Tesla accelerates into mass market

“This is not even a dent in the overall car market, what it does represent is that the company changes to being a luxury model only, to a well priced vehicle for people that are well to do. This vehicle costs the same as a BMW 3 series, it hardly has “mass appeal” right? Range of 215 miles on a single charge, that doesn’t seem close or far. The acceleration is pretty cool. Sales of Tesla are expected to be 500 thousand by 2020, a nearly 10 fold increase on the current production, all in five years. Doable?”

To market to market to buy a fat pig Schools out! I mean, the first quarter is up. In Eddy Elfenbein’s Friday letter, he quotes a statistic that underscores how volatile the market really is along the way to long term gains. It is a statistic from Ryan Detrick, you can follow that chap on Twitter. And you would get juicy tweets like this: “Over the past 5 quarters the SPX has gained a total 0.84 pts. Yet, it moved 4,735 total points during that time. Wow.” The SPX is the S&P 500, that is the most widely known code. The SPX closed last evening at 2059 points (and some change), basically unchanged since January the 1st 2015.

Yet in that time, as Eddy and Ryan points out, the index had gyrated nearly two and a half times the total. If you had gone to the Amazon jungle you would have thought much ado about nothing. And people have wrung their hands about a whole host of events and matters. And the next one? Without a doubt, if you thought that the Scottish referendum was a big event, then I am sure the countdown clocks, the experts, the doomsday scenarios around “Brexit” will, like a haphazard theatrical piece, come to us live on our screens.

Brexit is of course the UK referendum on whether or not to leave the Eurozone. Dumb, and I suspect the people of Britain will vote for the ease of the Eurozone. Ummmm …. If I remember right, the Greek people voted not to accept the bailout conditions set by their European brothers and sisters, they are still in the Eurozone, not so? I suppose that was very different. Remember I was actually in Greece at the time, I became an “expert”. If I asked the local people, the answer was always, “it’s not so easy” and “it is complicated”. Like most things in life.

The point is, events come and go in equity markets, company quality, company prospects and most importantly company earnings direct share prices in the long run. The one that makes me smirk lately is that suddenly the market is warming up to Apple again. As if something changed significantly since their numbers two quarters ago. The recent stories about being a technology company that has been around 40 years, the fact that they have sold more personal computers than any other company, etc. is starting to filter through to a conviction buy of sorts. Yech. Same company, the crowd is just warming to the stock again. Don’t make that mistake, follow the numbers, follow the prospects independent of the noise. It is like being in well sailed waters or well travelled paths in deep fog, you know what is on the other end, you just can’t see it for the moment.

For the record the local index, the Jozi all share, added nearly 6 percent for the first quarter. A 15 percent plus rise in the resources sector certainly helped matters, even financials were up smartly, up nearly 9 percent in that time. It was the industrial stocks that were laggards, as a collective only up one and a one-quarter of a percent since the beginning of the year. The well heeled Rand hedge stocks took a little heat as the Rand was one of the best emerging market currencies since the beginning of the year. Remember 16.85 USD to the ZAR in mid January. Remember the early morning blowout to nearly 18 to the US Dollar as global investors fell out of love with emerging markets. Hit the big red sell button they said. You shouldn’t worry too much about the quarterly moves, they feel much better when the market ends in the green, that is for sure!

Quick scoreboard check for yesterday, which was rather a dramatic day for the chattering classes, judging from the reaction that I saw on Twitter to the constitutional court judgement handed down by the Chief Justice. Unanimous at that too, all 11 Constitutional Court Judges happy that they came to the same conclusion. Stocks in Jozi sank nearly half a percent on the day, off the worst levels for the day. I read a headline that suggested the Rand rallied after the president was ordered to pay back the money. I am not too sure that is fair or correct, the Indian Rupee is having a bad 24 hours, perhaps the loss that Kolhi, Dhoni and co. have had to absorb on behalf of 1.252 billion people is too much for the Indian currency to bear.

Over the seas and far away, stocks in New York, New York slipped at the close to end the day in the red for the Dow Jones and the S&P 500, not so for the nerds of NASDAQ who managed a 0.01 percent gain. Mark that down as a #winning day, OK? Both the other two major indices lost around one-fifth of a percent on the day, basic materials were lagging the most. The first day of the second quarter has started badly over in Asia, the Nikkei down nearly three and a half percent, the Shanghai composite down over a percent and the Hang Seng has given up over one and one-quarter of a percent. Perhaps there is going to be some room for a breather here, even if just for a little bit. No central bank focus, no new event in a few days, the Fed only meets at the end of April, what now Mr. Market?

