Weekend Investor: The Week That Was

I hope you had a wonderful week!

Earnings season begins late this week with Delta and Pepsi reporting on Thursday and big banks JPMorgan Chase, Citi, and Wells Fargo on Friday. Here at Asymmetric Investing, I will publish one free article, a new spotlight (premium), an earnings preview (premium), and the free weekend article next week.

In case you missed it

Here’s some of the content I put out this week. Enjoy!

• Internet Economics: I wrote about how the dynamics of the internet broke the way we teach economics. How are we supposed to think about supply and demand when digital supply is infinite? What is scarcity when digital goods aren’t scarce? Understanding internet economics is key to understanding some of the biggest tech companies in the world today and the concept will be a theme here on Asymmetric Investing. I’ll follow up more on this over the next few weeks.

• Virgin Galactic Goes to Space Again…Now What?: Virgin Galactic has a long road ahead, as I highlighted in the company spotlight. But getting to space with paying commercial customers was a big step forward and that’s what we got last week.

• Caution for EV Stocks: I had a front-row seat for the rise of U.S. solar manufacturing, which was followed by Chinese manufacturers crushing not only their U.S. counterparts but also themselves. With EV prices dropping in China and U.S. auto execs saying they can’t yet compete with China’s EV engineering and prices, this looks a lot like a repeat of the solar boom and bust. Buyer beware. (more on this in a moment)

Tesla’s Strange Week

Tesla reported production and delivery numbers on July 2, 2023, and my takeaway was that production was up nicely to 479,700, but inventory rose another 13,560 vehicles. This is often waved off as growing pains, but the rapid rise in inventory is new. Between Q1 2018 and Q2 2022, inventory rose a total of 12,137 vehicles and in the following four quarters, it was up 88,009 vehicles.

Over the same time, Tesla reduced prices by $10,123.52 and the gross margin per vehicle fell by $6,956.10 per vehicle to $8,718.89. I expect that number to fall further in Q2 and Q3.

When demand doesn’t keep up with growing supply, the only available response is lowering prices. We’ll get the financial picture in a few weeks, but don’t be surprised if margins continue to fall throughout 2023.

This brings me to the odd point. Tesla was one of 16 automakers to sign a pact to end the EV price war in China last week. The CCP reportedly led the effort to end the price war and Tesla was the ONLY U.S. automaker to sign it. Two days later, the pledge was modified to exclude the vow to “not disrupt the fair competition order of the market with abnormal prices.“

Why would Tesla be happy to fix prices in China? I showed the price war’s impact on margins and the competition in China is fierce. Tesla’s best-performing manufacturing plant is also in China, so Elon Musk needs to dance a delicate dance to keep the government happy.

In the U.S., fewer EVs are being made than in China, but Tesla continues to engage in a price war. But the table below shows that the price war may only be with itself.

I have no stake in Tesla, but it’s one of the most fascinating companies in the world today. I think it’s clear that the transition from hyper-growth to a stable, profitable automaker needs to happen, but that transition may be painful for everyone involved.

Threads Is Here

Facebook (I refuse to call it Meta Platforms) launched a new app called Threads this week. It’s the fastest growing new product in history with millions of people signing up per hour at launch.

As Nikita says, the scale Threads has reached gives it a high likelihood of success.

This is meant to be the Twitter killer, but it’s also tied to Instagram, which means there are a few problems:

1. The Instagram social graph could be ported over the Threads, but not the Twitter graph.

2. The algorithm is clearly an Instagram algorithm and not a Twitter one. This is bad for me as a user, but I’m not sure if this is good or bad for Threads.

3. Users who normally post pictures are now learning how to do text posts, which is awkward.

4. Features like DMs, trending topics, and bookmarks don’t exist yet.

Some of these deficiencies will be solved. The one I’m fascinated to watch is whether or not the power users on Twitter (I include myself here) find the same value in Threads as they do on Twitter. My Twitter account is curated with investors I respect and accounts that provide interesting data. My Threads follow list includes the same people but my feed is full of celebrities, brands, and random viral stuff.

Is this enough to knock off Twitter? Maybe and I wouldn’t bet against Mark Zuckerberg. At the very least, a billionaire on billionaire tech battle will be entertaining for the summer.

Find me @travishoium on Threads or Twitter.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.