Seven Charts That Explain the Economic Recovery So Far; Don't Try to Predict Inflation; Tesla Says Autopilot Makes Its Cars Safer. Crash Victims Say It Kills; Tesla's Fall From Grace in China Shows Perils of Betting on Beijing; Anybody who is not vaccinated has entered 'the death lottery'
1) I knew that the current economic recovery is much stronger than the tepid one following the global financial crisis – mostly the result of massively greater government fiscal and monetary stimulus – but I hadn't fully appreciated just how much stronger until I saw these charts in the New York Times: Seven Charts That Explain the Economic Recovery So Far. Excerpt:
Early Friday, the government reported that the economy added 850,000 jobs last month – a welcome pickup from the slower pace of jobs growth over the past three months and a sign that overall economic growth is tracking stronger than in the first quarter of the year.
We are still roughly 7 million jobs down from pre-pandemic levels of employment, unemployment among Black and Hispanic workers remains distressingly high, and millions have yet to return to the labor force. But if policymakers hold steady, we are also on the verge of creating a foundation for a more inclusive, resilient recovery – much more robust than what we experienced after the Great Recession, despite having suffered a much bigger jobs hit.
Recoveries from recessions can often feature a burst of pent-up demand, but the current boom has few precedents. If the Federal Reserve is right in its forecast that economic growth will reach 7% in 2021, it will be the strongest performance since the recovery from the double-dip recession of the early 1980s. But this good news is no accident.
2) Only one chart in the Times article is troubling – this one, showing rising inflation:
This Times article, however, also shows the folly of trying to predict inflation: Higher Inflation Ahead? Maybe. But Don't Even Try to Predict It. Excerpt:
Inflation has become one of those inescapable topics.
In certain circles, everyone seems compelled to talk or write about surging prices, and some economists and bond mavens even sound as though they know where inflation is heading.
But there are good reasons to question that aura of certainty.
In fact, thanks to some new research, one thing is clear: Bond traders and academic and corporate economists don't have any real ability to predict whether inflation will rise or fall in the months and years ahead. Neither do consumers.
As far as major shifts in inflation go, we are all in the dark – just as we are essentially clueless about where the stock market is heading or the price of oil in 2022, or the date of the next recession.
3) Though I continue to believe that electric-vehicle ("EV") maker Tesla's stock (TSLA) is neither a good long nor a good short, I continue to closely follow the company because it is so interesting, educational, and entertaining.
Below are two articles I shared with my Tesla e-mail list on Tuesday (you can join it by sending a blank e-mail to: tsla-subscribe@mailer.kasecapital.com)...
a) This story was on the front page of the Times: Tesla Says Autopilot Makes Its Cars Safer. Crash Victims Say It Kills. Excerpt:
Benjamin Maldonado and his teenage son were driving back from a soccer tournament on a California freeway in August 2019 when a truck in front of them slowed. Mr. Maldonado flicked his turn signal and moved right. Within seconds, his Ford Explorer pickup was hit by a Tesla Model 3 that was traveling about 60 miles per hour on Autopilot.
A six-second video captured by the Tesla and data it recorded show that neither Autopilot – Tesla's much-vaunted system that can steer, brake, and accelerate a car on its own – nor the driver slowed the vehicle until a fraction of a second before the crash. Fifteen-year-old Jovani, who had been in the front passenger seat and not wearing his seatbelt, was thrown from the Ford and died, according to a police report.
The accident, which took place four miles from Tesla's main car factory, is now the subject of a lawsuit against the company. It is one of a growing number of crashes involving Autopilot that have fueled concerns about the technology's shortcomings, and could call into question the development of similar systems used by rival carmakers. And as cars take on more tasks previously done by humans, the development of these systems could have major ramifications – not just for the drivers of those cars but for other motorists, pedestrians and cyclists.
Tesla, founded in 2003, and its chief executive, Elon Musk, have been bold in challenging the auto industry, attracting devoted fans and customers and creating a new standard for electric vehicles that other established carmakers are reckoning with. The company is worth more than several large automakers combined.
But the accidents involving Autopilot could threaten Tesla's standing and force regulators to take action against the company. The National Highway Traffic Safety Administration has about two dozen active investigations into crashes involving Autopilot.
At least three Tesla drivers have died since 2016 in crashes in which Autopilot was engaged and failed to detect obstacles in the road. In two instances, the system did not brake for tractor-trailers crossing highways. In the third, it failed to recognize a concrete barrier. In June, the federal traffic safety agency released a list showing that at least 10 people have been killed in eight accidents involving Autopilot since 2016. That list does not include the crash that killed Jovani Maldonado.