Company corner

I know Byron is not a car guy, when you sit with someone all day long you get to know an awful lot about them. You had better enjoy your business partners as much as your family, you quite possibly spend more waking hours with them! Tesla however is a different kettle of fish, Byron was genuinely excited yesterday, comparing the launch of the Tesla Model 3 to the first iPhone. I guess with Tesla, this is dumbing their vehicles down in order to make them more affordable for environmental savvy folks across the world, and for those people who want to drive what is a beautiful vehicle. Watch -> Tesla unveils its $35,000 Model 3. And then also -> Meet Tesla’s Model 3, Its Long-Awaited Car for the Masses.

Affordability of an iPhone is one thing, a car is something very different. Yet, according to this Barron’s article (no relation to Byron) -> 100,000 Model 3 Reservations ‘Now Seems Low’, Credit Suisse estimated that there were 12 thousand people who queued to stick their names down for a car that they had never seen. Never. So actually, this was a little “low”, during the presentation (from the Verge), Elon Musk said during the presentation that they had 133 thousand plus already.

So you had to part with (in the US) 1000 Dollars as a deposit on a car that you might well not get until 2018. You are paying for a spot in the queue and a chance to have one of these items, a unique step in humanity to wean us off fossil fuels. The sun comes up and goes down every day, without fail. Sometimes there are clouds in the way. We still get some element of sunshine however. Trip Chowdhry from Global Equities Research suggested that this is the fastest ever pre order amount in consumer history. Of course the company (Tesla) is only asking you to part with 1000 Dollars, not the full 35 thousand Dollars. In the US there are strong tax incentives to use battery operating vehicles, depending what state you are in, you can get big rebates. So the cost price might well be less than that, as much as ten thousand Dollars less.

Still, this is not even a dent in the overall car market, what it does represent is that the company changes to being a luxury model only, to a well priced vehicle for people that are well to do. This vehicle costs the same as a BMW 3 series, it hardly has “mass appeal” right? Range of 215 miles on a single charge, that doesn’t seem close or far. The acceleration is pretty cool. Sales of Tesla are expected to be 500 thousand by 2020, a nearly 10 fold increase on the current production, all in five years. Doable? Perhaps. What really does grab me from this FT article (Tesla targets mass market with new Model 3) is this paragraph: “Evercore ISI said investors it had polled had guessed at 117,000 orders by the end of the year — a level reached in just the first day.”

The demand is huge, the execution is going to be key. If the company can ramp up and deliver at that sort of scale, the margins will widen (anything is better than where they are currently) and the company will become increasingly profitable. It is not an automatic buy, the stock that is. If you are buying this, you must be prepared that the company might still stumble in the most incredible manner. It is not for everyone. We will continue to recommend the stock in small allocations at the fringes, for wider spread portfolios. You really have to hand it to Elon Musk, he may not be a nice man to get on with (he hates acronyms by the way – BTW), he is on a mission for the betterment of humanity.

Linkfest, lap it up

I absolutely loved this piece. It is a reminder that even rejection and failure can lead you to aspire to go further and come up with better ideas. We have talked about it before, the rejection of a fellow from Facebook, led him to be the cofounder of WhatsApp. Don’t ever give up -> ‘Facebook turned me down’ - the job rejection letter that turned into a $4 billion check.

Talking Facebook, some of their purchases have elicited more than just raised eyebrows. Remember they were dumb for this and that. Now, according to Youssef Squali at Cantor Fitzgerald -> Facebook Could Make $7B in Virtual Reality Revenue in 2020. Facebook of course bought Oculus in 2014 for 2 billion Dollars. Turns out it could be a good one? Like WhatsApp and Instagram, remember that. Sit down chattering classes.

People who wear red berets trumpet the socialist state. The truth is, according to Will North Korea and Cuba Ever Be Wealthy?: Doctors who defect from the North often fail to pass standard South Korean medical exams. This all indicates that the immense effort and money required for reunification would dwarf the scale of the task in Germany. Communism never works.

Don’t be a bad behaviour investor, this is a very cool three and a half minute video titled Bad investor behaviour can be very expensive. Interesting that some people perhaps need a test to see whether they should invest or not, directly that is, perhaps their psyche isn’t suited to owning stocks, rather be a passive contributor over a period of time. Tim Richards for the win again, you should follow his blog.

Home again, home again, jiggety-jog. Hey, hey, jobs Friday. And don’t you dare fall for being a sucker fool, OK? Watch your box, an hour forward at 14:30 this afternoon. It may well be that a knockout report gets those thinking again about a rate hike again. Sigh. Second-guessing the Fed is seemingly harder than predicting the Super how ever many it is now. Lovely weekend people.

Sent to you by Sasha and Michael on behalf of team Vestact.

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