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Recently adjusted (cut) government subsidies for electric EV in China

EV is probably one of the most mature new market. It is still something new for most families, but it seems to me that the global EV technology readiness is pretty much similar to that of iPhone in 2013-2015 (iPhone 5S – iPhone 6S).

The industry is more likely to make incremental improvements over the next decade. It won’t be easy in terms of technological progress; it will also need much more effort/thinking in terms of commercial strategies.

One of the latest sign is the most recent subsidy cut for “new energy vehicles”, dated March 26 in Beijing #财建〔2019〕138号.

The reduction in subsidies has been outlined as early as April 2015 #财建〔2015〕134号, in which 1. the subsidies for 2016 was announced and 2. projected that certain vehicles’ 2017-2018 subsidies shall be 20% lower & 3. 2019-2020 subsidies shall be 40% lower, among other things.

2017-2020年除燃料电池汽车外其他车型补助标准适当退坡,其中:2017-2018年补助标准在2016年基础上下降20%,2019-2020年补助标准在2016年基础上下降40%。

#财建〔2015〕134号

Here is the list of updates in the following years:

#财建〔2016〕958号 – Announced Dec 30, 2016; Effective Jan 1, 2017

#财建〔2018〕18号 – Announced Feb 12, 2018; Effective Feb 12, 2018; Grace Period till Jun 11, 2018, during which passengers would follow the previous program x 40%, trucks would follow the previous program x 70%, fuel cells would follow the previous program

#财建〔2019〕138号 – Announced Mar 26, 2019; Effective Mar 26, 2019; Grace Period till Jun 25, 2019, during which vehicles unqualified for 2019 standard shall follow previous program x 10%, qualified for 2019 standard shall follow previous program x 60%, policies for fuel cells and buses will announce separately

A summary of national government (not including regional) subsidy base for battery electric vehicles

More restrictions are added in 2018 and 2019, especially in terms of technical standards.

Smaller EV manufacturers with little R&D resources will need to restructure or pivot. Profitability will be an issue for many companies; but a needed test to form a mature market that can run itself and benefit most stakeholders.

Current State of Cannabis Companies And The Market (3)

Part III … [see the previous post for Part I and Part II]

Oversupply and Drop in Average Selling Price (ASP)

Compiled from companies’ SEC filings.

TLRY is the only company that didn’t double its sales from Q3 to Q4. The driver here should be the channel discount. CGC’s Q4 sales in kilograms is almost five times the same figure in Q3 (2,197kg -> 10,102kg), while TLRY is only modestly growing comparatively (1,613kg -> 2,053kg, but still very impressive compared with other industries).

Apple March Event, Officially Marching Into Broader Services Categories

Apple announced 3 new (subscription) services today: Apple News+, Apple TV+, Apple Arcade. [they are actually very similar to a previous post Apple’s Service Bundle]


Apple News+ is a $10 per month subscription bundle. Essentially, it is a product of “securitization” of reading magazines & newspapers – just like Spotify as a securitization of listening to musics.

Apple News | Source: apple.com

Apple TV+ will be offered through new Apple TV app. This is important as it might be the first major service/software by Apple that doesn’t require an Apple device.

Apple TV app | Source: apple.com

It doesn’t have a price tag yet. And it is reported that Apple will partner with brands like HBO to offer an add-on option (i.e. additional $10 per month), just like what Hulu, DirectTV and many other streaming plans are providing.

Another question tho, is how the Apple TV app (and the Apple TV+ service) will impact the sales of Apple TV as it will be available on many smart TVs such as Roku, Fire TV (Amazon), Samsung, etc.

Apple TV app availability | Source: apple.com
Apple TV 4K | Source: apple.com

Apple Arcade is coming sooner that I thought. And it will be a cross-platform product working across iPhone, iPad, Mac, and Apple TV.

Apple Arcade | Source: apple.com

It is a very good showcase/test of how Apple is merging or making it compatible between iOS and MacOS (and tvOS).


What’s next?

