🔬EV Explainer: What Wall Street Thinks About Growth
🔬EV Explainer: What Wall Street Thinks About Growth
Plus: Investment managers are at near-maximum equity exposure; and much more.
“In the short run, the market is a voting machine, but in the long run, it is a weighing machine”
- Benjamin Graham
“Would I rather be feared or loved? Easy. Both. I want people to be afraid of how much they love me”
- Michael Scott (The Office)
Another soft day for the big US markets with the S&P 500 and Nasdaq both down -0.3%.
Only 2 of 11 sectors closed higher (Energy +1.1%, Comm. Services +0.6%). Real Estate had it the worst (-1.6%).
Headline Producer Price Index (another gauge of inflation) came in hot at +0.6% for February vs. +0.3% expected by the Street. Also marks it’s biggest move upwards since September. Ie: bad.
EV maker Fisker tanked 52% on news it engaged advisors for possible bankruptcy.
Dick’s Sporting Goods (+16%) crushed its Q4 and guidance.
Robinhood (+5.2%) noted that February saw a 41% year-over-year increase in trading volumes. Everyone’s in on the party!
Street Stories
The EV State of Play
There’s been so much talk lately about how EV demand seems to be declining by the minute and, full disclosure, I’ve done my fair share of ragging on Tesla lately (I swear it comes from a place of love). Now, a lot of that negativity has come from the traditional automakers not seeing particularly strong pick-up in their EV sales (looking at you Ford, GM, Stellantis, etc.) but I wanted to see how things stand with respect to the ‘pure play’ EV makers. Are things really that bad?
To start, Tesla is still the 800lb gorilla in the space but Warren-Buffett-backed BYD has made incredible inroads in the past few years. Looking at the 8 largest pure play EV makers*, three are American, four are Chinese and VinFast is from Vietnam. For now I’m just going to focus on the top-4, and will cover the ‘next-4’ next week.
*Yes, BYD also makes batteries and mobile phones but it’s mostly an EV play.
Looking at equity performance, Tesla and BYD are still well below their peaks in 2022. Li Auto has held in better since the ‘everything bubble’ popped in 2022 and is within striking distance of its all-time high. VinFast has been on a rollercoaster since it came to market: Briefly in a bubble that valued it more than Ford and GM, and took its market cap above $100 billion. It’s now settled down, and recently its larger than expected losses have weighed on the shares.
Looking at revenue growth, Tesla has definitely slowed. While the company averaged annual growth over the last four years of 41%, Wall Street forecasts it to grow only ~18% for the next three years. Good, but definitely cooled down.
BYD on the other hand, saw slower growth over the last four years (33%) - bearing in mind a lot of that is due to their battery business - but the Street sees them averaging 28% growth in the medium. That’s 56% more than Tesla.
Li Auto and VinFast are expected to grow faster than either of them but given they are coming from a much smaller baseline, it’s not exactly apples-to-apples.
Wall Street’s 2024 and 2025 revenue estimates for Tesla have come down significantly over the last six months (14% and 19% respectively) as the Street has soured on Tesla’s demand prospects. For BYD, however, the estimates haven’t really budged (+0.4% and +0.6% respectively), as the company increasingly seems to be well positioned to challenge Tesla for global leadership.
Li Auto has been a real surprise story lately. While still much smaller than BYD, the company is emerging as a leader in its own right, particularly in the way it is viewed domestically in China. While VinFast continues to see the ups-and-downs, we are now accustomed to expect this pattern.
As far as how research analysts view the companies, VinFast seems to be universally loved, but that is biased by the fact that it is only covered by four banks; none of which are exactly top-tier (Chardan, BTIG, Cantor Fitzgerald and Wedbush). BYD and Li Auto are also well regarded by the Street, while Tesla has really soured in the eyes of analysts. For example, only 37% of analyst have a ‘buy’ on them but that was as high as 65% back in early 2023.
Just looking at the Street’s average target price, it’s clear that the numbers for Tesla and BYD have come down pretty materially from their 2023 highs. While the Street seems to just be getting warmed up on Li Auto, with its target price the highest it’s ever been and sitting at a 47% premium to the share price. While VinFast is just wonky.
All-in-all, it seems like the EV market isn’t exactly imploding. While research analysts can’t be completely trusted, for what it’s worth they seem to remain positive on the Chinese and Vietnamese pure plays. The issues that Tesla and the traditional automakers face are certainly real, but it’s probably not correct to extrapolate that across the whole of the EV space. I mean, you can’t blame someone for not wanting one of these beauts…
Equity Exposure… To The Max!
