lenS & thoughtS – Page 8

Oh Tesla Q1 delivery number looks really bad

Read previous post on a $360 billion Tesla.

Although production number is flattish, Tesla q1 delivery number is worse than expected.

China reported wholesale number for Tesla is 89,064 for March (+0.2% yoy) and YTD is -3.7% yoy.

However, this wholesale number from China doesn’t mean cars have been delivered to customers.

Europe’s reported monthly number points to yoy growth of 40% for the first two month, but March was disrupted so won’t keep up the growth.

US customers are still facing super high interest rate on auto loan.

Tesla recently hiked the price, which indicates a change in strategy to protect profits, in-line with Tesla’s move to drop volume guidance for the year.

As price competition is fierce in China, lower some price for volume won’t help Tesla’s China profit much. Some target/core customers also won’t go away if Tesla raised some price (low price elasticity).

Stock prices are telling stories

There seems to be a more diverse purposes of stock prices theses days.

And trading prices are really interesting political/geopolitical storytellers.

Here are some recent examples:

1/ $DJT: This is obvious as the name of the company indicated. The financial obligation that Trump is facing also makes the market cap important.

2/ $META: This is partially an indicator of TikTok ban sentiment/probability I feel.

3/ $INTC: Bringing back high-end semi mfg to the US.

One could argue that the prices are moving based on narratives, rather than earnings; however, it’s true that different policies could change companies’ fundamentals in a big way.

Ukraine, NATO, Rolls-Royce

I haven’t posted anything on this issue.

One logic that was less discussed:

Back in 2014, NATO leaders agreed to increase spending towards 2% of their GDP on defense within a decade.

But this hasn’t been achieved.

Here is 2023 number

And previously, for example

2021

2018

US may feel it’s less willing to over-spend for the long run.

And it’s mostly a question for European countries. How much they should spend on defense?

Europe’s overall economy and finance situation doesn’t seem very strong, compared to the US.

Maybe the GFC created too large a problem that took years to truly recover.

Ukraine may be the catalyst that really makes EU leaders to rethink about defense.

Rolls-Royce stock has been more than tripled in 2023! And continue to rise in 2024.

Of course, the end of covid helped a lot.

But Rolls-Royce is indeed a very important defense company for EU.

Defense segment op. profit is 35% of the total, up 30% in 2023, with 14% op. margin.

2024 guidance: underlying operating profit between £1.7bn and £2.0b!

That’s 25% growth if hit the upper end.

2023 NOPAT £1.4bn -> 2024 of £1.7bn? or $2.1bn?

Then it’s at above ~20x NOPAT, not cheap but can still go up.

Manufacturing in the US

The goal for supply chain security is probably not the whole picture.

This sounds like ESG to me.

I think a better question to ask is how to create a new class of mfg businesses that can do well in the US.

Or how the US society embrace this type of business and jobs and their families.

Do people love this kind of mfg work?

Can they earn decent wages?

Are companies profitable? Does ROE and IRR make sense?

There are some differences between a chip maker and a toy maker, but the questions would be similar.

Be exponential

To grow a number, in math there are addend, or multiplier, or exponent.

Similarly, in businesses, one could grow a company in different ways.

Adding a location for Walmart is likely a addend – the addition won’t help/affect other locations
Apple introducing Apple Pay is likely a multiplier – value created for all users and profits per users improved across the board
Exponential impact is more subtle. I think organization / cultural improvement is likely the case, where better talents are attracted, better outcomes are achieved, and a virtuous cycle is created

Is it possible to replicate this kind of growth for individuals? Or to categorize an individual’s effort into similar buckets?

Here is an example I think of:

Reading a book to learn a piece of knowledge is like an addend
Reading a book which has impact over a lifetime / all future decisions is like an multiplier
Reading a book to form a better map of knowledge is like an exponent, in the sense that future books can be “better” read – you get the point faster, you understand the author better, you connect more dots, etc.

Find the exponent, do the exponential function in life.

People are living far apart nowadays

This is a feeling / theory that I originally thought about during covid-19 – that if you divide people’s risk tolerance by 1-10, before covid it may be ok for people that are 3 ratings apart to mingle (say 5-8), but then only people that are 1 ratings apart are comfortable to be together (say 2-3).

The impact is obvious – if living with less diversified opinions and more like-minded people, people might grow more comfortable within a more similar but narrow circle, and then become less tolerant to different opinions, and might develop a bit biased impression of “mainstream”. It’s a bit like the echo chamber problem exacerbated by social media.

I do feel that even covid-19 is over, the situation is not getting better. Maybe because people are used to being less tolerant over the years. Maybe people just care less about things & people that they don’t see.

It’s not sure if deglobalization is the cause or the result of this.

One things is clear – I haven’t seen much sign of people realizing this subtle change and forces to reverse it.

Is it possible that US inflation data is “tweaked”?

US reported Feb CPI (inflation) data: +0.4% mom and +3.2% yoy

Core CPI: +0.4% mom and +3.8% yoy

Slightly ahead, which makes it more difficult for Fed to cut rates.

However, is the data a bit inflated? I say possible.

Here is another inflation gauge by Truflation: only +1.64% yoy in March; below 2% in Feb

It’s true that US economy is stronger than most other places around the world.

However, it’s hard not to think that maybe there are some political reasons to “influence” CPI, which can influence Fed decision. After all, Fed is “data dependent”. See this post (Fed is bullied by the market – why?) as well.

Some elements from official CPI data can be more easily to “influence” e.g. used cars.

I will just stop there.

Tesla Shanghai export – not looking great

Global EV demand is weak; Tesla Shanghai’s export also seems to be under pressure.

Tesla Shanghai Jan+Feb export number is down 22.5% yoy.

Overall (export+domestic) Tesla Shanghai Jan+Feb is down 6% yoy.

Looks to be a flattish or small growth year for Tesla SH in 2024.

Btw, looks like Elon Musk is really focusing on Grok, SpaceX, and Twitter.

Why property price to income ratio this high?

China doesn’t have a nationwide recurrent property tax that applies to all residential.

in some cities with property tax experiment, usually certain area is exempted from taxation, e.g. Chongqing is 180 sqm

Hukou policy means residential property comes with other value. Not owning one will cause inconveniences: e.g. renting is not similar to ownership in education etc.

Renter’s right vs landlord is not like what usually seen in mature markets.

Most people don’t pay tax on rental income.

One-child policy plus decades of economic growth created massive buying power for this one-child generation. When you have 4 parents supporting the new couple to buy 1 home, that purchasing power is hugely inflated.

Local gov’s budget is partially financed by selling lands (use rights) for residential property development. High price -> higher budget.

McDonald’s China menu price / China CPI

There was this “oh麦” membership offered by McDonald’s China.

If you buy the membership, you can purchase several “4件套” for a bigger discount.

It was rmb 29 for [Big Mac combo meal + 5 Chicken Nuggets] back in 2021.

The price increased by 1 rmb generally in July 2022, when the membership was upgraded to “O麦金” membership. [https://www.zhihu.com/question/543192349]

[Big Mac combo meal + 4 Chicken Nuggets] -> 30 rmb, or 3.4% increase

The cheaper grilled chicken combo + 4 chicken nuggets also increased by 1 rmb to 26 rmb, or 4%; considering the number chicken nuggets decreased by 1, price hike here is more than 4%.