A master membership from Apple is possible – something like $98 per month that includes Apple TV+, Apple News+, Apple Music, Apple Arcade, iCloud storage, AppleCare, etc.

Or a modular membership system.

At the core could be the financing of Apple devices’ purchases – maybe around $30-50 per month – and each subscription will be an add-on. This may provide an extra synergy with the new credit card service by Apple and Goldman Sachs.

Apple Card | Source: apple.com

Apple has those great plans to translate sales and customers into cash flows.

But for consumers, there will be some psychological differences between purchasing a device (as an asset) and paying an indefinite monthly fee (as an expenditure). And services are not as showable as devices. Apple (and Apple investors) might need to prepare and think carefully about those subtle changes.

AWS And Its Appearance In Other Companies’ (IPO) Filings

Following upon a previous post about all those tech companies’ rush to Nasdaq, a group of companies have filed S-1 the past weeks, including Lyft, Pinterest and Zoom.

Plus the previous filings from companies such as Snap, we could get a glimpse into the empire of AWS… as the infrastructure of the current tech industry and all these companies’ commitments to pay Amazon.

Several examples. Starting with Pinterest:

    • 2018 revenue $775.9 million
    • 2018 cost fo revenue $241.6 million
    • Total commitment: at least $750 million in 7 years, from July 2017 to June 2023, first year of $125 million
    • Remaining $441.1 million as of Dec.31 2018
    • On average used: $206 million/yr [estimation: (750-441.1)/1.5=206]

Lyft

    • 2018 revenue $2,157 million
    • 2018 cost of revenue $1,243 million
    • Total commitment: at least $300 million in 3 years, from Jan 2019 to Dec 2021, each year at least $80 million
    • On average used: $60 million/yr [estimation: (144-24)/2=60]

Snap

    • 2018 revenue $ 1,180 million
    • 2018 cost of revenue $799 million
    • Total commitment: at least $1.1 billion in 6 years, from Jan 2017 to Dec 2022, ($90.0 million in 2018, $150.0 million in 2019, $215.0 million in 2020, $280.0 million in 2021, and $349.0 million in 2022)
    • On average used: $60 million/yr
    • Snap relies more on Google Cloud: at least $2 billion in 5 years, Jan 2017 to Dec 2021, at least $400 million/yr
    • estimated usage: at least $530 million/yr in 2018

AWS achieved a revenue of $25,655 million in 2018, equivalent to the usage of ~48 Snap combined.

It will be interesting to see how AWS is going to renew/grow those contracts (should be easy, considering the friction to change a cloud provider) and how those companies will negotiate those terms, as more providers are as legit.

And when tech companies are using a blend of private cloud and those services, how AWS and others are going to fill the revenue “hole/gap”.

After all, the Cost of Revenues (partially due to AWS) will be limited by the Revenues (of internet companies); the growth heavily rely on new usages and the overall revenue of all internet companies.

「Video of the Week」Robotics In Manufacturing

most will agree that automation is coming to fill up the shortage of labor and prepares us for the demographic shift in the next few decades.

While that should be the future, along the way, I believe there will be miserable frictions., as technology advancements and deployment is not as smooth as changes in the working population.

How to minimize the negative impacts of those frictions will be a critical topic. After all, we want people to live in good lives.

Current State of Cannabis Companies And The Market (2)

Part II … [see the previous post for Part I]

Acquisitions of Supply

To keep up the revenue growth, global partners and their distributions networks are important while expanding supplies is as essential.

Building their own facilities is a must (especially for GMP capacities medical uses) but slow. Acquisitions are needed and done frequently.

These acquisitions are also helping with global distributions and footprints/presence (entry by acquisition). If they produce/manufacture/supply, they must also have sales channels.

ACB:

acquisition of ICC Labs, a leading cannabis company with over 70% market share in Uruguay and medical cannabis licenses in Colombia.

Other supply agreements are also crucial to expand capacity. For example, TLRY and LiveWell Canada entered into a supply agreement in December 2018 (finalized in March 2019) that LiveWell will supply TLRY with a monthly quantity of up to 300 kilograms of hemp-derived CBD isolate, or an equivalent amount of full-spectrum CBD extract, with an option to increase to 500 kilograms per month.

