Global Market Comments
March 29, 2019
Fiat Lux
SPECIAL FANG ISSUE
Featured Trade:
(FINDING A NEW FANG),
(FB), (AAPL), (NFLX), (GOOGL),
(TSLA), (BABA)
Posts
Global Market Comments
March 26, 2019
Fiat Lux
Featured Trade:
(WHY I’M SELLING SHORT TESLA SHARES),
(TSLA)
The news is out that new Tesla (TSLA) new car registrations in the major states are falling off a cliff. California, New York, and even Texas are the major culprits.
The company says the ramp up in mass production of the Tesla 3 is the main reason, and that car registrations, in any case, are a deep lagging indicator. (No kidding! I bought a Model X P100D in Nevada in November and it is still not registered).
Analysts say it is because the electric car subsidy was chopped in half by the Trump administration this year from $7,500 to $3,750 per vehicle, and it is going to zero next year, thus demolishing the Tesla 3 market for entry-level low-end buyers. They also point to the company’s fragile financial condition which could be going bankrupt at any time.
For whatever reason, I believe that the shares will break two-year support on the charts and plunge to new lows. At the very least, Tesla shares are capped for the time being.
I, therefore, sold short Tesla shares yesterday.
As much as this looks like a great short-term trade, I love Tesla long term and see it as a potential ten bagger from current price levels. Tesla will become the world’s largest car company within a decade and become the first car company with a $1 trillion market valuation.
As long as I have been following Tesla since the early venture capital days, it has been going bankrupt. It was going bankrupt during the move in the share price from $16.50 to $394, and it is going bankrupt today.
When I pulled up to the Fremont factory last week, I couldn’t believe what I found. There was a version 3 supercharger that would top up my battery at the staggering rate of 1,000 miles an hour!
That meant that with 50 miles of range left on my 300-mile range Model X battery, I could get a full charge in 15 minutes! The electric power was coming down the cable so fast that it had to be liquid-cooled.
I pinched myself to make sure I hadn’t fallen into a Star Trek movie. The V3 supercharger will soon be available across the country. No other car company is close to achieving something like this.
The fact is that I have been subjected to an unrelenting torrent of bad news, rumors, and envy since I first bought the shares at $16.50 ten years ago. This is the most despised company in the universe and regularly sits among the top five companies with the greatest short interest, often above 25%.
But I guess this is what happens when you take on big oil, the Detroit big three, the advertising industry, labor unions, and the entire Republican party all at once. By my calculation, Tesla is a disruptive threat to about 50% of the US GDP all at once.
I ignore them all and just look at the numbers. Here they are.
1) Tesla has increased its total production from 125 when I bought my first Model S1 in 2009 to 245,519 in 2018. It should hit 500,000 by the end of this year when the Shanghai factory comes online. They have gone from employing 100 people to 50,000.
2) With the completion of the Sparks, NV Gigafactory, battery prices are collapsing and are now 50% cheaper per mile than any other competitor, 4.1 miles per kWh versus 2.5 miles.
3) Tesla’s costs for batteries have cratered from $1,000 per kWh ten years ago to $100 per kWh today and are expected to drop to $75 per kWh in a few years. Below $100 per kWh Teslas are cheaper to run than conventional gasoline-powered cars, even without the tax subsidy.
4) Tesla now makes half the lithium batteries in the world, and that figure is growing by 50% a year.
5) Tesla’s vast national charger network will soon become the country’s largest electric power utility and that will also become an enormous money-spinner. They just raised prices to 30 cents per kWh versus a cost of 5 cents. Assuming that 5 million cars buy a 70-kWh charge three times a week, that works out to a $13.65 billion a year profit.
6) Anyone who actually reads Tesla’s balance sheet can see that the company is now spinning off $1 billion in free cash flow. It is investing in new plant and equipment at a prodigious rate.
7) With a market capitalization of $44.5 billion, Tesla just trails General Motors (GM) at $51 billion, but surpasses Ford Motors at $34 billion, and therefore can raise new capital to finance its hyper-growth any time it wants.
More product at high prices at a prodigiously falling cost sounds like a pretty good business model to me. Oh, and climate change is about to become the top political issue for the 2020 presidential election. Who is the big winner in that case?
Tesla.
Mad Hedge Technology Letter
March 7, 2019
Fiat Lux
Featured Trade:
(WILL NIO EAT TESLA’S LUNCH?),
(TSLA), (XPENG), (NIO)
Global Market Comments
March 7, 2019
Fiat Lux
Featured Trade:
(BETTER BATTERIES HAVE BECOME BIG DISRUPTERS)
(TSLA), (XOM), (USO)
The death of Tesla.
There is a sudden existential threat for one of the transformational American companies of the century created by Elon Musk.
And you can thank China for it.
If you didn’t know it, there are over 500 electric vehicle (EV) firms in China and the most widely known is NIO Inc.
NIO’s production chain spans just 20% the size of Tesla and has only delivered just a few thousand cars to this point.
