Tesla reported gross margin dropping to 19.3% as price cuts started to affect the bottom line – the bigger story is that Tesla is now becoming a commodity company – buying a Tesla is no longer a status symbol but a middle class product, like a Volvo or Volkswagen, or a Toyota (indeed, Toyota’s gross margins hover in the same vicinity – ~19% or so). This isn’t a bad thing, per se – it’s just a different way to look at a company which, not so long ago, was a status-symbol provider in the same way a Louis Vuitton bag might be. Here’s the thing: it’s very hard to value a Toyota-like company at +$500B when Toyota itself trades for $183B (as of writing). They both have, roughly speaking, the same economic characteristics. One is more expensive than the other. It’s hard to justify.
New Zealand
The New Zealand market (NZX50, +0.3%) ended the day up, after a lackluster start of the day.
Kiwifruit farmer Seeka was down after revealing kiwifruit volumes were down -20% from the previous year, reflecting climatic events such as mild winter followed by a severe late frost, a cyclone and hail.
Australia
The Australian market (ASX200, +0.1%) was flat on a mostly week day on the market, as material stocks extend their gains.
Casino operator Star Entertainment slumped -7.4%, after announcing 500 job cuts and downgraded profit guidance and warned of potential cashflow problems due to competition from Crowns Sydney Casino. We prefer SkyCity as our preferred casino operator, as its core Auckland property operates without competition unlike Star.
In other news, Morgan Stanley’s CEO James Gorman warned that investment banking revenues won’t recovery until next year (at least) – we think we’re looking at the end of next year in terms of investment banking revenue – in the delayed recession we’re having we think it’s worth remembering the lyrics of AC/DC – “It’s a long way to the top if you wanna rock ‘n’ roll” – we see this every cycle – investment banks see a decline before a “boom” period – the difference in this cycle is which banks have profited from fixed income trading vs. the ones that haven’t (our favourite pick, JP Morgan, benefitted the most, while Goldman’s missed out somewhat).
