Will the U.S. Boycott the 2022 Shanghai Olympics? The Virgin Orbit SPAC & Tesla’s Big Quarter
April 7, 2021
The United States is considering boycotting the 2022 Olympics in Shanghai, China. That would have a major economic impact on several U.S.-based companies, and it could carry major consequences for the 2028 Olympics in L.A. We also discuss Virgin Orbit’s upcoming SPAC and are joined by Anirban Mahanti to discuss Tesla’s record quarter as well as what lies ahead for the electric vehicle maker.
Sam Bailey 00:14
Welcome to 7investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.
Steve Symington 00:24
Good afternoon 7investors. Happy Wednesday and welcome to 7investing Now. My name, of course is Daniel Brooks Kline. I’m the host of the program. I’m being joined today by Steve Symington, live. Steve, welcome to the program. And later in the show, in the homestretch, I did an interview with our very own Anirban Mahanti on Tesla’s blow out delivery numbers. Steve, you follow Tesla? Were you surprised that they had a record number of deliveries in a quarter where they weren’t shipping very many of their expensive models? These are mostly model 3’s and model Y’s because they’re refreshing those models. And they hit a record – and we’re in a pandemic! Who’s buying a Tesla? Did these numbers surprise you?
Steve Symington 01:04
I mean I’m surprised by nothing anymore. So that’s kind of the trouble, is that it’s surprised, not surprised. But what was really notable is that they delivered, you know, a record number of vehicles in a quarter that is historically really weak for auto deliveries. And that was kind of the impressive part. But it also helps their scaling from such a small base, and struggling to meet demand. So surprised, not surprised. So that’s kind of where I stand.
Steve Symington 01:32
I was surprised because even you know, 7investing is doing great, we have jobs, my wife has a job, your wife has a job. I’m not buying a Tesla because we’re in a global pandemic and you don’t know what the future looks like. We would like your questions. We would like your comments, wherever you’re watching this, but we’re gonna do something a little bit different. Off the top here, I’m going to talk a little bit about the Olympics. And we don’t think of the Olympics as a business story, usually. But there’s been a little bit of noise out of Washington, the president has said he’s going to talk with our allies about whether we should boycott the 2022 Games in Beijing. Now, I understand the statement being made. There’s all sorts of human rights abuses in China. There’s all sorts of problems. On the other hand, we’re not boycotting Starbucks. We’re not boycotting Disney. We’re not boycotting Apple, we’re not boycotting Nike, because all of those companies have a mutual relationship, a mutual benefit. So let’s say this was to happen. I don’t think it will. But let’s say we stayed home from the 2022 Olympics. Why is this a business story? Because Comcast’s entire strategy, maybe not its entire strategy, but 80% of its Peacock strategy is based around the Olympics. So they’ve got the Olympics in Japan coming up, the following Olympics would be the Olympics in Shanghai, China, even if they still broadcast them, Steve, do you remember the boycotted 1980 Olympics – maybe you’re a little young for that? Nobody’s watching the Olympics if the U.S. isn’t there. There was a joke on The Simpsons where Krusty lost his shirt because he had you know, if the American won you got a free Krusty burger. And of course, in every race, the American won and that the illustration of The Simpsons was the American swimmer jumps in and swims, the other swimmers just jumped in and flailed around like, that’s what the Olympics would look like. But besides the reprisals that Comcast will lose a billion dollars, and however many future billion dollars, that puts Starbucks at risk, which is has a huge business in China, it puts Apple at risk. It puts Disney’s business at risk. It puts Nike’s, maybe not their business at risk, because Nike could move manufacturing, but it does put a lot of Nike’s business in peril. And more importantly, Steve, do you know where the Olympics are in 2028?
Steve Symington 03:46
They’re here, they’re in LA right?
Steve Symington 03:48
They’re in Los Angeles. My brother’s former boss, a guy named Brian Lafemina is the Chief Business Officer, I forget his title, but I’m following the progress of the Olympics. And this is a 10 year journey, basically, of lining up sponsorships of, you know, creating this massive hotel opportunity. Like this is huge business. So look, I don’t think this is going to happen. I think this is saber rattling. I think the domino effect of this effectively ends the Olympics because if you don’t go to the Olympics, where the country the Olympics are, isn’t a friendly country or does something wrong, you’re pretty much not going to the Olympics. So there’s two options here: have the Olympics someplace neutral every year, which I actually don’t think is a bad idea to just like put the Winter Olympics in Canada because the time zones good for the U.S. and the Summer Olympics. I don’t know Austria, like time zone’s not great there. That’s not going to happen. So Steve, do you think there’s any possibility the U.S. sits out the 2022 Olympics?
Steve Symington 04:51
There’s a possibility but that also comes with a whole lot of heartbreak not just from the athletes themselves. And yeah we have a lot of the top athletes in the world. And it would be like, well, what’s the meaning from an athletes perspective? But also, yes, the economic fallout would be huge. And on both sides, but at the same time, you know, we have China, I think a few days ago, I saw some articles that China is encouraging a boycott of all U.S. brands, because this, and you have Chinese sort of counterparts to Nike, for example, that are stepping in and trying to seize the opportunity. And so there might be some, some near term weakness in China, as they encourage a boycott of American brands, but I see it as unlikely.
