by Louis Navellier
December 15, 2020
Since Tesla has been a market bellwether and sentiment leader, I feel obligated to talk about its gyrations, especially last week, before its impending inclusion into the S&P 500 next Monday December 21st.
There are many causes for Tesla’s strong stock performance. First, many analysts are upgrading Tesla’s stock, as they typically do before a secondary stock offering (Tesla announced a $5 billion secondary stock offering on Tuesday). Another reason is that the company gives away discounts and free stuff via its referral program, like Powerwalls, the Model 3, and even its $250,000 roadster – to YouTubers and other Tesla fans – but this referral program is now being shut down due to “cost concerns.” Third, although Tesla has delayed the introduction of its Cybertruck until 2022, it is soliciting deposit holders to lease another Tesla vehicle while they wait for the Cybertruck, in order to help the company reach 500,000 in annual sales.
With Tesla now losing market share in China and Europe – the hottest electric vehicle (EV) markets – a sense of desperation seems to be setting in for Tesla to try to meet that 2020 sales goal of 500,000 vehicles. The primary reason that Tesla is losing market share in China and Europe is that it is now facing rising competition and does not have a “cheap” EV that qualifies for key tax incentives, especially in France and Germany, which have lucrative tax incentives for their domestic Renault and VW models, respectively.
There is a version of the Chinese Tesla Model 3 that utilizes lithium batteries from CATL with no cobalt, so these EVs are cheaper, but they are not as efficient as the other Model 3s with LG Chem and Panasonic batteries with cobalt. Recently, Tesla shipped approximately 7,000 Chinese Model 3 vehicles with the CATL batteries to try to boost its European market share, but, so far, these EVs are not significantly impacting their European sales figures. Due to truly horrific October and November sales in Europe, a December “sales dump” is anticipated, since this is how Tesla has boosted its quarterly sales in the past.
Overall, I remain worried about Tesla, since CEO Elon Musk recently issued a memo to employees to watch their spending or the stock might get crushed “like a soufflé under a sledgehammer.” Besides keeping sales goals up and expenses down, the other big concern with Tesla is the acute lithium battery shortage developing as more companies make EVs. Currently, Tesla buys batteries from CATL, LG Chem, and Panasonic, plus it is gearing to make its own lithium batteries via its innovative 4680 design. However, the battery shortage is real, which is why Chinese Model 3s utilize batteries from both CATL and LG Chem.
In the meantime, all Wall Street seems to care about is hyping the other up-and-coming EV manufacturers, so they can capture lucrative investment banking revenue while pricing companies at Tesla-like premiums. The truth of the matter is that as EVs become increasingly common, their premium price-to-earnings ratios are expected to collapse, since this sector is way overhyped. Most up-and-coming EV makers are Chinese, making EVs for their domestic market, but some will likely follow Tesla and export EVs to Europe.
I should add that Renault announced last week that it is proud to be the #1 seller of EVs in Europe year-to-date, through November, but VW Group (Audi, Bentley, Lamborghini, Porsche, Seat & VW) is now in the midst of dethroning Renault in the fourth quarter due to its hot selling ID.3. Furthermore, due to the ID.4 SUV and new EVs from Audi and Porsche – to be announced in 2021 – VW Group’s EV leadership is unfolding at an incredibly fast pace, so fast that Tesla is expected to be demoted to the #3, #4, or #5 seller of EVs in Europe in the fourth quarter. I should add that since Tesla will not make money on its vehicles this year, but instead received $1.18 billion in lucrative tax credits from predominately Fiat Chrysler for the first three quarters of this year, I expect that Tesla will try to “dump” vehicles in Europe during December to obtain more of these lucrative tax credits in order to boost its year-end and quarter-end bottom line.
In my opinion, despite Tesla’s spectacular stock rise, the race to make a solid-state battery will likely be the biggest EV winner in future years. QuantumScape (QS), backed by VW Group and Panasonic, backed by Toyota, are currently perceived to be the eventual solid-state battery winners. Last Tuesday, QuantumScape announced that its automotive solid-state batteries “are capable of working at a very high rate of power, enabling a 15-minute charge to 80% capacity” and will “enable up to an 80% longer range compared to today’s lithium-ion batteries.” QuantumScape also mentioned that its solid-state batteries have a long cycle life (greater than 800 cycles) and wide temperature-range operation (tested at -30 degrees Celsius).
