The EV age

“Tesla Motors, Inc. 2016 Annual Shareholder Meeting) two nights back was certainly an eye opener at some level. Elon Musk, along with co-founder of Tesla and chief technology officer, JB Straubel went through how they started what has become the benchmark for electrical vehicles. What the two of them call EVs.”


 

To market to market to buy a fat pig Stocks closed lower here locally, resources were being sold off heavily, the iron ore price was again coming under pressure. The price action has been pretty nuts. Our go to fellow for all of these things is a chap called Jeff Currie, an exceptionally talented individual who works for Goldman Sachs, he was on the telly yesterday. Here he is talking about the crude oil market – Crude Oil Closes Near $49 as OPEC Seen Discussing Output Ceiling. Of course, the Vienna Opec meeting is today, that has become less significant over time as other producers have hit it hard, Russia and the USA have become bigger and more important producers.

Back to iron ore, the price hit a three month low yesterday, there have been some savage moves over the last six months. First, the price bottomed at below 40 Dollars a ton in December last year, only to rally over 50 percent plus to above 60 Dollars a ton, now the price is around 47 Dollars a ton. Remembering that just over half a decade ago with heightened Chinese demand the price nearly hit 190 Dollars a ton. And then the supply side came rushing at us like a Kelly Slater manmade wave.

Two years ago the price was at 100 Dollars a ton, I guess the price is finding some sort of level here. Meanwhile the biggest producers have seen their pricing action whipsaw investors and unsettle folks. The year to date move for Anglo American in Rand terms is 91 percent higher, over 12 months the stock is still down 30 percent. Kumba Iron Ore is up 83 percent year to date, it is unfortunately down 51 percent over 12 months. Stretch that out a little further and the picture is less palatable than the bad taste already. Over a five year period, the Kumba share price is down 83 percent.

The London listing of Anglo American sees the share price down 80 percent over half a decade. Of course it always depends where you draw your line in the sand. Ain’t nobody got time for volatility. We will continue to not invest in this area that attracts exceptional talent, an industry which provides the building blocks of our cities. And without the commodity and energy producers, we would all be rendered useless. Or would we find alternatives? And in a hurry? The Tesla AGM (watch – Tesla Motors, Inc. 2016 Annual Shareholder Meeting) two nights back was certainly an eye opener at some level. Elon Musk, along with co-founder of Tesla and chief technology officer, JB Straubel went through how they started what has become the benchmark for electrical vehicles. What the two of them call EVs.

The conversation was pretty fascinating, how Musk wrote a 10 year timeline and how it has almost gone according to plan thus far. They spoke of their early trials and tribulations, how the original vehicles were terrible and basically useless. Musk made some great points, of how the change from lead acid batteries to lithium-ion made the car lighter and also made the range four times more. Musk spoke of hosting Google royalty Sergey Brin and Larry Page inside of one of the early models, and how in the demo it went just 10 miles an hour. Worst demo ever. Pretty laughable and pathetic.

Still, the Google co-founders gave some much needed funding to the program. The vision to change the world means that JB and Elon have worked tirelessly from an idea in 2003 (the original luncheon meeting was actually to discuss an electric airplane) to have delivered around 110 thousand vehicles thus far over the last four year.

Musk pointed out that there were only 2 American motor vehicle manufacturers who hadn’t gone bankrupt, Ford and Tesla. Not that Tesla weren’t close, both of them and SpaceX were on their knees at one stage, if memory serves from the book I read last year, just before Christmas 2008 they received a lifeline, at one stage Google had a handshake purchase agreement for the vehicle manufacturer. As journalist James Quinn points out in the aptly titled Is Tesla’s Elon Musk the Willy Wonka of the car making world?, Ford makes in 2 weeks the number of vehicles Tesla has made in their lifetime. Yet the market values Tesla at 60 percent of the Ford market capitalisation, the expectations are very high.