Already, these companies find assets are rising in price, making their acquisitions’ returns lower.

TLRY:

We will not purchase or invest in what we believe to be overpriced supply assets in Canada, which we believe will erode in value in the medium to long term, as the market normalizes.

Global Market Choices & Comments

TLRY:

…while Canada will continue to be an important market for us, we expect to focus the majority of future investments on the U.S. and Europe.

In the next year, we anticipate distributing medical cannabis to at least a half a dozen more countries globally through this partnership with Sandoz.

Our seven production facilities around the world are significantly increasing our global production output compared to 2018.

So, the UK, Australia, New Zealand, we continue to see growth there. Really Chile, Argentina, Peru, Brazil are really early on in their growth curve. And then, in Europe, Czech Republic, Croatia, Cyprus are all countries that we already ship to.

CGC:

So Europe as a region we have a strategy of investment that covers four countries, South America, four countries, Australia and each of those will have a yield that goes out over anywhere from 1.5 to 3 years.

We expect to see Denmark beginning to supply European markets this coming September and also to contribute to the margin.

ACB:

Our ability to execute on this objective is strengthened by our substantial hemp assets gained through our ownership of Agropro, Europe’s largest organic hemp producer as well through Hempco in Canada and ICC in South America.

Aurora’s presence now spans 22 countries on five continents. A look into two regions Europe and Latin America with a combined population in excess of a billion people. In Europe, we continue to capitalize on the strong central presence we established in Germany. In early October, we became the first private company to be granted an import permit for medical cannabis into Poland.

There are total of 8 EU GMP certified production facilities in the world and we have two of them, plus we have our EU GMP certified distributor Aurora Deutschland.

 

[Update 3/26] CRON:

Cronos Israel, with the Israeli agricultural collective Kibbutz Gan Shmuel. Cronos Israel is focused on the production, manufacturing and distribution of medical cannabis and is in full construction. We anticipate the construction of the 45,000 square-foot greenhouse will be complete in the first half of 2019, and construction of the manufacturing facility will be complete in the second half of 2019. Cronos holds an effective 90% economic equity ownership across the entities Cronos Israel.

In 2018, we also brought our production model to Latin America. Cronos announced a JV with a leading Colombian agricultural services provider with over 30 years of research and expertise, managing industrial scale horticultural operations. This partnership establishes a newly formed entity, NatuEra in Colombia that will develop, cultivate, manufacture and export cannabis-based medical and consumer products for the Latin American and global markets. NatuEra was granted a license to cultivate non-psychoactive cannabis plants to produce seeds for planting and the manufacture of derivative products.

We see Europe and Asia Pacific to be extremely important markets for the future, but in the near term, it is our belief that the development of pharmaceutical form factors and delivery systems for medical cannabis will play a crucial role in growing the prescription and patient base in these markets.

The Company owns a 50% equity interest in Cronos Australia and believes that Cronos Australia will serve as its hub for Australia, New Zealand and South East Asia, bolstering the Company’s supply capabilities and distribution network in the Australasia region.

Current State of Cannabis Companies And The Market (1)

Three companies’ earnings calls are included: Tilray, Inc. (TLRY), Canopy Growth Corporation (CGC), Aurora Cannabis Inc. (ACB).

Cronos Group Inc. (CRON) is expected to release 18Q4 earnings next week.

It is a newly opened (legalized) industry that has already attracted some big names’ attention. Its recreational uses, plus its potentials in medical settings and beverages, are supporting some huge market estimates and (partially) their sky-high valuations.

Source: CNBC, FactSet

Net Revenue and yoy growth for the quarter ended on December 31, 2018

CGC – $83 million / 282%

ACB – $54 million / 363%

TLRY – $15.5 million / 204% (revenue includes excise tax of ~$2 million, so $13.5 million net)

[Update 3/26] CRON – $5.6 million / 248%

As the revenue multiple is incredibly high, companies need to ramp up its revenue very fast (to catch up with capital market’s expectations). As the actual cannabis markets usually need more time to educate/develop/open up, it is extremely important to rely on top-tier partners (and their distribution networks) to expand globally to keep the 200%+ growth.


