My latest interview; Thoughts on Tesla and the EV sector; 'Shortcuts everywhere' at Boeing; New Leon Black interview
1) I recently joined MarketBeat's Laycee Kluin to discuss the big shift in my investing approach – evolving from my old style of traditional value investing to what I've called "make money" investing.
It just went live this morning – you can watch our 18-minute conversation on YouTube here:
2) As longtime readers know, I've been closely following the electric-vehicle ("EV") market in recent years...
Back on February 5, 2020, I published a bullish report at my former firm, Empire Financial Research, on the sector.
In it, I recommended five stocks: Nvidia (NVDA) (up 1,262% since then), Alphabet (GOOGL) (up 105%), the Global X Lithium & Battery Tech Fund (LIT) (up 45%), Aptiv (APTV) (down 15%), and Umicore (UMI.BR) (down 55%).
The average gain of these five stocks is 268% versus only 54% for the S&P 500 Index. It's a good example of how one moonshot stock can drive an entire portfolio – but only if, as I'm always preaching, you let your winners run...
Turning to recent news in the EV sector, there has been plenty this week.
On Tuesday, Tesla (TSLA) reported that it only delivered 387,000 vehicles in the first quarter – down 8.5% year over year. That was far below analyst expectations and Tesla's first year-over-year decline since the pandemic hit in early 2020.
This led to a further sell-off of its stock which, as of yesterday's close, is down 31.1% this year. It's the second-worst performer in the entire S&P 500.
Meanwhile, Chinese EV giant BYD, in which Berkshire Hathaway (BRK-B) owns a 10.9% stake, reported that first-quarter deliveries grew 13.4% year over year.
So is Tesla's big miss due to company-specific issues or industry-wide ones?
Here's Andrew Ross Sorkin in the New York Times' DealBook on this: What Tesla's Troubles Signal for the E.V. Revolution. Excerpt:
Wall Street has sounded the alarm for weeks that the transition to electric vehicles may be stalling, despite billions in government subsidies and huge investments by auto giants.
Tesla's latest sales figures suggest that the pullback may be worse than thought – and beyond one company's ability to fix...
Analysts are worried that E.V. demand may cool further. Government credits for car buyers in the U.S. and Europe have expired in recent months. And concerns about charging times and battery range are pushing some consumers to pick hybrid-engine vehicles or stick with less expensive gasoline-powered ones.
Is it a blip? Over all, E.V. sales were flat in the fourth quarter of 2023, despite being up 40 percent year on year, "suggesting a sharp deterioration in growth," Tom Narayan, an auto analyst at RBC Capital Markets, wrote to investors on Tuesday.
3) As a friend who is an expert in the sector and who prefers to remain anonymous e-mailed me:
The broader point here is that the automotive market is extremely diversified. Tesla and BYD in recent quarters each had no more than around 14% of the global EV market, so let's call that 28% combined. A "total market view" is highly incomplete by looking at only those two.
There are well over 100 other brands selling EVs. I could give you numerous examples of those 100-plus other brands that were up well over 100% in Q1 of this year, in terms of EV unit sales. It is entirely possible that the EV market overall grew in Q1, even if Tesla AND BYD didn't.
Then again, BYD was up 13% year over year, so... maybe Tesla was one of the (very) few automakers whose EV sales fell year over year?
4) In a blog post earlier this week, my friend Anton Wahlman also took a look at this: Is Tesla's big miss part of an overall EV retreat? Excerpt:
Tesla does have a huge – but rapidly declining – share of the US EV market, but this is not so outside North America. In Europe and Asia overall, Tesla's EV market share is already low and falling quickly.
Who is taking market share, then? Almost everybody, that's who. On the one hand, it's the traditional automakers such as Peugeot, Ford and Hyundai. On the other hand, it's all the new Chinese brands such as Hongqi, Zeeker and MG.
As Anton says, it's an "impossible situation" for Tesla:
The EV market overall is growing at a healthy clip, but not fast enough to absorb all these new models and brands. Something has to give, and in a first instance that means Tesla losing market share. In the second instance, it means Tesla's unit sales actually falling.
That's where we are now. Tesla's unit sales peaked just under 500,000 units per quarter, and now they're under 400,000 and falling. Keep in mind that this happened during a time when Tesla had been cutting prices incessantly, by an estimated 20% or so.
Economically, it has been a catastrophe with falling margins – and we may not have seen the last of those falling margins. Tesla will reveal the next chapter of this horror movie on April 23, and then in the 10Q that is typically filed within a week thereafter.
5) Lastly, here's another example of how many beautiful, inexpensive EVs are coming to market in China – creating a competitive tsunami for every maker:
In summary, I remain extremely bullish on EVs and believe we are still in the early stages of a rapid, S-curve adoption.
But there are now so many competitors, nearly all losing money – and, apparently, willing to continue doing so – that I'm not convinced any manufacturer is going to be able to sufficiently differentiate itself enough to make sustainable, growing profits.
Caveat emptor!