Dan Kline 05:38
We’re at a very perilous time. And I’ll joke a little bit, like this could be the break Luckin Coffee finally needs. But here’s the reality. China has built its middle class somewhat on American brands like Starbucks is a status symbol in China, its status symbol in the US to a point, but not on the same level. So I do think there’s going to be a lot of rhetoric, I think there might be some stock market regulation. But I don’t think we’re going to go back to the Trump days of unilateral bans. I don’t think we’re going to be kicking companies off stock exchanges. But I do think there is more going on with the U.S. and China and the Olympics might be the lynch pin for that. China does not back down. This is not a country where if you had done this quietly, there was a better chance of China making some concessions than doing it publicly. There’s an entire, and I did a lot of shows with Ben Ra, one of the Motley Fool’s experts on that market, where we really got into the mindset of the Chinese government and the Chinese people. Overall, there is very much of the government is the people. And if there’s a perceived threat, it’s seen as a threat to all of China. So, you know, when you see something like the protests over Disney’s Mulan, that movie tanked in China, and it was largely made to do well in China. So there’s absolutely something here. As an investor, look, I’m not investing in Comcast, anyway, I don’t think they’re a great business. I like the theme park part of their business, but I think they’re a second tier movie company. They’re a terrible cable and internet provider in a dying business. I never miss a chance to bag on Comcast, you know, but that being said, Nike, Starbucks and Apple are really important companies and all of the peripheral companies that advertise around the Olympics that do business around the Olympics historically, and this is the Winter Olympics. Thank you for that comment. Historically, the Olympics is a massive advertising opportunity. That generally takes you know, years of planning. You remember the old Dan & Dave commercials, I believe those were Reebok ads, not Nike ads. But I might be wrong, where it was two guys who were supposed to medal in the decathlon, and it led up to the Olympics, and one of them didn’t even make the Olympics. We’re gonna pivot to what we’re watching. We’re going to talk about Virgin Orbit heading towards a SPAC. Before we do that, let me remind you: get your questions and comments in. We have an interview coming up with with with Anirban Mahanti about Tesla’s blow-up quarter. So we’d love your questions about Tesla. We love your questions about just about anything. But Steve, the news came out yesterday that Virgin Orbit was going to go the SPAC route, they’re looking to raise a few billion dollars. I did not know that Virgin Orbit was a company – I just assumed it was it was part of the Virgin Galactic umbrella. Can you explain a little bit about what Virgin Orbit is and why we might be excited about it?
Steve Symington 08:25
Yeah, so um, and to clarify, there were more rumblings yesterday about it. The original news actually sort of surfaced a few weeks ago from a Wall Street Journal report. But Virgin Galactic is indeed a separate company, from Virgin Orbit. So keep in mind, Virgin Orbit actually was a spin off of Virgin Galactic back in 2017. It was then known as its LauncherOne rocket program. The two are often confused. But there have been several instances where Virgin Orbit has released exciting news like a couple of months ago, their first successful launch. And Virgin Galactic stock actually rallied in response that was sort of a guilty by association rally. They’re separate companies all together now since enough in 2017, but they’re under that same Virgin umbrella. I believe Virgin Orbit is still 80%, owned by Richard Branson, and maybe there’s Saudi Arabia wealth fund or something that owns the other 20%. But what does it do? It specializes in launch solutions for small satellites. So as platforms basically enable the launch of payloads and satellites into space for other companies. So that’s kind of how it functions and that’s that’s what the market plans to tackle.
Steve Symington 09:38
Steve, why is this a separate company? It feels to me like these should be under the same umbrella and the difference between space travel – so the business of the original parent company was gimmicky short orbit trips, though you did show me on our Slack that it really is like a four day adventure. So it’s more it’s more akin to like paying $5,000 for a three day stay at like the Star Wars hotel that’s coming up at Disney World, we really get training and a whole experience in addition to that short suborbital flight, but the real money is going to be business travel, it’s going to be going like New York to Australia in two hours and charging, you know, $22,000 for that because business people are gonna want it, that doesn’t seem like a big leap from, you know, shooting payloads into space. And I understand that they’re using a stand up rocket instead of like, there’s definitely differences. But is there a reason these are separate companies?
Steve Symington 10:36
Actually it’s even more similar than you think, you know, one of their rocket launching platforms drops off of a Boeing kind of like Virgin Galactic, and then it goes sideways. And it’s, it’s sort of more economical that way for them to do it. And there’s a reason they were one business just a few years ago, because they are so similar. And, you know, they both operate in different aspects of the broader space economy, which is already enormous and growing quickly. But one of the big differences, well, I think it comes down to two things, shareholder value – so they could sort of squeeze more value from it as a separate company. And sort of in the spin off a few years ago, we saw them kind of explain that sort of, spinning this off allows them to better position themselves to tackle this market on their own kind of as an independent company. Apparently, the strategic rationale behind it was that this can be its own thing. And we can not only generate more value for shareholders, but better position the company when it’s not worried about the other side of the business. So that’s kind of why they’re their own thing right now.
Steve Symington 11:43
So this was valued at about a billion dollars at its last funding round. Now. It’s they’re speculating 2.5 to 3 billion. Steve how much of this is because of things like the the ARK investing space ETF and other sort of rushes to invest in space, by the way, a space ETF, which include shares of John Deere, so they’re being very broad in their in their definition of space. But how much of this is just like, stick the word space on it in order to, you know, to raise money, where there’s a lot of potential here, there’s not a lot of reality, and there’s not going to be financials to look at when they you know, when they go public because to have financials, you need to have revenue.