So starting with a roundup of…

Industry Collaborations (where/how to sell)

January 15, 2019: TLRY + Authentic Brands Group – $350 million payments to ABG and revenue sharing of 49%

    • TLRY as a supplier and sharing revenue from its white-labeled products; ABG as a brand manager and distributer
    • the parties will leverage ABG’s portfolio of brands to develop, market and distribute consumer cannabis products across the world, with an immediate focus on [CBD] opportunities in Canada and US
    • TLRY will initially pay to ABG US$100 million and up to US$250 million in cash and stock, subject to the achievement of certain commercial and/or regulatory milestones
    • TLRY will have the right to receive up to 49% of the net revenue from cannabis products bearing ABG brands, with a guaranteed minimum payment of up to US$10 million annually for 10 years, subject to certain commercial and/or regulatory milestones.
    • TLRY will be the preferred supplier of active cannabinoid ingredients for such products
    • ABG has a global retail footprint of over 100,000 points of sale and more than 4,500 branded freestanding stores and shop-in-shops

December 19, 2018: TLRY + AB InBev – up to $100 million JV in non-alcohol cannabis beverages

    • the partnership is limited to Canada for now;
    • AB InBev’s participation will be through its subsidiary Labatt Breweries of Canada (up to $50 million);
    • Tilray’s participation will be through its Canadian adult-use cannabis subsidiary High Park Company (up to $50 million)

December 18, 2018: TLRY + Novartis (Sandoz) – medical cannabis

    • this is a global version of a previously signed agreement focused in Canada;
    • the merit of the agreement is about supply (TLRY) & distribute (Sandoz) in the healthcare industry;
    • don’t think the margin would be high for TLRY; but if they develop new co-branded cannabis products, could be interesting

December 7, 2018: CRON + Altria – USD $1.8 Billion (CAD $2.4 Billion) investment

    • the deal gives Altria a 45% equity stake in CRON and an additional 10% ownership interest through warrants if exercised in full;
    • shares are purchased @C$16.25/shr;
    • warrants are issued at an exercise price of C$19.00/shr, exercisable over four years from the closing date
    • Altria will have the right to nominate 4 directors, including 1 independent director, expanding CRON’s Board of Directors from 5 to 7

August 15, 2018: CGC + Constellation Brands – $5 billion CAD ($4 billion USD) investment and beverages

    • the agreement is the largest deal in this space and is a significant equity investment, after which Constellation Brands will increase its ownership in CGC to ~38%, including existing ownership (9.9% in October 2017) and warrants
    • shares are purchased @ C$48.60/shr, a 51.2% premium to the previous closing price
    • new warrants are issued @ C$50.40/shr; if all exercised (existing and new), its ownership would exceed 50 percent
    • Constellation Brands’ ownership in CGC | Source: CGC Investor Presentation
    • Constellation will nominate 4 directors to Canopy Growth’s 7-member Board of Directors
    • A detailed presentation

September 17, 2018: Rumor but no agreement: ACB + Coca-Cola

    • Sep-18: Aurora said there is no agreement: “The Company does confirm that it engages in exploratory discussions with industry participants from time to time,” Aurora said in a press release.”
    • Sep-18, Coke’s statement following the report: “We have no interest in marijuana or cannabis. Along with many others in the beverage industry, we are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world. The space is evolving quickly. No decisions have been made at this time.”

March 13, 2019: ACB got a strategic advisor Nelson Peltz

    • he could bring some industry collaborations/investments that others had done, while granted options to purchase ~20 million ACB shares
    • Mr. Peltz (through Trian) held large positions or had board seats on many companies such as PepsiCo, Dr Pepper Snapple, Procter & Gamble, Kraft Foods, Heinz, Mondelez

An Eventful Tuesday: Tech Companies Stealing Each Other’s Thunder

Many tech-related announcements/events is happening on March 19. Coincidence? or a colluded effort to steal someone’s thunder…


So we have…

Apple announcing several updates on its hardwares, from iPad yesterday to today’s iMac.