Interestingly, VW Group is now in the midst of “Project Artemis,” designing a new luxury EV platform to be used by Audi, Bentley, and Porsche in 2024. This platform, code-named LandJet, is apparently being designed for QuantumScape’s solid-state batteries that are scheduled to initially be manufactured in 2024 in its first plant and then boosted dramatically in 2025 when its second manufacturing plant opens. Toyota is also in the process of developing a luxury EV with Panasonic’s solid-state batteries that will be ready by 2025. Finally, I should add that Samsung is also making good progress on building a solid-state battery.
Initially, solid-state batteries are expected to be very expensive, so they will likely be used on expensive luxury and sports cars before filtering down to more mainstream EVs. I should add that I am getting a lot of emails thanking me for mentioning QuantumScape in my podcasts, but I want to caution everyone that this company is not expected to supply automotive batteries until 2024/2025 and then not become profitable until 2027, so if you missed a chance to buy QS at first, there will likely be several other great buying opportunities on pullbacks in the next few years, since the ESG money on Wall Street has been aggressively driving QuantumScape over 200% higher since it went public immediately after Thanksgiving.
Navellier & Associates does not own Quantumscape Kensington Capital Acquisition Corp (QS), Volkswagen, or Toyota Motors (TM), in managed accounts, 1 account only owns Tesla per request. Louis Navellier and his family do not own Quantumscape Kensington Capital Acquisition Corp (QS), Volkswagen, Tesla (TSLA) or Toyota Motors (TM) personally.
Most U.S. Economic Statistics Continue to be Positive
As we close this difficult year, most economic statistics continue to be positive. This year’s 10.6% annual increase in productivity in the second quarter and the 4.6% annual increase in the third quarter are truly historic, even though the Labor Department had to revise third-quarter productivity down from its initial estimate of 4.9% last week. Moving forward, these productivity gains are expected to continue, especially if working remotely continues, and the corporate and personal flight to low-tax, pro-business states persists.
On Thursday, the Labor Department announced that the November Consumer Price Index (CPI) rose 0.2%, one tick higher than the economists’ consensus estimate of 0.1%. Gasoline prices fell 0.4% in November, while food prices declined 0.1%. However, due to higher electricity prices, the core CPI, excluding food and energy, also rose 0.2%. In the past 12 months, the CPI and core CPI rose 1.2% and 1.6%, respectively.
The next day, the Labor Department announced that November’s Producer Price Index (PPI) rose 0.1%, which was better than the economists’ consensus estimate of 0.2% and the smallest monthly increase since April. Excluding food, energy, and trade services, the core PPI also increased 0.1%, which was below economists’ consensus estimate of 0.2%. In the past 12 months, the PPI and core PPI have risen 0.8% and 0.9%, respectively. Overall, inflation remains tame, which will allow the Fed to keep interest rates ultralow.
Last week’s bad news was that the Labor Department reported weekly unemployment claims rose to 853,000 in the latest week, up from a revised 716,000 the previous week and substantially higher than economists’ expectations of 725,000. Continuing unemployment claims rose to 5.757 million, up from a revised 5.527 million in the previous week. I was in Baltimore last week and heard the new mayor announce Wednesday that all indoor dining was banned. On Friday, New York followed Baltimore, banning all indoor dining. These and other restrictions will undoubtedly accelerate new unemployment claims in coming weeks.
Finally, the European Central Bank (ECB) on Thursday increased its bond buy-back program by 500 billion euros (about $600 billion) to a whopping 1.85 trillion euros ($2.24 trillion)! I should also add that Japan announced a $700 billion stimulus program last week. Amazingly, after both the ECB and Japan introduced these huge new stimulus programs, the U.S. dollar weakened, but fortunately, a weak U.S. dollar boosts sales and earnings at most of the multinational and international companies that I recommend.