I might be a complete idiot – no answers required, if you please – but I cannot stand idly by while the market cap of Tesla overtakes that of General Motors, albeit only by US$1.5m, while seemingly being the only bloke out here who is scratching his head.
“Ah!” I hear you cry “Tesla isn’t a car company, it’s a technology group”. In that case, if you don’t mind, what part of making cars at GM or Ford is not technology? I have heard of some of the Ford and GM products being referred to in car-talk as being a bit agricultural but that doesn’t mean that they get planted in spring and harvested in autumn.
LOCOMOTION
The question is, as it is posed by the valuations, whether Tesla will be to cars what Apple has been to computing. Is Elon Musk really the next Steve Jobs or Henry Ford or even to be compared with Thomas Edison? The stock price certainly says yes.
Over the years I have aimed a lot of my mirth at General Motors, a behemoth that failed to grasp that being Detroit’s finest was not of itself enough to survive in a global market where coming from Detroit was more of a bane then a boon. Had as much been pumped into process in the 1980s and 1990s as was pumped into advertising the company might not have gone under which, bar the massive last-minute bail-out by the then-new President Barak O’Bama, for all intents and purposes it did. But is Tesla really worth more than GM? The margin per unit sold is of course significantly higher at Tesla than at GM or Ford but that cannot be enough.
In my humble mind, Tesla is more in the league of Porsche than of GM in that it produces a highly desirable luxury product that sets trends but will never be central to the industry. Porsche, with all its brand value and stable distribution network is priced at €15.213bn or just over US$16bn. That is slightly more than one-third of the value of Tesla.
ELECTRICITY
The secret to the electric vehicle business is no longer the powertrain but the energy storage technology and Musk is a leader in that field too. Through its Powerwall subsidiary, Tesla is certainly ahead of the game. It pumps its profits back into R&D and it is aiming at moving away from the higher end product into the more affordable vehicle space. When it does, it will run into the big guys again.
The Tesla business model with its non-dealership direct-selling network is not naturally conducive to volume car making and a bigger Tesla that begins to eat GM’s and Ford’s volume car lunch might look a lot less shiny. Is it correctly priced at US$312.39 per share? Not bad for a company that is currently forecast to make a loss per share this year of US$2.46 after losing US$2.87 last year and US$2.30 the year before. With that in mind, the stock rallied US$9.85 in Monday’s trading. Maybe I am a complete idiot….but they told me that in 1998 and 1999 when I resisted getting involved in the dotcom frenzy.
Meanwhile, in better acquainted territory the oil price is on the rise. WTI closed last night at US$53.08 per barrel, just a dollar and change away from its 12-month high of US$54.45/bbl and once above that one has to go back to July 2015 to find such levels. Syria? Barely. With Saudi Arabia, Iran Russia and the US, four of the largest if not in fact the four largest oil producers all involved and not one of them finding their production hampered, why would the black stuff be rallying?
NAVIGATION
The best explanation would have to be found in the global growth story if that were convincing enough. In an interview at the University of Michigan yesterday, Janet Yellen put on a very upbeat face when she referred to the economy as “coasting” and affirmed that while not wanting to fall behind the curve, the Fed was quite happy to sit back. That did not do much to answer any questions with respect to the March minutes’ reference to balance sheet shrinkage although it would have been very surprising to hear Madame Yellen picking holes in the story of broad-based recovery. At 4.5% unemployment that would have sounded rather disingenuous.
So what next? Risk asset markets are sitting on a sandbank with all three major US equity indices virtually unchanged on the day and 10-year yields within a basis point and a bit of where they were this time last week. The “outlier” is the VIX index which continues to rise, closing at a year-to-date high of 14.05 last night. That is slightly incongruous but with so many parts of so many markets now hard to get one’s head around, what is there to say that the VIX is or isn’t evidencing a budding sell-off?
Investors have good reason to remain sanguine. The “algo put” seem to be working and downside risks seem to be limited. This is not, it would appear, to be the sort of algorithmic risk analysis that was applied within the rather idiosyncratic Long-Term Capital Management and which went so horribly wrong. The depth and strength of algos is apparently still growing. Anyhow, the Q1 reporting season is just around the corner and forecasts are generally upbeat.
On to happier things. We all had a good laugh yesterday morning when the screens flashed up with a reminder that Burger King France was hosting an investor lunch in London prior to its impending debut issue. The Oak Room at the Four Seasons doesn’t sound like a drive-thru, does it?
Finally, I’d like to welcome Beat Matzinger back to the coalface. He has been populating Julius Baer Zurich’s fixed income trading desk for well over 30 years and from where he has terrified the living daylights out of generations of young salespeople but he has been absent from the fray for the past six weeks due to some health issues. As a fellow “teenage scribbler” he has been sorely missed and I was delighted to find one of his daily missives in my mailbox again yesterday. On behalf of all of his friends in the market I would like to wish him a hearty “Grüezi!”