And Facebook (Instagram) + PayPal collaboration bringing the next-level integration of social medial + e-commerce. [also mentioned in what’s next in retailing in China] The collaboration won’t be limited to Instagram and will be part of Facebook’s push to payments while Facebook Pay in its messenger app is not doing well enough. And for PayPal, this is a major victory to reinforce its presence in online payments and business collaboration.

And Google unveiled its upcoming gaming-streaming service, Stadia, on the Game Developers Conference today. Originally announced as Project Stream, it will compete directly with Microsoft, Nintendo, Apple and others in the future battleground of gaming: cloud. [Video, Project Stream]

Meanwhile, Jeff Bezos is hosting an exclusive hard-tech party in Palm Spring called MARS, focusing on robots and other cutting-edge engineering demos.

Data, Data, Diners’ Data

When e-commerce breaks the limits of physical location and moves everything online, some will say restaurant businesses are safe, since people need to dine locally.

But that’s not entirely true. If there are companies eager to learn consumers’ purchasing behavior (via all the data generated from browsers), they won’t let go the valuable data on people’s dining behavior. And of course, wherever there is an opportunity for recommendations, there is an opportunity for ads.

So first step: collecting data.

There are several formats.

  1. Purchasing through brands’ apps. That’s what we have seen in the past few years: nearly all major restaurant/coffee groups built their own system that at least integrate customer management, online order and promotion. Starbucks, McDonald’s, Subway, Shake Shack, etc.
  2. Ordering on iPad when dining-in. That makes taking orders less labor-intensive. It can also let diners order ahead and improve the overall efficiency/utilization including kitchen process optimization.
  3. Take-out & food delivery. This is where most money is in right now. DoorDash, Postmates, UberEats… [See more in a previous post (Chinese)] It is a more comprehensive study at user’s preferences, integrating most dining choices.
  4. Booking tables. This is a cheaper/lighter operating model than format 3 while also getting a big picture of users’ preferences. Sometimes it is combined with format 3 like Yelp’s offering.
  5. Restaurant table management. This is usually a back-end system for employees to use, but could be combined with format 2/4 to create a streamline management experience.

Just a few days ago, the dining data issue escalated as companies are fighting for its “ownership” or “commercial/economic potentials”.

At the spotlight: OpenTable (format 4) and SevenRooms (format 5), reported in WSJ: Who Controls Diners’ Data? OpenTable Moves to Assert Control

Background:

OpenTable is a restaurant reservation service that allows patrons to book tables from the Web. Restaurants pay OpenTable $1.50 for every seated diner who reserves a table through its service. OpenTable also operates a guest-services platform to help restaurants run more smoothly.

SevenRooms charges restaurants $500 per month for its offering, takes the guest information from OpenTable and assists restaurants with table management. Under the new policy, some restaurateurs had featured, that practice would be banned.

Source: http://fortune.com/2019/03/15/opentable-data/

Essentially, OpenTable will now require a fee if the restaurants are giving other companies access to diners’ data. OpenTable will now charge restaurant operators $250 if they use both systems.

Both companies are resourceful; OpenTable is more established and mature. OpenTable is acquired by Priceline (Booking Holdings) in 2014 for $2.6 billion and behind SevenRooms is Amazon (Alexa Fund invested in October 2018).

While I believe in the improved management efficiency and dining experiences, I am also concerned with personalization. It is possible that personalized menu will include personalized bundle of foods and different mark-ups. And dining information could be more personal than most people understand. It includes timing, location, frequency, spending… Think about a database of how much drinks you ordered with different group of friends.. When combined with other datasets, powerful predictions and precise understandings of the diners could be built. [A similar comment on this: users being programmed on social medias]

Again, the privacy issue and the access/user/process of data should be paid more attention to before bad things could happen…