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Tesla's always good for a bit of hysteria, and last night's earnings didn't disappoint. Well, they did, but Tesla hysteria returned to bull market territory. You'd think they were going bust...
If you don't follow the EV industry, you're probably blissfully unaware of what's going on. A brief recap from November 👇
From a market perspective, there are signs that investors are starting to pick the likely winners and losers. Until recently, electric vehicle adoption was a wave for investors to ride. The rising tide was lifting all boats and EV stocks would largely rise and fall together. Those times look to be over.
Darwin’s law is coming to the fore. Survival of the fittest. The strongest balance sheets, established production lines and the simple ability to scale and turn a profit are likely to be defining factors. Higher interest rates and a saturated, highly competitive market are huge hurdles to overcome for the new generation. Many are simply not going to make it.
Auto production is a capital-intensive industry. It's hard to turn a profit. So when Tesla reported that their profit margin had fallen to a measly 19%, apparently that was a sign that the end is nigh.
Unless you knew that this was Tesla's plan all along... 👇
From January: Tesla uses its profits as a weapon in an EV price war
Tesla, once one of the auto industry's biggest money losers, has over the past year built a commanding lead over most major rivals in profit per vehicle, a Reuters analysis of industry data shows.
For most of this year, Tesla joined rivals in aggressively raising prices on its most popular vehicles, such as the Model Y SUV. Shortages of semiconductors and other materials kept auto industry production down, allowing companies across the industry to focus on higher-margin models and book strong profits, even as sales volumes fell.
Tesla's decision to reverse course and spend its production-cost advantage on price cuts now challenges the profit-over-volume strategies established automakers such as GM have pursued since the 2008 financial crisis, and doubled down on during the pandemic.
The strategy is an uncomfortable one for investors, but ultimately the only realistic way to go. Most importantly, it's deliberate. Tesla isn't the victim here...
By ramping up production, Tesla protects and/or gains market share, while (hopefully) uncovering extra cost savings via economies of scale to produce ever more efficiently.
Those moves should help kill off the weaker competitors and stifle larger ones...
From the same January Reuters article 👇
Startups such as China's Xpeng Inc (9868.HK) had benefited from Tesla's price hikes. Now, Xpeng is cutting prices in China - but with less financial leeway than Tesla. Xpeng reported gross profit of $4,565 in the third quarter, and a net loss of $11,735 a vehicle
Xpeng's decided to try and replicate Tesla's process in order to compete...
Xpeng's Chief Executive He Xiaopeng also said on Sunday that an automaker needs to achieve annual sales of 3 million units globally to get a chance to survive beyond a decade
Xpeng was founded in 2014 & sold a total of 120,000 vehicles in 2022... Tick tock!
Check out our Twitter thread for more details 👇
The Reserve Bank of Australia and the Something Must Be Done Phenomenon
Like a lot of central banks, the RBA completely ballsed up their guidance and implementation of rate hikes on the other side of the pandemic.
Inflation got out of control, people got angry. Something Must Be Done!
On July 20th 2022, Australian treasurer Jim Chalmers announced a “broad-based” review of the Australian central bank’s inflation targeting arrangements, mandates, performance and governance.
That process apparently takes nine months in Australia. The review was released today, with many anticipating that this would be the moment those flamin' socialists take over the central bank and start meddling in monetary policy.
Instead, the report recommends repealing an old law that would allow the government to override any decisions of the Reserve Bank Board...
Overall, it's a simple solution (when in doubt, add experts) 👇
Key quote in bold... 👇
The economic prosperity and welfare of Australians, now and in the future, should be legislated to be the overarching purpose for the RBA in the exercise of all its powers.
It is not suited to be an additional objective for monetary policy because this provides too much discretion to the RBA.
Monetary policy can best contribute to this overarching purpose by focusing on full employment and price stability.
These changes are not a substantial departure from the status quo – senior RBA officials have indicated, at times, that they already consider the objectives of monetary policy in these terms.
And they'll NEVER get it 'right', just continually bounce around within the impossible trinity.
Which is fine. That's basically how it's always been.
So, something has been done. Boxes can be ticked and backs can be patted.
Soon it'll be time for rate cuts again... right?