You Musk Listen

Let us just say that Musk wants to change our consumption habits. This company idea at conception was so mad that you wanted to be a part of it. Elon Musk doesn’t care much for normal people metrics. He is simply not normal. Which is why he draws the wrath of the analyst community, they cannot understand his vision.”


To market to market to buy a fat pig Stocks in New York, New York closed mixed, some of the heavy tech stocks (by human definitions) slid post or ahead of their results, other stocks caught a serious bid post their numbers. Boeing boosted the Dow Jones Industrial Average, the index closed 0.17 percent higher on the day. Still, the jury is still out on the largest aerospace business on the planet, given lower fuel prices, commercial airlines are likely to sweat the current fleet a little longer.

I like the commercial and satellite part of the business, and we can all agree that military technology advances commercial technologies quicker, I am not too sure how you feel as an investor? Perhaps I shouldn’t be so precious. Another business in the “space”, Northrop Grumman, reported numbers that the market also liked, the stock was up smartly and the prospects look better in the medium term, relative to Boeing. Mondalez and Biogen (different industries entirely) both caught a good bid after delivering numbers that Mr. Market liked. So far, earnings season looks like it is heading in the direction of an overall beat, high quality or not, the jury will deliver that in a couple of weeks.

The broader market S&P 500 sank 0.17 percent, whilst the nerds of NASDAQ sold off nearly two-thirds of a percent, weighed down by Apple (down 2.25 percent at the end), Amazon down over a percent and a half ahead of their results today and Alphabet (Google) down around three-quarters of a percent. Both the titans of today and the future report today, and these results are as eagerly anticipated as Apple’s results. Well, at least for us around these parts. Amazon and Google, exciting times indeed!

I was reading an interesting post that suggested that you should always stick to your knitting, stocks guys and gals shouldn’t comment on fixed income and fixed income gals and guys shouldn’t comment on stocks. To be a master of both is very difficult, briefly in the office we could think that distressed bond buyers are folks who are experts in both. The discussion was formed against the backdrop of the disaster that is Mozambique’s “Tuna Bonds”. What a freakin’ mess. See -> Mozambique ‘tuna bond’ yield hits record high after debt warning.

On the local front we had the medium term budget speech. In sticking to the above piece on expertise, my analysis both on the political nature of the delivery and the actual numbers matters little, there is plenty of very good analysis around. I am not too sure that there was a noticeable reaction from Mr. Market, it seemed not. The Rand is marginally weaker again this morning, the realities of a weaker than anticipated growth outlook against the very real backdrop that spending cuts and tax hikes are likely to cramp consumers styles did perhaps weigh. On the currency, on retailers. In the end we will be fine, to borrow that great line from the The Best Exotic Marigold Hotel: “Everything will be all right in the end… if it’s not all right then it’s not yet the end.”

Perhaps that was the spin that the Finance Minister was putting on the hard choices of the coming few years. Amongst the local stocks, listed here, Richemont caught a bid, Mediclinic sank as the Pound was once again pounded. The banks and financials enjoyed a good day. We are going to have a couple of dull weeks, and then earnings will start from those businesses with the March/September cycle. In amongst our stocks, Richemont, Mediclinic, Brait, Tiger Brands and Naspers will all report numbers inside of the next month. It will be the earnings deluge that we try and keep pace with! The broader market, for the scoreboard watchers, showed that we ended down 0.38 percent by the time all was said and done.


Company corner

Tesla Motors reported numbers last evening, this was for their third quarter of the current financial year. The company is one that splits the street down the middle, those that think the man is a visionary and that it is going to take more than a quarter (or a year, or a decade) to be materially profitable and those who think that the business is eventually going to come apart at the seams, Musk dreams too much and under delivers. If you are an Elon Musk fan and can put up with your fair share of expletives, then make sure you read the Ashley Vance book on him. It is really good and gives some very valuable insight into how the guy works. He is beyond quirky and has incredibly high standards, as well as incredibly high goals. Musk can be credited for bringing forward the fleet of electric vehicles and equally promoting driverless fleets. Someone always needs to be the doer and the others will follow.

In the results themselves, there were some big milestones, including record deliveries of just shy of 25 thousand vehicles. 16047 Model S and 8774 Model X vehicles were delivered during the quarter and another 5065 Teslas were in transit to their eager customers at the end of the quarter, these sales will be booked in the next quarter. Revenues clocked 2.3 billion Dollars. That is a 145 percent increase from the prior year corresponding quarter, gross margins were a whole lot higher in Q3 (27.7 percent) versus Q2 (21.6 percent). GAAP net income was a miserly 22 million Dollars, or 14 US cents a share. The business was (how do you say this politely) more diligent with cash utilisation. Still, the nine month numbers look iffy. At best.