Steve Symington 12:22
Right. And I think they’re really riding the coattails of that successful January launch. And it’s a huge market, you know, launching small payloads and satellites into space. And they’re not alone. There’s a couple, I think it’s ABS. And then there’s Rocket Lab, which is also going to go public via its own SPAC. But this is a big market. And I think we’ll see revenue before long and they’ve successfully demonstrated their platform. So the valuation might be a little rich when it comes out. But Rocket Lab, I think, was looking for a $4.1 billion valuation. With its already announced SPAC. And these guys are looking for 2.5 billion to over 3. So we’ll see what it actually ends up coming in at. But I think given the size of the market, I don’t think that’s out of the realm of where it should be. So we’ve yet to determine who the SPAC partner is, of course, and it could be any day, it could be any week, it could be any month. And then once they announced it probably going to be another few months yet before it’s actually publicly traded. But I think there’s gonna be pretty high interest and pretty high demand because as you mentioned, ARK space exploration ETF has some names that maybe aren’t so directly related to space, and they face some criticism for that. And there are other ETFs like I think the UFO ETF that’s more of a pure play space ETF. But this will help round out sort of focused genres like that when it comes to actually investing in the space economy.
Steve Symington 13:49
We’re going to take your questions and comments after the interview with with Anirban. I will say this about space, there is money to be made in space, there’s absolutely going to be space tourism, there’s going to be space business, there’s going to be you know, travel opportunities, there’s also going to be a huge opportunity in cleaning up space. There’s a lot of space debris out there. That will cause problems. That being said, all of these companies are very, very early even if you look at SpaceX and other good Blue Origin, the Jeff Bezos company, these are companies, or “blue something” I think I’m getting that name wrong and confusing. Isn’t okay. It’s close to the dog food brand where you get the really nice dog food.
Steve Symington 14:31
Steve Symington 14:32
Yeah, Blue Buffalo I knew I was close. This is one of those areas where it’s great to invest in some of these companies. There’s a lot of upside, but you probably want to be careful with how much you own, if anything. This is these are generally companies were a little is probably a lot because if, Virgin Orbit works, it’s likely to be a massive, massive business. If it doesn’t work, it’s likely to be a news story with flames. And I say that facetiously because there’s lives involved so let’s hope those flames are a test flight or not something where there’s a person there. But this could go really, really well. There will be winners, there will be losers. There will be massive, massive expense going into this, Steve, we’re going to go get a cup of coffee. We will come back with your questions – Mike Zipcar, we see your questions, happy to take them afterwards. But right now I am very happy to introduce our seventh lead advisor Anirban Mahanti. Yesterday at about five in the morning, Australian time, we recorded this wonderful interview on Tesla’s blowout quarter. Sam Bailey if you want to hit the tape.
Dan Kline 16:17
And this does not appear to be working. I don’t know exactly what went on there. But Sam Bailey, if you want to jump on and tell us what is happening, that would be appreciated. We are trying again. I believe I am still on Sam is the video just not playing?
Sam Bailey 16:34
It’s not playing, it says that it’s playing but it’s not actually playing it.
Dan Kline 16:40
It worked. It worked well on our test. This is the joy of doing a live show. Here’s what’s gonna happen now. Sam is gonna message Steve so he comes back, we will add this interview in post production. So that’ll be on 7investin.com/livestream, that’ll be up on our YouTube channel, we can share it out on Twitter.
Dan Kline 17:05
These things happen. Hopefully it will get to the interview.
Steve Symington 17:13
This is our Tesla Cybertruck broken window moment. That’s what it is.
Sam Bailey 17:17
I would have finished drying my hair had I’d known this was going to happen.
Dan Kline 17:22
This is the fun of doing a live show. Steve, if you want to read the question from Zipcar on a Tesla, that would be a great place to start.
Steve Symington 17:30
He says “In your opinion, will Tesla be able to produce cheaper electric cars? What competitive advantage does Tesla have over other automakers?” That’s been beaten down pretty good. One of those questions as far as their competitive advantage, I think a big thing is the technology platform and their ability to – they’re sort of headstart they haven’t self driving vehicle technology in particular. They obviously don’t have an advantage as far as manufacturing goes at this point, because everybody else has the scale. But that is the plan. If you’re asking in my opinion, will test to be able to produce cheap electric cars? Absolutely. They’ve announced that they want to have a $25,000 electric vehicle to basically spur mass adoption. And yeah, that’s the plan for them to be able to produce cheaper electric cars over the long term.
Dan Kline 18:23
Here’s our interview: All the way from Sydney, Australia. – I don’t think we’re ever gonna tire of saying that, by our friend, our fellow lead advisor on our Anirban Mahanti. Anirban, it’s 6am there but you are rearing to go. I assume you’ve boxed with a kangaroo, you’ve pet a koala. You’ve done all the things that you don’t actually do in Australia that Americans think you do. You’ve had a Foster’s like, like everything is going on. Welcome to 7investing now.
Anirban Mahanti 18:50
Thank you, Dan. I know it sounds like you know, we have lots of koalas, kangaroos but I haven’t seen one actually. There’s no koala in my backyard. Although there are some, you know, occasionally one of these show by you know, as you can see the Wallaby too.
Dan Kline 19:08
I only mentioned this because it’s one of my pet peeves. So my aunt lived in Australia from the point I was 13. To the point I was like, I don’t know, like 35 like a really long time. So I sort of got over some of those things. But I’ve traveled not an enormous amount but a fair amount. And when you go to other countries, I’ve been in England and the American tourists expect everyone to be like always having tea or you’re going to Ireland and they expect people to be like doing a jig while wearing like a leprechaun outfit, like for such a diverse giant country as the US is, we have a very strange global view. But that is not what we’re talking about. today. We’re going to talk about instead another global company. First of all, we’re talking about Tesla earnings, or really Tesla vehicle deliveries. You drive a Tesla you just had the experience of having your Tesla repaired. That is something that hasn’t always gone well, why don’t you detail your experience. What happened? And sort of how did Tesla handle it?