Part of the reasoning for Tesla’s Musk to roll out a cheaper version of the Model 3 sedan was in reaction to the potential pipeline of China manufactured EV cars coming online.
The mushrooming of the electric car industry in China could be a death knell for Tesla.
Not only is the company battling stand-alone Chinese companies now for market share, but they will need to overcome the support of the Chinese communist party and the unlimited funds they throw at these types of national initiatives through generous subsidies.
As we speak, the communist party is starting to consolidate the national automotive industry and China’s National Development and Reform Commission will pour resources into the certain firms they believe can become national EV champions.
As it stands, China's sold more than 1 million electric vehicles in 2018 and could sell 2 million EVs by 2020.
And by 2030, China could dominate the global EV market by snatching 50% of the market.
I believe Tesla has absolutely zero future in China because of the explicit fact they are not a Chinese company and at this stage of the game, China and its home-grown tech are comfortable enough to stand behind the quality of their tech no matter how they acquire the secrets.
In fact, NIO Inc. produced an EV car that is above average quality and will improve with each iteration.
Headaches have already started to compile for Tesla as well when 1,171 Model 3 sedans arrived at industrial city Tianjin and were duly blocked with customs unhappy with the sticker labeling.
This nitpicking is a warning sign for things to come and Tesla will be hard-pressed to become what Apple was in China before Chinese consumers stopped buying iPhones. Or it may be just another iteration of the trade war, now a year old.
Don’t forget that US imported automobiles are exposed to high 100% customs duties that were infamously present even before the trade war began.
A Tesla factory in Shanghai is in the works with the $2 billion loan coming from a state-owned Chinese bank which vanishes any in-house knowhow Tesla planned to keep under wraps.
American high-end products will have to take on a bevy of domestic competitors, even some that possess borrowed foreign technology.
Along with the headwinds of battling state subsidies, Tesla will have to grapple with the price points at which Chinese EV companies sell their cars.
NIO’s ES6 is the follow up to the first all-electric SUV called the ES8 and deliveries start in June.
The car will go on sale for 358,000 RMB, or about $51,000, and that’s before government subsidies.
The 70kWh battery pack offers 254 miles of range and mimics Tesla features with an 11.3-inch touchscreen.
And if you thought Tesla could absorb the heavy blow from a $51,000 price point before government subsidies, then there is burgeoning EV firm Xpeng that crashes the price points even further.
The founder of Xpeng, Henry Xia, has conceded publicly that he was deeply influenced by Tesla and admitted his company was open-sourcing their patents.
The Xpeng G3 starts at 227,800 RMB, equivalent to less than $33,000, once again, before any government subsidies.
The product copies Tesla-style touchscreen features on the dashboard and has battery range capabilities of around 230 miles.
And here is the game changer, the effect of government subsidies could crater the price of these two types of Chinese EV cars to less than $9,000 for the consumer.
Game over for Tesla.
I surmise that once these Chinese EV cars cross the threshold of quality that puts the Chinese variant close to 75% as good as Tesla’s version, potential customers will flock to cheaper Chinese EV firms will a deluge of mass orders.
The global EV industry is the next high-tech industry to get hijacked from the Americans by the industrious Chinese who collaborate with state financial power to take down foreign competition.
Tesla, its leader Elon Musk, and every other high-end German car company are facing down a barrel of a gun that will prove to be an existential crisis of epic proportions.
This is all part and parcel of China’s plan to reshape the global export value chain.
China’s response is to crash the price of EV’s and use state support to outlast external competitors.
Equally as important, China has a massive shortage of EV infrastructure posing problems for Tesla cars to charge up outside.
This could be the trick up the sleeve of Beijing, they could easily squeeze Tesla out of the mix by allowing only home-grown EV cars to charge up at public charging stations citing security concerns of American technology.
The effect would be that Tesla owners would only be able to fill up in the confines of their own house which is problematic since most urban Chinese who can afford Teslas live in skyrise apartments without a personal garage.
The Middle Kingdom is also facing an ecological crisis at home and an exaggerated migration to EV cars is the state’s solution to cleaning up the domestic environment.
The long-term vision appears to have no place for Tesla in the Chinese economy – they already have their own Tesla’s and more imitations in the pipeline hoping to crash the price points even further.
Even more frustrating, 2020 or 2021 is the timeline to get Tesla production up and running in Shanghai, but by then, Tesla and Musk might be fighting from a position of weakness.
XPENG G3 FOR LESS THAN $33,000
Global Market Comments
March 6, 2018
Fiat Lux
Featured Trade:
(WILL UNICORNS KILL THE BULL MARKET?),
(TSLA), (NFLX), (DB), (DOCU), (EB), (SVMK), (ZUO), (SQ),
(A NOTE ON OPTIONS CALLED AWAY), (TLT)
Mad Hedge Technology Letter
February 27, 2019
Fiat Lux
Featured Trade:
(HOW AUTONOMOUS DRIVING WILL CHANGE THE WORLD),
(TSLA), (GM), (GOOGL)
The car insurance industry will grapple with a massive existential crisis of epic proportions unless they evolve.