Tesla's credibility has taken a hit, and some experts on autonomous driving say that it is hard not to question other claims made by Mr. Musk and the company. He has, for example, said several times that Tesla was close to perfecting Full Self Driving ("FSD"), a technology that would allow cars to drive autonomously in most circumstances – something other auto and technology companies have said is years away.
My take: There's no question that Musk and Tesla have wildly over-promoted Autopilot and FSD, which no doubt has contributed to drivers being more reckless than they otherwise might have been.
That said, by all accounts the systems work very well... So, net-net, they may reduce accidents and save lives.
But there's also evidence to the contrary: When my friend Chris Brown of Aristides Capital (aka Midwestern Hedgie) did an apples-to-apples comparison in 2018 (using the Models S and X... the Model 3 wasn't out yet), he found that Teslas were far more dangerous than comparable cars: Tesla's Driver Fatality Rate is more than Triple that of Luxury Cars (and likely even higher). (For more on this debate, see my March 31 e-mail.) This is an important discussion, but the Times story doesn't even touch on it...
b) With the shares of Chinese ride-hailing company DiDi Global (DIDI) crashing this week due to actions by China's regulators, Tesla investors should be paying close attention to this: Tesla's Fall From Grace in China Shows Perils of Betting on Beijing. Excerpt:
There's little-to-no concrete evidence there's anything wrong with the brakes in Tesla's China-built cars. What is clear, however, is that the remarkable honeymoon Elon Musk enjoyed in the world's most populous nation is over. After receiving red-carpet treatment from government officials, who granted Tesla the unprecedented concession of allowing it to wholly control its local subsidiary, the carmaker is now being forced to rethink its strategy, from customer service to public relations, in a market that's key to Musk's long-term ambitions.
The overhaul is a response to an unusual degree of attention from regulators, as well as a rash of negative press coverage and online criticism. Last month, the Chinese government ordered a recall of almost all the cars Tesla has sold in the nation – more than 285,000 in all – to address a software flaw. At the same time, the vehicles are being banned from some government facilities over concerns they could send data to the U.S., and local carmakers like Nio (NIO) and XPeng (XPEV) are mounting a vigorous challenge to Tesla's dominance, winning over consumers with increasingly stylish designs.
None of these problems, of course, are unfamiliar to most foreign businesses in China, where a crash in consumer perceptions is often just one social-media storm away. But to a certain extent, that's the point: Tesla's high-tech halo, and Musk's star power, may no longer be enough to protect it from the risks that others face there. The company appears to have misjudged the strength of its ties to the country's leadership, a mistake that could threaten Tesla's growth prospects in its second-largest market. It also provides compelling evidence of how fraught operating in China can be, even for those who appear to enjoy every possible advantage...
The broader question, given the realities of operating in China, is whether President Xi Jinping's government has fundamentally changed its approach to Tesla. Until recently, the unspoken bargain between Musk and Beijing seemed relatively clear: in exchange for state support, the company would use its brand and high-tech expertise to attract Chinese consumers to electric vehicles, while pushing local manufacturers of EVs and components to up their game.
That was true despite Musk's ties to the U.S. government through SpaceX, which is a major Pentagon contractor, as well as his plans for Starlink, a satellite broadband system that could hypothetically allow users in China to bypass the firewall around the domestic internet. A former Tesla executive, who asked not to be identified discussing internal matters, said they believed the generosity of the Chinese government's assistance may have given their ex-colleagues an inflated sense of their value to Beijing, rather than an understanding it could melt away as soon as the state's priorities changed...
It will take a few more months of sales data to determine whether Tesla is truly headed for a slump in the world's biggest car market, or has simply encountered a series of speed bumps. If it turns out to be the latter, it will be thanks in part to the loyal following Tesla has built in the country – the kind of community of super-fans that helped propel its popularity in the U.S. and Europe.
Yang Fan, a 40-year-old photographer in Beijing and the head of a citywide club for owners of the Model 3 and Model Y, is one of them. The current criticism "may have reminded the company that they should do better on things like customer care, which is a good thing," Yang said in an interview. But in the long run, he's still a believer.
"Tesla," Yang said, "will transform the automotive industry in 10 years. It's going to be a giant."
4) In yesterday's email on the pandemic, I wrote:
Sadly, the vaccination rate variation by state is highly politicized: the 21 states with the highest vaccination rate were all blue in the last election (Nebraska was the top red state), whereas the lowest eight states (and 18 of the bottom 19 – the lone exception was Georgia) were all red.
The Times has a chart showing the tragic results (here's the full article):
With extraordinarily effective vaccines widely available for free, we've reached the point where more than 99% of COVID-19 deaths in this country are needless and preventable.
So as not to be political, I'll quote two Republican governors of deep red states:
- Gov. Asa Hutchinson of Arkansas: "We're in a race against this Delta variant... The solution is the vaccinations."
Best regards,
Whitney