Anirban Mahanti 20:04
Yeah, so I got rear ended on the motorway by another car. And it was an experience in itself. Because I mean, when you get rear ended on the motorway, you’re actually slowing down because there was an accident ahead of us. The guy in the car behind us couldn’t actually slow down in time. Yes, you hit this huge cut noise. And of course, your first reaction is to go, you know, check on your on your daughter who’s sitting in the backseat, because she’s gonna warn me. And I asked her, how are you? And she said, Yeah, I’m fine. And she was really mad. I said, Okay, you’re fine, that doesn’t matter. She said, I’m mad. And this is okay. This is not okay, how can it be okay to be rear ended and the car is destroyed to go out and be checked, you know, you could ask for the person who has rear ended us, and you know, their car is like basically mangled. But the person was fine. The first thing was that, well, the Tesla absorbs accidents beautifully. So when you hit a huge thud, you know, my trunk was pushed back in and you know, rear bumper is destroyed. But if you look at it from a distance it just looks like minor scratches, so that is you know, some design engineering marvel there at work. I was very impressed with that. My car was completely driveable, so I drove the car away from from the scene, the other car was not. And that’s because I had a heavy engine in the front, right? It’s taken the impact on the engine and the bullet and all have, you know, basically got mangled. From there on. I mean, the experience of getting a Tesla fixed, yes, there are some challenges. The number one challenge is that insurance comes, the type of insurance I had basically said that I can’t choose the repairer, they choose – the insurance company chooses the repair. So that’s a bit of a problem. So they sent me to a neighborhood body shop. And the body shop says, well, guess what, don’t bring the car here because we can’t repair it because Tesla will not send us parts. So that’s Tesla’s way of actually ensuring quality control, they will only give parts to Tesla approved body shops. So I go back to the insurance company and the insurance company says, Okay, we’re going to send you to another body shop. Now this is further away for me. So I have to drive down like you know, 50 kilometers to take my car, but you know, this is a place that repairs, Maseratis, Bugattis, Porsches and Tesla’s. I said, okay I can live with that. Mine is not a Bugatti, it’s a Model 3. But you know, it’s nice. Then I think I needed eight parts, I believe the body shop got five of them within a week or so of ordering. They said, we expect these remaining parts to come pretty soon. So they asked for my car. You know, they took my car and they said, we’re going to give you a Tesla in return, but they didn’t give me a Tesla, they are giving me a Porsche. I said, fine, I can live with an nice aged car. And for me, so far, experience has been actually really good. You know, well managed from the Tesla side, well managed from the insurance side. Part of I think, I suspect the problem people had initially was most of the accidents involve model S’s and X’s and they’re smaller volume cars, smaller volume cars are basically hard to fix. Model 3is no longer a small volume car, Model 3 is getting to mass market sort of volumes, that’s easier to fix. Because you know, and there’s the Shanghai factory now, where almost all our parts are gonna come from for cars in Australia. So, you know, I think the experience has gotten better. I would guess for people, at least with the Model 3’s and the Y’s, just because of the scale. I think the model S’s and X’s are like, they’re like on a speciality car. So if a car is only like 100,000 all they produced in a year together, right, then they’re small volume. And you know, Tesla changes parts as to how they designed the cars, that just causes problems. So that’s my take.
Dan Kline 24:13
Do you have your car back?
Anirban Mahanti 24:15
Not yet. I just gave it to the body shop on Thursday. And it was a long weekend. So I actually they told me 10 days minimum. I’m actually expecting in my mind for it to be at least two to three weeks. I’ll live with the Porsche in the meantime.
Dan Kline 24:32
If my Toyota Prius gets rear ended, and I bring it to a Toyota dealer, it’s fixed in a couple of days. Not tonot not to Tesla hate here, but there are some good numbers from Tesla. So Tesla reported deliveries over the weekend. How good were those numbers?
Anirban Mahanti 24:47
Well, well, they were very good. And they were significantly better than what you know, the analyst expectations if those things matter, well, they matter in terms of the short term price movements, right. So Tesla delivered 185,000 vehicles. A new record. And that’s that’s important. Because Q1 tends to be a slower quarter. Q4 is the big quarter. And then Q1 tends to be a slower quarter. So this is a record. Compare that with Q4 to 165,000. Q4 they actually delivered over 180,000. Right. The other interesting thing is that, think about the scaling that’s going on. This is almost double of Q1, 2020. Right? So the company’s scaling. Another thing I want to point out here is 185,000 deliveries, they include only a couple thousand model S’s and model X’s because they didn’t produce any Model S this quarter, because of the refresh. So those are likely to be produced in Q2, and later. So you know, when you put all of those things together, think about the chip shortage everybody’s talking about. I think this is really, really good, really, really excellent.
Dan Kline 26:04
Are these lower margin sales? Because they’re cheaper vehicles?