The looming threat is caused by technology and autonomous driving.
This is why parents usher their children into industries that won’t be blown up by technological disruption.
Removing the driver from the automobile industry could be the single most societal shift in our lifetimes.
This technology is getting ramped up as we speak and Waymo is the clear leader that is already collecting money for commercial rides in the state of Arizona.
Car insurers must wonder if they will be able to charge the same amount if there are no drivers?
The answer is that the liability will head from the driver to the manufacturer with companies like General Motors (GM) Tesla (TSLA) likely footing the bill while the passenger is likely to pay minimally.
We are headed towards another data war with insurers incentivized to dismiss the relevance of data in self-driving cars and devaluing it will cause the car companies’ bills to go higher.
Car insurance companies are also heavily investing in data analytics teams to see which part of the pie and how big of it they can get from self-driving technology.
This is uncharted territory.
Consensus has it that by 2035, 23 million autonomous vehicles or around 10 percent of today’s total will grace our roads and highways.
But I believe this number is understating the underlying series of generational factors at play.
It’s no secret that the majority of Millennials and Generation Z want to live in coastal urban cores participating in the heart of downtown activities mainly because of the chance to find a high-paying job.
This has exacerbated the migration from rural to metro areas around the country and sapping the need to drive or buy a car when Uber can become an almost perfect substitute.
And don’t forget that according to the latest data, cars are stationary 92% of the time signaling consumers’ intentions to stop purchasing and instead rent cars by the minute, hour, and day.
That is the beauty of the sharing economy and how self-driving cars will fit in.
This avant-garde model will emerge between 2035 and 2050 effectively reducing the value of owning a car, the self-driving car that will be bought, probably by the self-driving tech company itself, could constitute 50% of all vehicles sold globally.
The sum of the parts could mushroom into a $3 trillion addressable market, not only made up of the physical cars but the assortment of ancillary technology needed to fuel these cutting-edge machines.
Alphabet’s (GOOGL) self-driving unit named Waymo run an onboard computer that processes images in real time using its machine learnings algorithm built by the industries’ best machine learning engineers.
However, not only do these firms need an army of artificial intelligence engineers to build the algorithms that are at the fulcrum of what they do, they also need other parts that fit into the puzzle such as lidar radar technology.
Lidar is an acronym for light detection and ranging, and the physical manifestation of this technology has so far been a cone-shaped object on top of the car's roof emitting laser pulses that bounce off objects allowing the car to recreate a 3D image of its surroundings.
The advancement of this technology and the potential production of scale will cut the cost of manufacturing this technology to less than $10 per sensor.
A full-blown lidar unit costs $75,000 at current market prices, but luckily the phenomenon of deflationary technology always drives the prices down to bare bones.
Cameras, sensors, cooling systems, and GPU chips are other products that must be heavily developed to accommodate self-driving technology.
GM is another prominent player in this field, and they have already outfitted close to 200 cars for testing.
The firm transformed its Orion Assembly plant in Michigan to accommodate cameras, lidar, and other sensors to its Chevrolet Bolt.
Whoever masters the lidar technology the quickest will have an inside edge to grab market share once this industry explodes and a lower insurance bill.
Waymo won’t be the only player usurping market share even though they are the brightest name out there, and there is room for others to crash the party.
GM invested $500 million into Lyft which could act as a gateway path into outfitting Lyft cars with GM’s proprietary technology.
Whoever specializes in the art of licensing self-driving technology to companies will ring in the register as well and the opportunities abroad are endless because emerging economies aren’t players in this industry.
GM’s Cruise AV has opened eyes with GM removing pedals or a steering wheel for this electric car.
It’s under testing in select cities and GM plans to integrate it into its ride-sharing program.
Investors are still waiting for companies to telegraph meaningful revenue to the top line, and this teething phase could cause the impatient to bolt for greener pastures.
Waymo has claimed it will be able to deliver up to 1 million trips per day by 2022 signaling that real top line revenue appears a few years off at the earliest.
This trade isn’t for the smash-and-grab type, but this is the future and it will be a slow crawl to broad-based adoption and material revenue.
The death of the car insurance industry is still years away and insurers still have time to save their bacon.
Data at the Association for Safe International Road Travel (ASIRT) shows that nearly 1.25 million people die in road crashes each year, on average 3,287 deaths a day and another 20-50 million are injured or disabled.
Technology is on the move and will try to correct this awful trend in road safety and human fatalities.
These years could be the high-water mark for car insurance and as self-driving technology continues to seep deeper into the public consciousness, it could snatch revenue from the coffers of the insurance companies.
But if these legacy companies become nimble and embrace the changes, they could potentially be at the vanguard of a highly lucrative industry charging the likes of GM and Tesla to ferry around humans.
Global Market Comments
February 11, 2019
Fiat Lux
Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or DON’T STAND NEXT TO THE DUMMY),
(AAPL), (MSFT), (TSLA), (VIX), (TLT), (TBT), (FXI)
