1) If you haven't already, make sure to mark your calendar for tomorrow at 1 p.m. Eastern time...
That's when I'll be pulling back the curtain on what could prove to be the most reliable way for regular investors to make a fortune this year... and beyond.
In short, I'll explain how you can legally listen to the "whispers" of the smartest investors and CEOs on the planet... and position your wealth alongside them.
See you tomorrow!
2) In response to my analyst Kevin DeCamp's bull case for Tesla (TSLA), which I shared in Monday's e-mail, reader Ed C. sent the following e-mail:
Hi Whitney,
I enjoy reading your commentary and sharing the various views you get on Tesla.
I just wanted to offer a few words of caution on your analyst's bullish view for the Energy business. He wrote:
"Tesla Energy will continue to grow faster than the auto segment and will eventually rival its size. With a business line less susceptible to macroeconomic headwinds and a huge backlog with the world's push for renewables, the energy segment will be a massive business that Wall Street will eventually have no choice but to give Tesla credit for."
A few inputs to consider:
- Energy storage is a rapidly declining ASP business for the foreseeable future. Massive growth in shipments (GWh) will be offset by declines in ASP. The last two years have been an anomaly where li-ion battery prices have increased, but only looking at the top line will mask the recent raw material and ASP declines that the industry is starting to see work through their cost structures and ASPs to customers will take 12-18 months to reflect it.
- Globally, annual storage capacity additions will be 250 GWh by 2030, according to BNEF & IHS. Assuming $400/kWh from a 50/50 blend of BTM and FTM pricing in 2030, it would be a $100B annual market in total. Even if Tesla were 50% of the storage market, it's just not going to move the needle on revenue relative to automotive revenue in 2030.
- In some markets like California, BTM solar + storage pencils out today, and pricing is relatively elastic. But in most places, solar + storage is too expensive and there is little to no price elasticity when it comes to purchasing energy storage. On the FTM side, the unsaid secret hiding in plain sight is solar + storage is nowhere near grid parity (see Lazard's Levelized Cost of Storage). It's a long way of saying storage is going to grow exponentially, but expect brutal price competition vis a vis what we saw in the solar industry the past decade.
- The same major players in solar module manufacturing are now adding energy storage equipment to their business. Many of these manufacturers have rapidly growing storage and electricity businesses of their own, just like Tesla. Their P/Es range from 10-25x, so if Wall Street should be giving credit to the Energy business, it might do well to consider some of these lower P/E small cap names – or it might be a reflection that Wall Street doesn't view the Energy business as all that wonderful.
I'm neither a bull nor a bear on Tesla. I thought about buying into Tesla six months ago, but determined it was "too hard". I personally wrote off the energy business as not material relative to the automotive story (and I have been in the solar + storage business for over 15 years).
One thing I've learned about the energy industry, which is very different from the tech industry, is if you don't expect miracles in price/performance, you won't be disappointed by the result you get.
I'll turn it over to Kevin to reply here:
Thanks, Ed, for your thoughts.
There are a lot of unknowns as large-scale energy storage is basically a new industry that Tesla is helping to push forward.
Only time will tell, but I am in the camp that believes that most long-term estimates for solar, wind, and energy storage are too low and continued cost declines along with an assist by the Inflation Reduction Act (and other global incentives) will likely cause the estimates to be revised up almost every year.
Your point about declining ASPs is well taken. Although the EV market and energy markets are very different, I would just say that Tesla has been ruthless with lowering its costs in the EV market over the last decade through scale, manufacturing innovations, and software. Ford's recent breakout of its EV segment financials demonstrate just how difficult this is (and why no other legacy automakers have disclosed this info!).
I don't see any reason why they can't replicate what they accomplished in EVs and in the latest earnings call Musk and the CFO mentioned that they aspire to reach mid-20% gross margins by the end of this year in energy storage. As they help to create this new industry, I don't see why they won't be able to increase margins by at least a few percentage points just from software offerings alone like "autobidder" and likely updates of this over time.
If we believed all of Musk's promises, then we'd all be in self-driving cars on Mars by now, but I think Tesla's 2030 projection that it will deploy 1500GWh of energy storage is in the realm of possibility.
Let's revisit this discussion to see how this rapidly evolving industry changes over the next few years.
Here are four sources that helped form my outlook if you're interested:
a) A Twitter thread from The Electricity Markets & Policy Group at Berkeley Lab, which starts:
b) Video: Tesla Q4 Earnings // The Path to 3 TWh // Full Battery Update. Summary:
This video will cover the Tesla Q4 earnings call with other new information to provide a full update on the path to 3 TWhs for Tesla that includes 4680 production, scaling plans, and tax credits.
Timeline
00:00 Introduction
00:42 Demand Problem?
02:45 3 TWh by 2030?
07:16 4680 Production Mysteries
12:36 Conservative Guidance for C/T
13:40 Cell Supply for 2023
16:23 300 GWh Production Ramps
18:12 Tax Credits for 2023
21:45 Fully Funded Cell Factories
23:43 Lithium Prices
24:48 Where Will All the Cells Go?
26:29 What I Expect from Investor Day
27:02 Increasing Energy Density
27:41 Nevada Vertical Integration
28:28 Summaryc) Video by Tony Seba: The Great Transformation – The #Disruption of #Energy.
d) Tesla's Investor Day Presentation. The energy storage discussion starts at 2:18:20, though the whole video is worth watching if you want to understand Tesla and its deep, talented bench.
Thank you, Ed and Kevin!