Anirban Mahanti 26:09
Yeah, so that’s, that’s gonna be an interesting thing. I think, too, you know, when the Q1 report, the earnings report comes out, that’s the big thing to see. So I have mixed feelings for this. Yes, there’s going to be lower earnings, lower margin relative because you don’t have the high margin S and X in the mix. You typically have 15,000, of S and X 15 to 20,000, on S and X maybe. And then on a good data up to 25,000 of the S and X in the mix that juice up the margins. There was a couple of things – I think it seems that Model 3 is holding really well, Model 3 performance isdoing really well, Model Y is scaling very well. And the Model Y still they’re selling the sort of long range and the performance versions, right. So basically means that those are higher margin. And I think they’re selling the higher margin cars for the 3and the Yright now. But couple that with I think the negative would be the China’s still in ramp-up phase, right. So China’s in ramp-up phase, then what we are thinking is, well, there’s going to be you’re not going to get the full operating leverage, so to speak, right? So we’ll see, but I expect them to be GAAPprofitable. On a GAAP basis, I expect them to generate plenty of free cash flow. And yeah, I expect the story to only get better from this point onwards.
Dan Kline 27:31
Where were these vehicles sold? Do they break that down? Like how many are sold in China versus other markets?
Anirban Mahanti 27:36
No. So they don’t break that down in the production report, really because that’s the details. So 3 is worldwide. Right? So Model 3 is now selling worldwide. But Model Y just started selling in China, right. So Model Y really only being sold in US and some in China. Right. And, this segment – the small SUV segment, right? So small, suburban utility vehicles. This is huge. Because when I look at our Australia, everybody owns an SUV. So there are no sales of Y – you know, my wife would love to have the Y – she thinks that X is too big for her. She would love to have the Y and she thinks a 3 is too low for her. So there’s so many people who want to have the Y. So again, I think there’s a big opportunity the rest of the world market, the Asia Pacific market, that Europe market. This has just gotten started in my view.
Dan Kline 28:37
How impressed are you by this? Because I don’t know if it’s something you’re aware of in Australia, I’m teasing. We’re in a global pandemic. It feels to me like a really weird time to buy like a $45,000 car. Like, again, I bought a new car, but I bought a used car for like, I don’t know, $10,000 because I needed a car. It seems like a very strange time to buy a luxury car, I kind of expected Tesla to have some like zero quarters, the fact that they’re still hitting records, this is pretty encouraging, right?
Anirban Mahanti 29:08
That’s the amazing, I think here’s the amazing thing, right? So one of the advantages of being sort of, you know, I’m not even calling out Tesla 3’s and Y’s. So the mass market prestige, just made up that term based on, actually this is based on something I’ve read about makeup, people who sell, you know, makeup products, they use this term masstige, it’s used in the health and beauty sector. So it’s a masstige, right? It’s a mass market prestige vehicle. So you basically you’re trying to get to that in that segment of people. It’s hitting that segment of people who are least likely to be affected by the pandemic, this pandemic has affected people in sort of a disproportionate fashion, right? There are certain segments that have been completely destroyed and some segments are completely fine. Right. I think a lot of the mass market, sort of the prestige segment of people. These are people, you know, with jobs in the tech industry and things like that. They can afford to buy these staples. And a lot of people realize that the total cost of ownership of these vehicles is actually lower than you know, instead of owning a Toyota Camry, you are better off actually owning a Tesla Model 3, because your total cost of ownership is just lower over a five year period. Right. Then I think there’s something about branding here. I think this is underrated, right? I mean, people line up for an iPhone. Right? Or used to – now people go online. But when people line up, right people line up because there’s something about the brand appeal. So Tesla has that brand appeal of being green, clean, new technology, you know, the car farts? I mean? Well, maybe that’s the thing, right? The car farting is an attraction – it does things that you don’t expect of a car. And so I think these are things have that brand appeal. And you know, more Tesla’s on the road means more Tesla’s on the road because other people see it. Oh, see, this is an interesting thing to have. So I think it’s just that combined with the effect of people going into the – like the transition to EV is well on its way. Right. And I don’t mean that 100% of the EV’s are going to be Tesla’s, but the penetration is still like 3%, or under 3%, something like that. Right. So this is a huge market. And, you know, Tesla says, basically just chipping into that market and being sort of the, you know, the leader or the King of the Hill has its advantages, right. So, I think it’s one of those things early stage market. And you know, a good product.
Dan Kline 31:45
I’ll speak anecdotally, because we’re going to talk what’s next for Tesla. But I’ve noticed an explosion in the availability here in Florida, a tourist area, an area where there’s a fair amount of money, of charging stations, so I drive from West Palm Beach to the Orlando area, probably once a month, we have a home in both places. And on the Florida Turnpike, which is a public toll road, multiple rest stops now have a significant section of Tesla chargers and non Tesla chargers, many, not many, but enough of the gas stations in that tourist area have significant presence of mostly Tesla chargers. So if you see more chargers, you will feel better about buying a Tesla, like I don’t have a Tesla, I was on the Model 3 waiting list. But then I moved to a building where I didn’t have an outlet, like I had a parking space, there’s no place to plug it in. And I wasn’t going to wait at the one or there’s two I think charging stations at our Whole Foods, you know, and be subject to that. If all of our gas stations or you know, our Wawa’s, which is a really nice gas station chain here. If they had a section of 20 Tesla chargers, well, I feel totally comfortable about getting my coffee, plugging it in, charging, not having a charger at home. So you’re seeing an expanded capacity. That’s one of the areas of sort of like what’s next for Tesla. But what else is happening for this company over the next couple of years?
