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Posted on EVANNEX on July 24, 2020 by Charles Morris
As stock-market pundits tie themselves in knots trying to explain how Tesla became the world’s most valuable automaker in the space of a few short years, it may be worth repeating a few basic principles from Investing 101.
One of those rudimentary rules is that the stock market is forward-looking. A company’s stock price doesn’t reflect what the company did last quarter, but rather what the market thinks it will be doing a year or multiple years into the future. Investing is about making educated guesses about what the future will look like, and predicting which firms are in position to thrive in that future, and which are likely to be left behind. If you accept that the future of the auto industry is electric (and almost every auto industry CEO does, or claims to), then it’s pretty much a no-brainer to bet on Tesla.
Professor Bradford Cornell has been harping on this theme over the course of several columns about Tesla. His latest piece, which appeared in ValueWalk, summarizes some of his past arguments in an eloquent explanation of why TSLA stock is continuing its ascent into orbit, while shares in the legacy automakers remain earthbound.
For years now, we’ve been hearing about a wave of “Tesla killers” soon to come from the legacy automakers, but that wave never seems to arrive. I’ve driven most of the EV offerings out there, and some of them are excellent automobiles, but none can beat what Tesla has to offer, and so far, none are being sold in any real volume.
For Professor Cornell, a successful EV needs to check four boxes: it needs stylish design, plenty of range, and a reasonable price, and it needs to be available in quantity. Only the Tesla Model 3 and Model Y check all four boxes. The Bolt, the LEAF, the i3, the I-PACE, the e-tron, the Taycan, and even new offerings such as the Polestar—all of them lack at least one of these qualities.
We keep hearing about great new EVs in the pipeline, but these keep getting delayed. The Mercedes EQC 400 luxury SUV, originally scheduled to go on sale in the US this year, won’t arrive until 2021. Volkswagen’s ID.4 and Ford’s Mach E are also at least a year away, and Toyota is still nattering about hydrogen.
These are all familiar themes that have been discussed often in this space and others for the last couple of years. It’s plain that time is not on side of the legacy auto brands. However, Professor Cornell calls attention to an aspect of the situation that hasn’t received much discussion: the longer the old boys (and one gal) assume a wait-and-see posture, the more trouble they’re going to have raising capital relative to Tesla, and this could give the whippersnapper an insurmountable competitive advantage.
Tesla’s sky-high stock price gives it access to plenty of capital. And it’s using that capital to build new factories, to develop new models and new features, and to continuously improve its production technology.
Above: Tesla currently sells the lion’s share of electric vehicles in the U.S. and it’s been growing its market share over the past year (Source: Axios)
Don’t the auto giants have access to lots of capital, too? Of course. But unlike Tesla, they aren’t devoting all, or even most, of their investment to EVs. They have existing product lines to keep alive, networks of dealerships to keep happy, and now, an economy-killing pandemic to fight.
Audi’s CEO just proclaimed that ICE vehicles “will be alive for a very long time,” and that the company will “continue to invest massively in the development of combustion engines.”
The German magazine Auto motor und sport (via CleanTechnica) reports that the sales department at VW has been fighting against the company’s focus on electric cars. CEO Herbert Diess wanted to replace existing ICE versions of the tiny Up! city car and the Passat luxury sedan with electric models, but dealers nixed both moves, so the gas-burning versions of both cars will live on, and continue to consume capital.
It’s becoming clear that EV sales (which pretty much means Tesla sales) are going to take much less of a hit from the COVID-related economic turmoil than ICE vehicles. In the second quarter of this year, Tesla’s deliveries were 90,650, only slightly lower than Q2 2019’s figure of 95,200. GM, Toyota, Fiat Chrysler, Ford and Audi all saw their deliveries drop more than 30% in Q2.
These three real-world examples illustrate three unproductive pursuits (there are others) to which the legacy automakers are forced to direct much of their attention (and money), while Tesla is investing in the future.
To return to Professor Cornell’s four criteria for a successful EV, I think #4, widespread availability, is likely to be the most problematic for the old guard, unless they change their strategies. Yes, Big Auto is investing what seems like big money in electrification, but their plans are still too timid to take on Tesla. GM and Ford collectively plan to produce about 325,000 electric vehicles in 2026. Tesla produced over 367,000 electric vehicles in 2019.
As Cornell sums it up, “If the competitors do not start making interesting, reasonably priced, electric cars at scale, they may face the same fate as retailers who did not respond quickly to Amazon.”
HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
