business model is sustainable.
I do believe that around $4 per share is a good entry point for this EV maker.
Any pop from $4 should be sold.
There is no reason to overpay for LCID right now in a market that values accelerating and positive free cash flow.
Better the stock come to you than to go fishing for it.
Mad Hedge Technology Letter
July 14, 2023
Fiat Lux
Featured Trade:
(BAD TECH EARNINGS ARE PRICED IN)
(AAPL), (TSLA), (AMZN), (FB)