Anirban Mahanti 33:06
You know, the interesting thing that Tesla right now is like, see the number of cars actually should have said this in the beginning. So Tesla happens to be my largest holding – our family’s largest holding. It’s also one of the stocks that I love talking about I’d wholeheartedly tell people to buy but I’ll actually probably never make a formal recommendation. And the reason I wouldn’t do that is it’s one of those stocks, either you get it or you don’t. It’s not one of those things where you can actually convince – I’ve never been able to actually convince a single person to buy Tesla shares. You know, it’s a very divisive stock, it’s very volatile. And Elon Musk tends to be, you know, probably one of the greatest entrepreneurs of the 21st century but also very divisive. But putting that aside, I think Tesla is a very interesting juncture right now. So the case where EV no longer needs to be made as exactly as you pointed out, lots of chargers showing up Tesla’s and non Tesla’s. The move for actually putting in chargers was like a, if you think back when they started doing building the supercharger network. This was a phenomenal master stroke, right? It actually solved one of the greatest problems of EV’s which is range, range anxiety, right? And then having the Tesla chargers country wide, continent wide, it just made traveling withTesla’s easy, and then having the technology to you know, say oh, you can now fill it almost as quickly as filling with gas was a masterstroke, I think they’re always ahead of the curve there. At some point that is not gonna be relevant because as you said exactly the other charges gonna show up, but still there’s a lot of things I think about integration that matters, right? And this is where Tesla has done a really great job of integrating everything. So the experience of driving being saved from you know, cross country where you can actually know which charges are available where you can charge how quickly you can charge is a masterstroke because it’s very difficult to do with third party. Again, there’s so many different technology standards, you know, which is up and down, you don’t know. But so that’s great for Tesla. But what I think is really exciting, in addition to the uptake for EV’s is the sheer fact that we will now see a lot of operating leverage. And what what I mean is, there is going to be more production of cars and less cost, at least in the next few years going in. And it depends on the rate at which Tesla wants to keep going. But just think about it, there’s a Texas factory coming up, right, so a lot of the cost upfront has been made, there’s a Berlin factory made up, most of the cost upfront has been made. Shanghai factory’s being expanded, none of the cost has been put in. The installed capacity is at about 1.1 million cars, right. And they’re still not at that 1.1 million run rate, which basically means that they’re still ramping up. But as these factories come online, and as they ramp up, effectively, that cost has already been sunk. And you’re creating this demand for people and you’re bringing down costs, because you know, as you’re scaling up costs for everything goes down, your ability to negotiate with vendors becomes better by the you know that in how even in retail, it works, right?
Dan Kline 36:27
I ran a factory for four years. So I fully understand the size and scale,
Anirban Mahanti 36:33
The size and scale matters. So I think we’re at this point where you’re going to see increasing sales at the top line, and you’re going to see even faster growth at the bottom line, right. And I think when you’re when you look at Tesla’s P/E, you’re like, you know, 800, or whatever it is, but you just think forward, it’s probably around 70 to 80 go out a couple of years, and like it’s a 15 or 10, P/E, right. And we are still just talking about vehicles. We haven’t talked about anything else that Tesla does, which is you know, we’re not talking about the huge investment in energy storage, we’re not talking about the ancillary sales that come from software in energy, we’re not talking about, yet, about, you know, what they can do with batteries, they’re not talking at all about what they’re gonna get out of, you know, self driving, it’s that’s a whole another topic, right? And so, I think there’s a lot of different ways in which Tesla can win, right? It doesn’t have to win in just one side and if it wins in all of them, I have no doubt it’s gonna be the largest company in the listed markets like basically it being 5x from here would not surprise me at all. Which is why I continue to hold Tesla. I can argue for it, but very difficult to convince people.
Dan Kline 37:42
It is. It’s funny, I am so on the fence – I don’t own Tesla and I don’t own Tesla, because Elon Musk’s ability to blow everything up in one tweet. And I understand you could actually remove Elon Musk from Tesla at this point, and it would probably still be an innovative – like he’s no longer necessary. The vision has already happened. But he doesn’t seem like a nice guy. Like he’s just not someone – he doesn’t appear to treat workers well, and I understand that’s hypocritical because I own Amazon and they have that reputation as well. He just rubs me the wrong way and I get – they have the brand, they’re going to sell all the cars I just don’t feel great owning it. And it’s so expensive, it’s easy to justify not doing it. That said it was a mistake when I didn’t do it two years ago. It’s a mistake when I don’t do it now. It is probably a company – but I agree it’s gonna be a really hard one to change people’s mind. We’re going to have you on an episode -we actually do a format called change my mind, where we take a stock where one of us is bullish on or bearish on, and someone on the team who has a really different opinion tries to change their mind. My mind changes usually every time but not always permanently. With that, Anirban. Thank you for joining me we’re going to be doing this quite a bit. For those of you watching 7investing Now, I will be back in a moment with our finisher.
Dan Kline 39:05
And that worked, Steve so in addition to some of the disasters you saw there getting that video to play, you also got to see like, why is Dan fumbling around on the floor with about two minutes ago during the interview while I noticed that my Mac wasn’t plugged in and I got a power warning that I had 3% of power left. So I had an absolute panic of oh my God, where’s my charger? I have to find it. We have a number of questions we’re going to take to close out the show before we hit our finisher. Steve we were talking about the possibility of cheaper Tesla’s but I do think $25,000 is reasonable. $25,000 puts you at like the high end version of a Toyota Corolla. It’s still somewhat expensive, but I don’t think you’re going to see them go much below that because you don’t want to see them devalue their brand. Your thoughts there? And Steve appears to be muted. So Steve, if you could, there we go.