The company needs to expand and deliver, and make it pronto. And snappy. The Gigafactory, Model 3 development, production and delivery as well as the SolarCity purchase are all large main courses that the team need to eat and digest. Model 3 “volume” deliveries are expected to be in the second half of 2017. Hey, 31 December 2017 is the second half, right? Every Model 3 will have the standard 360 degree visibility of 250 metres of the hardware for the full self driving capabilities. The other thing that Musk wants to continue to ramp is the 100 kWh battery version of the Model S, that is a very profitable model. On the earnings conference call, he said to an analyst who asked a question about that model that straight after this (call), he would be heading right there. See this blog, note the quirky Latin spelling of the month – New Tesla Model S Now the Quickest Production Car in the World

As Tesla points out in the Q3 earnings release: “Fleet learning means that all Tesla vehicles with Autopilot will naturally get better over time.” And then of course the clincher for me: “Tesla vehicles have already been driven over 3 billion miles, including more than 1.3 billion miles logged by vehicles with Autopilot hardware.” So, I repeat a question I have seen asked on the inter-webs, would you rather be driving on a road with someone who just passed their licence with 100 hours of driving experience, or a fleet of driverless cars with over one billion miles of learned driving behaviour? I know my answer. On the earnings call, Musk said that he knows that there are sceptics out there on autonomous driving, he urges them not to bet against it. A million and a half miles a day are driven in Teslas, relayed back to a central database.

Tesla get zero emission vehicle (ZEV) credits from government, in fact without the 138 odd million Dollars credits (sold to other auto makers), they would have been unprofitable. Again. It all seems rather weird, I listened to Elon Musk try and explain the ZEV credit thing to analysts on the conference call, sadly, I could not quite understand it. In short, the higher the volumes, the less they are prone to volatility. It is tough to try and get a handle on government involvement in these businesses.

Let us just say that Musk wants to change our consumption habits. This company idea at conception was so mad that you wanted to be a part of it. Elon Musk doesn’t care much for normal people metrics. He is simply not normal. Which is why he draws the wrath of the analyst community, they cannot understand his vision. They have time lines and horizons of quarters and maximum a few years ahead. I am sure that sometimes (and I get that sense from his question answering manner) that he cares less for these folks. It almost seems like that Maximus moment when he slays a whole lot of hapless gladiators and then screams to the crowd, “are you not entertained”. Musk asks on the call, “How many products can you buy that you truly love? So rare”. If Tesla continues to make products, premium ones, that people really want and are beautiful, and folks will pay up for, then the company will be successful. And by extension, the company will be profitable.

So short term there are going to be many dis-Beliebers and the haters are gonna hate-hate-hate. And perhaps even in the medium term, whilst Musk tries to balance profitability, shareholders and product execution. The plan seems so huge. So big. Again, how do you eat an elephant? One bite at a time The team is working for the betterment of humanity, and whilst that sounds wishy-washy in an investor context, the business will ultimately appeal to the consumers desire of their products. That does not mean that this is a wonderful investment for shareholders. As a shareholder in what is a “humanity event” (reduction in fossil fuel consumption), expect major volatility. This share price could halve in less than a year. Equally on a few good quarters, it could double. It really is that wild and by extension should only form a small part of your portfolio, if you have the stomach for it. I believe that Musk will be the leader in changing the world. I genuinely do.


Linkfest, lap it up

Naspers has mostly just been seen as a proxy for Tencent. As of late thanks to two deals, people are starting to see the value in their other investments – Indian internet market will take time and money to mature, too early to think about exits: Naspers CEO. After reading this article, I am sure that you will agree that Naspers’ assets in India seem very exciting and have loads of potential.

New technologies are exciting and finding funding for R&D is important – Hyperloop One Raises $50 Million, Hires Former Uber CFO. Fast and cheap is the goal, Hyperloop is projected to be both.

Economists rarely agree on anything, Japan needing immigration of young, relatively unskilled people is something where there seems to be some consensus – Japan Opens Up to Foreign Workers (Just Don’t Call it Immigration). As humans we tend to fear change, immigrants mean change, both from a labour market perspective and a cultural perspective.


Home again, home again, jiggety-jog. Stocks across the globe are lower, at least the ones that are open. Folks are asleep across the oceans, as I wrote this. Sensible ones I guess, we all need that sleep and you cannot catch it up, or so it seems. Are you excited for the earnings today? I certainly am!

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

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