The answer as to why not to invest in commodities is as simple as saying look at men like Musk. There will always be a need for oil (for the foreseeable future), steel (for the foreseeable future), men like Musk and Amazon’s Bezos are trying to do more with less and in some cases eliminating fossil fuels entirely. Musk reckons we are going to look at the combustion engine like we look at the steam engine, nice and old technology. In some senses the combustion engine hasn’t really evolved, the efficiency has improved markedly.

Indeed, as we once re-quoted a fellow Cullen Roche, a bet on commodities is a bet against human innovation. And by extension people like Elon Musk. Willy Wonka or not, I do not want to bet against Elon Musk, even if the short interest in Tesla stock is 20 percent currently. Byron was telling me yesterday that last month there was a day that Britain didn’t generate any electricity from coal for the first time since 1882 (Britain gets no power from coal for ‘first time on record’).

We both laughed and suggested that perhaps that four hour period may have been on the one warm day of the year, judging from some of the cricket shots we have seen recently. It certainly represents a big step towards clean energy, awareness and mainstream adoption. We will continue to move in the direction of clean energy generation. About getting that cobalt, lithium, nickel and aluminium oxide for the battery packs. According to a Fortune article that I read, the typical lithium-ion batteries are 80 percent nickel, 15 percent cobalt and 5 percent aluminium. Where does the lithium come in? I am no battery expert, I suspect that recycling will also be very important for this company too.


 

Stocks in New York may have closed out the session a little bit higher, and at face value it may have been seen as a “nothing” session, there was a big comeback from the beginning of the session where the broader indices were all over half a percent lower. For the scoreboard keepers, the Dow Jones Industrial average added 0.01 percent, the broader market S&P 500 closed up 0.11 percent, whilst the nerds of NASDAQ was a smidgen higher, up 0.08 percent on the session.

There wasn’t too much going on in individual stocks, as you can imagine with these sort of index moves, there was a lowering of guidance from sports apparel manufacturer Under Armour, this impacted Nike too, worries about their North American business. Bloomberg reports – Under Armour, Nike Tumble as Sports Authority Takes Toll.

A shift to online sales, talking of which, South Africa opened their online Nike store in the last few days, the “casualisation” of active wear I think is still a big theme. Wearing your training sneakers as a fashion item. Nice. Except not for shareholders, Nike sank half a percent (Under Armour was down nearly 4 percent), year to date Nike is down 12 percent. Some of the banking analysts are downgrading their Nike price as they suggest that the company (Nike) is losing market share in their core territory for the first time since 2010. The next set of Nike numbers are close, the fourth quarter results (and by extension the full year) is on the 23rd of June. We continue to like the company, the drop in the share price is always an opportunity. Still, they must deliver acceptable growth, they have a pretty lofty multiple at 25 times.


 

Linkfest, lap it up

As society shifts to become more health conscious bottled water is becoming a bigger market. It is forecast that bottled water sales will outpace sugary drinks (soda) in the US in 2 years – It’s Time To Get Fizzed About Bottled Water. Given that the margins on water are better than those on soda, it is a good business to be in.

A nice problem to have, too much cash and not enough places to invest it. It is this cash pile problem that will see the Berkshire growth rates continue to slow until it matches a broader US index – Buffett Awaits $8 Billion of ‘Bad News’ With Kraft Heinz Payment

How do your working hours look? I was surprised to see how high the average hours of millennials were due to the average number of working hours for the whole US economy is only around 35 hours a week – Where Do Millennials Work The Longest Hours?. Indian millennials probably work the longest hours because they are also the happiest workers – Most people are actually pretty happy at work.

Infographic: Where Do Millennials Work The Longest Hours? | Statista

You will find more statistics at Statista


 

Home again, home again, jiggety-jog. Shanghai markets are slightly up, as are Hong Kong markets. The only share that has any impact on us here in Johannesburg is Tencent, that stock is down 0.65 percent. With a recovered US market in the second half of trade and US futures flat, I suspect we may well open better here today. There may well be anxiety of ratings agencies at some level, there may be anxiety around the jobs report, the ADP number is released today (and wasn’t yesterday) as a result of the public holiday at the beginning of the week.


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

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