Steve Symington 39:30
I think that’s a good observation that, Tesla won’t go, you know, a whole lot lower than $25,000 over the long term. And keep in mind that some of the things that really are going to differentiate them and some of the competitive edge with their self driving vehicle tech is something that is an add-on. So we’re talking about a $3,000 – $5,000, whatever the price is, add-on to Tesla’s base price, and people will be more than happy to pay that, because, hey, you’re buying a Tesla. And I think there’s a lot of brand power there. That is, that’s not necessarily taken into account when you look at just a straight up sticker price of a car.
Steve Symington 40:42
Yeah, and some of it comes down to brand and what you’re willing to pay for, I’ll pay for Apple products at a premium because I do feel there’s value there. It’s not necessarily me wanting to be seen in Starbucks, you know, with like an Apple Watch and a Macbook. But there’s definitely people that, if their option is a comparable Toyota, they’re going to spend 15,000 more for that Tesla. And that’s very, very valuable to the brand. Yeah, we’ve been we have a number of comments from Mike Fee about an upcoming SPAC grab. It’s a Southeast Asian company that does food delivery. That’s not actually one we’ve looked into yet. But I wanted to use that to to segue into another comment from Zocar. I am so tempted to invest in Chinese stocks such as PDD, BABA and JD, how do you study Chinese stocks? Is it a value trap? You study them the same way you study any other stock. All the information is there. And yes, there’s some risk because there is a political war going on, at least somewhat less than it was, but there’s still a battle between the US and China. But even if a company was delisted, that doesn’t mean your values disappear. Steve, do you own any Chinese stocks?
Steve Symington 41:56
Yeah, I actually own JD.com. That’s, I think my cost basis for that is is about 100%, lower than it stands right now. But it’s a really compelling stock that I think has done a great job, it’s building out its own delivery and, stocking infrastructure. And it’s a really, really interesting e-commerce play over there. And there are a lot of other interesting Chinese stocks out there. But JD is actually the only Chinese stock in my portfolio right now. But I do think it’s one of those things where you have a massive addressable market in its own right. And, you know, delisting from American exchanges is certainly a worry, but it wouldn’t just automatically mean you don’t own the stock, it just makes it more difficult to trade.
Steve Symington 42:42
You do need to be careful when you have an authoritarian government, especially in the financial sector, that some of these companies could face regulation. In a way you don’t see. That being said, I own Starbucks and if you own Starbucks, you have a massive amount of exposure in China. I own Disney. If you own Disney, you have not a massive amount, but maybe 8% to 10% exposure. Certainly you have a lot of theatrical downside, if you don’t invest there. Nick asks us I’d like your thoughts on Boston, Omaha, Steve, this is often called a mini Berkshire. It’s more than that, right?
Steve Symington 43:19
You might say it’s like a mini mini mini Berkshire. It’s very small – people who follow me know that, I love me some Boston Omaha tickers, BOMN.It’s in the it’s kind of boring businesses that have great returns on capital. So fiber to the home, we’re talking billboards, surety insurance, very interesting company actually just finished raising some cash through a secondary offering. And I think they added $58 or $59 million to their balance sheet to help fund expansion for a couple of their core businesses, and really interesting company with a heck of a lot of room to grow from here, and I do like Boston Omaha.
Steve Symington 44:03
ZL and Sam, don’t share this one. He did a great job not revealing our pick, but we don’t need to go through it. But ZL wants to know, what are our thoughts on the cloud? And I think the simplest way to invest in the cloud is the big players. You should buy Microsoft, you should buy Amazon, you should buy Google like Steve, I know I’m oversimplifying a little bit and you’re more involved in this space than I am. But the actual cloud is a commodity. So the biggest players are gonna win. It’s really the people who are building infrastructure on top of the cloud that are the sort of more interesting, less dull investments, your thoughts here?
Steve Symington 44:42
Yeah. And those are great stocks to own and not all clouds are created equal, right? It’s not just the cloud is the cloud. We had a pretty deep discussion on this at our internal Slack channel at 7investing, but as far as investing in the cloud, I do like the big cloud storage, cloud computing, cloud infrastructure plays but I also do like a lot of the supplemental names, and some of the folks who followed me over the last year or so know that even on our scorecard, I have a couple sort of cloud infrastructure companies and supplemental ways to play cloud computing growth, even when it comes to, you know, data analysis and big data, artificial intelligence enabled by cloud computing, there’s a lot of different ways to play it. And that’s something we could dedicate several episodes to in its own right. So kind of tough to, to extrapolate too much there.
Steve Symington 45:39
And we will, would love to hear your your comments on the interview we did with Anirban, because we’re going to be doing more things with him, we’re going to talk about what it’s like to be investing in US markets from Australia. It is a little bit different. We’re gonna do one talking about investing in Australia, which is not as easy. The investing structure is a little bit different over there. We’re gonna take one last question from M. Prenar. And he says, “I think the problem with Tesla is service.” And then Part two is “for brand sponsors or global charges. Next, there’s Tesla will be in trouble. Android versus Apple.” So let’s go with the service. That is a big problem. We just went through autobahns whole journey where his car got hit. And it’s gonna take weeks, if not months. And it’s great that they’re loaning him a Porsche, but I’m not sure that loaning of an equal car can necessarily be part of your business model. When I used to drive a BMW, they loaned me a much nicer BMW when my car was broken. So I wanted them to go slowly. They fixed it in two or three days. I’m not sure loaning you a car for a month is sustainable. So they do need to improvethat. But Steve, I don’t think charges are a problem. I feel like if you’re building chargers here in the US, you’re going to have generic ones and Tesla ones. Am I reading that wrong?