The National Association of Active Investment Managers (NAAIM) publishes a weekly index which is the result of a survey of its members (link). The number that this spits out is the average of investment managers’ current exposure to the market (technically it’s a two week moving average): 100 is fully invested, 0 is all cash or fully hedged; >100 is leveraged long; <0 short the market… ok, you get the idea. Currently the index number is 105.
Anywhoo, if you map this against the one year performance of the S&P 500, you’ll see that it actually matches up pretty well (neat!). What you should also see is that the index is the highest it’s been since the ‘everything bubble’ ended in 2022. Not to be an alarmist here, but it’s worth noting that if all the big money is ‘peak bullish,’ then at some point they will have to stop being ‘peak bullish’ and be something else. And it’s probably not great for the market when that happens.
Joke Of The Day
Sitting behind his new desk for the first time since opening for business, a young businessman spots his first client enter the outer offices. He picks up the phone and starts waving his hands around in the air, pretending to be deep in conversation about figures. Finally, he puts the phone down.
‘Hi, can I help you?’
‘Yes, I’m here to install the phone lines’
Hot Headlines
CNBC / EU opens probe into Alibaba’s AliExpress over illegal content, pornography on platform. The probe was launched by the European Commission under the its landmark Digital Services Act, which just launched this month (and already got Apple in hot water). Next they’re gunna say there’s something wrong with the $20 AirPods I bought on AE last month.
Yahoo / Biden says U.S. Steel must remain domestically owned and operated, after it agreed to be bought by Japan's Nippon Steel for $14.9 billion. TBD what executive authority he may exercise to scuttle the deal.
CNBC / Former Treasury Secretary Steven Mnuchin is interested in buying TikTok since Congress passed ban. Comes after he led that bail-out capital injection in NYCB last week. Busy fellow.
**That took me way to long… but still worth it
Yahoo / US IEA says Red Sea diversions boosting demand for oil due to fuel needs for longer routes. So shipping all the way around Africa uses more fuel? Shocker.
Bloomberg / Match Group Attracts second activist investor in Anson Funds. Swipe right to fire the board of directors.
Bloomberg / Dollar General to curb self-checkout to cut down on theft. Move follows Costco, Walmart and others in questioning the effectiveness of the honor system.
Trivia
This week’s trivia is on U.S. Federal Reserve.
When was the Federal Reserve System established?
A) 1776
B) 1823
C) 1913
D) 2001What is the main purpose of the Federal Reserve?
A) Printing money and issuing bonds
B) Collecting vintage coins
C) Controlling inflation and managing unemployment
D) Setting interest rates on reserves and bondsHow often does the Federal Open Market Committee (FOMC) meet to discuss monetary policy?
A) 12 times a year
B) Every quarter
C) 8 times a year
D) Once a yearIn the US, what is the term used for the rate at which banks lend to each other overnight?
A) Sleepytime Tea Rate
B) Federal funds rateC) London Interbank Offered Rate (LIBOR)
D) Secured Overnight Financing Rate (SOFR)
(answers at bottom)
Market Movers
Winners!
Dick's Sporting Goods (DKS) [+15.5%]: Q4 outperformed in earnings, revenue, and gross margin; comps exceeded expectations. FY25 EPS outlook surpasses consensus; raised quarterly dividend. Positive analyst views on margin performance amidst consumer challenges.
Robinhood Markets (HOOD) [+5.2%]: February saw a 41% year-over-year increase in trading volumes; assets under custody jumped 59%. Bernstein rated as outperform with a $30 target, highlighting crypto market gains.
Macy's (M) [+3.5%]: Open to discussions with Arkhouse and Brigade regarding their takeover proposal, per Bloomberg. Earlier received a $24/share offer from Arkhouse, Brigade.
Losers!
Fisker (FSR) [-51.9%]: Engaged restructuring advisors for possible bankruptcy amidst going concern risks and job cuts. Exploring partnerships, including with Nissan.
Under Armour (UAA) [-10.8%]: President/CEO Linnartz to resign on April 1 after a year; founder Kevin Plank returning as CEO. Downgrades followed, with concerns over potential impacts on turnaround efforts.
United States Steel (X) [-6.4%]: Shares fell after reports President Biden opposes its acquisition by Nippon Steel, due to ties with China.
Anheuser-Busch InBev (BUD) [-5.5%]: Altria announced selling over $2B stake in the company.
Dollar General (DG) [-5.1%]: Q4 comps beat expectations with traffic growth and EPS outperformance despite lower GM. FY comp growth outlook positive, but EPS guidance modest, amid positive signs of traffic/share gains and inventory management.
Market Update
Trivia Answers
C) The Fed was founded in 1913.
C) The main job of the Fed, called its ‘Duel Mandate’ is controlling inflation (‘price stability’) and managing unemployment (‘maximizing employment’).
C) The FOMC meets 8 times a year.
B) Federal funds rate.
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