3) A hat tip to my colleague Herb Greenberg for tweeting about this Wall Street Journal article: When Will I Retire? How About Never. I feel the same way!
Excerpt:
Many workers of a certain age are counting down to a long-anticipated retirement date. They relish the opportunity to do things they've never had the time for. Or to do nothing.
Others are desperate to retire but can't, as financial circumstances keep them in the workforce while others their age are stepping out.
But then there are the folks who dread such a day ever coming, who hope to sidestep it entirely, and plan to never retire. What drives people to keep working long past the age when they could comfortably leave the workforce? What benefits are they gaining that those who retire might miss out on?
We reached out to Wall Street Journal readers who fit into that last category, mostly 60 or older, to learn about their thinking.
4) Run, don't walk, to read this heart-breaking, infuriating Bloomberg article – and then forward it to every parent and teacher of a teenager you know: TikTok's Algorithm Keeps Pushing Suicide to Vulnerable Kids.
Concerns about a deleterious impact on mental health, especially among teenagers, have been raised about Instagram, YouTube, and other social media platforms... but TikTok appears to be much worse.
It is both outrageous and ironic that TikTok doesn't operate inside China (TikTok's parent company ByteDance instead offers a similar version of the app, called Douyin, to customers there) but is foisted on us. According to the article, "two-thirds of American teens use TikTok every day, according to a 2022 Pew Research Center survey, with 16% saying they're on the platform almost constantly."
It's yet another reason we should simply ban it.
Excerpt:
As the political debate carries on, researchers and child psychologists are watching with increasing alarm. Surveys of teens have revealed a correlation between social media and depression, self-harm, and suicide. Centers for Disease Control and Prevention data show nearly 1 in 4 teens said they'd seriously considered killing themselves in 2021, nearly double the level a decade earlier. The American Psychological Association and other authorities pin the blame partly on social media...
Screen recordings of Nasca's account from April show that, at least in some cases, these efforts have fallen short. "I don't understand why they keep sending him this stuff," Michelle says. Every time she opens the account, she finds a steady stream of videos about depression, breakups, death, and suicide.
She still recalls exactly what the first video she saw after gaining access to her son's account said: "I'm caught in a life I didn't ask to be in." She watched Chase's For You feed for more than an hour and couldn't understand why there were no happy or funny videos, which is what she thought TikTok was about. She asked one of Chase's two older brothers why he'd made his account so dark.
"Chase didn't do that, Mom," her son replied. "That's coming from the algorithm."
In a world of infinite information, algorithms are rules written into software that help sort out what might be meaningful to a user and what might not. TikTok's algorithm is trained to track every swipe, like, comment, rewatch and follow and to use that information to select content to keep people engaged. Greater engagement, in turn, increases advertising revenue. The company has fine-tuned its recommendation system to such a degree that users sometimes speculate the app is reading their minds.
Other social media platforms employ similar recommendation engines. TikTok's is distinguished by its reach, according to Guillaume Chaslot, a French data scientist who worked on YouTube's algorithm and now consults with his country's government on its efforts to regulate online platforms.
His experience in the field suggests to him that TikTok's algorithm controls a greater share of the content reaching a user's feed than most other social media platforms' do. And "when depressive content is good for engagement, it is actively promoted by the algorithm," he says.
Concerns about TikTok's recommendation engine have been raised internally since at least 2020. That's when Charles Bahr, a former ad sales manager in TikTok's office in Germany, says he warned his superiors the algorithm was sending Generation Z users endless streams of depressing and suicide-glorifying videos.
Bahr spent a year and a half with the company, joining in July 2020, at age 18. He'd founded two tech startups as a teenager and was advising politicians and businesses on how to master TikTok when he was hired.
When he first started using the app, he says, his For You feed was amusing and fun. He loved the product and was proud to wear his TikTok T-shirt. Once he started posting videos identifying himself as an employee, though, many in his growing following began to forward him disturbing videos that violated TikTok's rules, urging him to remove them.
One of the first scary videos he remembers being sent was of a man shooting himself in the head. As Bahr watched clips like this, sometimes passing them to the trust and safety team for help, his feed began to warp. "More and more depression, suicide and self-harm content came on," he says. Some days it led him to cry.
Bahr's feed made selling ads tricky. He regularly held workshops with prospective clients, and many asked to see how the app worked. He couldn't show his own For You page, he says, because he feared it would scare them off. "Every time I entered a workshop, I switched from my sad, dark account to a second demo account that had quite a normal feed," he says. "It took me a long time to realize that maybe it's not only me that has a feed that's so extreme."
When Bahr was invited to speak at an annual meeting of TikTok's European communications team in November 2020, he saw it as an opportunity to raise the issue.
In a PowerPoint presentation reviewed by Businessweek, he told the group that TikTok should make it a mission to listen to its users, especially those struggling with mental health issues. "Even though we inspire young people to be their most creative selves on TikTok, there is an endless community of young people not knowing where to go," one of his slides said. He then showed three posts from young users struggling with depression. Bahr says he recommended that the app not censor such content but instead elevate more positive clips for younger users.
Seven months later, the Wall Street Journal published an investigation that had involved monitoring more than 100 automated accounts to track how TikTok's algorithm works. Within 36 minutes, the newspaper reported, a bot programmed to engage with videos about depression was fed a stream of content that was 93% about sad topics. TikTok said at the time that the Journal's bots were not representative of human behavior.
The Journal's experiment prompted Bahr to conduct one of his own. He opened a new TikTok account and made a screen recording of himself as he engaged with sad content to see how long it would take for his feed to become negative. It took 17 minutes.
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.