6) In my March 12 e-mail, I shared two reports my old friend – and Stansberry Research founder – Porter Stansberry wrote early last year and in January with his bearish analysis of aircraft giant Boeing (BA). On March 27, I wrote about the leadership shakeup at the company.
A leadership change is much needed, as evidenced by these two articles...
First, from the Wall Street Journal: The Disarray Inside Boeing's 737 Factory Before the Door Plug Blowout. Excerpt:
Crews were unable to keep a schedule and apparently didn't follow procedures, and production pressure mounted as delays piled up, according to entries in the SAT, people who have reviewed the logs and interviews with Boeing employees who worked on the plane.
In their logs, workers extended 50 times the estimated time for completing work on the damaged rivets around the frame of the door plug. The delays ranged from a half-hour to days. The work was finally signed off on and officially completed by the morning shift on Sept. 20, after a final quality check was requested the previous day, the records show.
The production breakdown had stunning consequences: The jet's door plug blew off in flight, triggering an explosive loss of cabin pressure that risked the lives of passengers who could have been sucked out midair. It has sparked federal probes, including a criminal investigation, and hastened the exit of senior leaders including Chief Executive David Calhoun, who had vowed to improve Boeing's safety and quality.
And here's the New York Times with an article along the same lines: 'Shortcuts Everywhere': How Boeing Favored Speed Over Quality. Excerpt:
[Reports], and interviews with aviation safety experts and more than two dozen current and former Boeing employees, paint a worrying picture about a company long considered to be at the pinnacle of American engineering. They suggest that Boeing is struggling to improve quality years after two crashes of Max 8 planes in 2018 and 2019 killed nearly 350 people.
Some of the crucial layers of redundancies that are supposed to ensure that Boeing's planes are safe appear to be strained, the people said. The experience level of Boeing's work force has dropped since the start of the pandemic. The inspection process intended to provide a vital check on work done by its mechanics has been weakened over the years. And some suppliers have struggled to adhere to quality standards while producing parts at the pace Boeing wanted them.
To repeat what I wrote last month:
Until I see clear evidence of a massive change in Boeing's corporate culture, I wouldn't put new money to work in this stock.
7) On November 30 last year, I wrote:
Speaking of billionaires who have utterly destroyed their reputations by their own reckless actions...
Here's an in-depth Financial Times story about Leon Black, the co-founder and former CEO of private-equity giant Apollo Global Management (APO), who, like innumerable men before him, got into trouble thanks to his inability to keep his pants up: Leon Black's downfall confounds the legacy of #MeToo on Wall Street.
So I read with great interest an interview Black did recently with Puck's William Cohan, his first since his controversial departure from Apollo: Leon Black From the Ashes.
In it, Cohan grills Black about his close relationship with Jeffrey Epstein, and Black tries to explain why he paid the notorious pedophile $158 million over three years, which was revealed in a report Apollo commissioned by the law firm Dechert. As Cohan writes:
Like nearly everyone else who read the report, I was incredulous, too. After the report came out, I wrote in Vanity Fair, "Nice try, Leon. You must think we are pretty stupid, gullible, or insane to believe the tale you spun to Dechert." In our conversations, Leon said he understood my reaction. Incredibly, he told me that he had never added up how much he had paid Epstein until Dechert's investigation. "He had credibility in my eyes and we did a bunch of things," he said.
"But the paying [of Epstein] was seriatim. I never had tallied it. And frankly, that number that came out was much bigger than I had thought. Because I don't follow, in my family office, everything. But I agree with you." He went on: "And you can say that's implausible. ... How is this possible that this financial genius could throw away these amounts of money? There must be something more there. Yeah, I get it. But there isn't"...
The man who once paid some $130 million for Edvard Munch's The Scream then tried to put the Epstein fees into perspective. "My family and I now own 93 million shares of Apollo," he continued. "So every time, which is every day, going back 15 years, the stock moves up or down by $1, that's either plus or minus $93 million." In other words, $158 million over a number of years wasn't material, especially since the Dechert report revealed that Epstein's advice "conferred" between $1 billion and $2 billion "in value" to Leon.
I have very little sympathy for the many prominent men who have been disgraced by their association with Epstein after he was convicted in 2008 of procuring a child for prostitution and of soliciting a prostitute. Even the slightest bit of research would have revealed that this wasn't the isolated incident that Epstein claimed.
I know this is true because I once happened to sit next to Epstein's longtime girlfriend, Ghislaine Maxwell, at a charity event roughly a decade ago when they were both active in the high-end social scene in New York City.
I had no idea who she was and her name didn't ring a bell. But as we chatted, I got the sense that she was rich and/or famous... so I Googled her when I got home – and it was immediately clear to me that she and Epstein were the scum of the earth.
But do I believe the theory that Epstein lured Black into committing sex offenses and was then blackmailing him, which explains the huge sums Black gave him?
No.
I've known and observed enough multibillionaires to believe Black when he says that paying someone $158 million was so insignificant that he didn't pay any attention to it...
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.