Steve Symington 47:00
Yeah, you’ll have them both and I think chargers are increasingly a non-issue, because you can pretty much go anywhere you want with the existing charging networks anymore. So and it’s only going to get better from here. It’ll be like the new gas station. So yeah, I don’t think that’s an issue.
Steve Symington 47:18
Yeah. And I think the ability to charge faster is going to happen. I also think you’re going to see improvements in home chargers, if you get the regular home charger that just plugs into regular voltage, you charge it about five miles of range per hour, if you have 220, that like triples or quadruples. So you can you know, realistically fully charge in a few hours or certainly overnight, that technology is going to improve, we’re gonna see portable charging stations, you’re gonna see, you’ll probably see cars with swappable batteries where you just pull in somewhere you’re actually seeing that with with electric scooters. Now I don’t think we’re gonna see that with Tesla. I think you’re gonna see that with like short range, you know, like the Nissan LEAF type of car that you’re using to drive around town. With that. It is time to hit our finisher. We are up in the top row. We are waving to the crowd. Here we go. This was a silly one. What’s the best national pizza chain by taste. Not operations, by operations, it’s clearly Domino’s. And most of you think by taste, it’s Domino’s. This actually started out overwhelmingly in favor of Domino’s. Papa John’s made up some ground. Pizza Hut made up some ground. Here’s the thing the 6.1% of you who said Little Caesars? Have you eaten pizza anywhere else? Because Little Caesars is an abomination. That is like – it’s two in the morning. My choices are gas station sushi, or the Little Caesars? like Steve, do you have a favorite on this list? I don’t like any of them. But if I had to pick a favorite, I would go with Domino’s.
Steve Symington 48:45
I mean, I like Domino’s, but I like Papa John’s more. So just the pizza itself like my kids want that garlic dipping sauce. So that’s pretty much where we end up going. If if it’s not a local place.
Dan Kline 48:59
And Steve, we’ll close out with one last question from ZL. Sam Bailey, sorry to put you on the spot there. “Tencent is down 7% today, do you think it’s a great play in the China space?” We’re not overly concerned that it’s down 7% today, but Steve, what are your thoughts on Tencent?
Steve Symington 49:17
Tencent is a really interesting company and one I’ve almost bought a number of times myself, it’s a heck of a lot bigger than you think. It’s funny because the reason it’s down 7% today is that one of its largest shareholders is cashing out it’s stake after you know, kind of a big pandemic rally. So they’re selling like a 2% stake in the company, which is like $14 or $15 billion. So that shows you how big this company actually is. I think they own like a 40% stake in Epic Games, which is the maker of Fortnite. They’re basically this huge video game giant media conglomerate in China, fantastic business really, and in one of the kind of certified legitimate companies in ways to sort of play China growth, specifically in media and video games. So interesting company. That’s the reason they’re down is because one of the biggest shareholders is kind of cashing out a $15 billion stake, but I wouldn’t think much of it because they could just as well be wrong.
Steve Symington 50:14
So final comment here from Joyce Hine, and I believe she’s talking about Little Caesars. It’s cheap and it’s still okay. When the pandemic ends, we will be doing a 7investing meet and greet somewhere in New Haven, Connecticut, the land of fabulous pizza. I lived in Connecticut for a decade. I worked in New Haven for four years. It was always -we would bring in our customers and buy you know, 150 pizzas and just you know, have all the customers over. That is the best place in the country to get pizza. Take that Chicago. First of all, deep dish pizza isn’t pizza. It’s like lasagna mashed with pizza. It’s fine if you think of it as a different thing, like nobody calls a calzone a portable pizza. Like you know, you have to think of it as a different thing.
Steve Symington 51:04
If you haven’t noticed Dan is a pizza snob but I’m more of you put pizza in front of me I’m going to eat it no matter what so sure it’s cheap pizza, it’s still okay but Dan’s definitely the pizza snob. So if you want good pizza go with him.
Dan Kline 51:16
I yeah, we could meet in Boston go to Santarpio’s, go to Pizzeria Regina – there are some selections. That being said we’ve run out of time. It is the end of 7investing Now. Steve, if people want to become subscribers to 7investing, they get access to all our picks. They get access to members-only calls they get Maxx Chatsko’s home phone number and his address. Maybe we don’t give them that. How would someone sign up and subscribe?
Steve Symington 51:43
Just go to 7investing.com/subscribe, pretty easy process – 17 bucks a month or $170 a year. And you get access to all of our recommendations, both the current and our past recs. We also talk about our most intriguing stocks today from among our last recommendations as well. And you know there’s a lot of value there and you also get access to our team we get to talk to you so, a lot of fun. And we love our member base. Thank you for your support everyone.
Dan Kline 52:13
If you’d like to get in touch with us, you can reach us via email at email@example.com – that’s usually Steve. That’s really for questions about our service, about your membership, about something we did or said. Generally it’s not a place to ask us to look into a stock if you’d like to interact with us. You can interact on @7investing on Twitter. We are very active on Twitter. We appreciate you voting in our polls. Steve is going to be back on Friday. Matt Cochrane is going to be joining him. Simon Erickson is going to be joining, it is going to be a jam packed show. Sam Bailey, we appreciate you putting up with all the technical difficulties we had today. And getting through it. It was not the show we expected but it worked out great. Thank you for watching. We will see you Friday.
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