Funding the farmers – with better financial services
Good signs, bad signs
High time for a check-up
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
On March 11’th 2019, Nvidia announced the acquisition of market leading high-speed interconnect company Mellanox for $6.9 billion in an all-cash deal. At first blush, the benefits touted by both companies and accepted by most commentators make sense and the deal will be immediately accretive to both EPS and revenues upon closing according to NVIDIA.
However, the clear and present threat to NVIDIA’s future success has little to do with interconnect technologies. Rather, it is the competitive challenge to their GPU solutions for data center acceleration from a broad spectrum of alternatives from the likes of Alphabet, Baidu, Intel, Xilinx, Advanced Micro Devices etc, not to mention the host of custom-ASIC accelerator startups poised to launch their products this year. The acquisition of Mellanox will do nothing to address this situation and we see it as being a distraction from where the company really needs to be focusing.
It will serve one purpose though, as a BandAid to mask the otherwise inevitable decline in its data center revenue growth in the face of ever-increasing competition.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we will provide an analysis of the performance of selected stocks that just joined the Stock Connect last week.
ZTO Express (ZTO US)‘s earnings will fail to meet the high expectations of sell-side analysts and investors who seeit as a cheap proxy for Chinese e-commerce activity.
China’s express sector revenue grew 43.5% YoY in 2016, the year ZTO went public. Last year, revenue growth was just half that (21.8%), and we expect the sector’s growth to continue to moderate over the next few years.
The express sector is also evolving in ways that will put downward pressure on profitability and require greater investment from the express companies.
We expect the profitability of ZTO’s express business to decline in the medium-term as the company adjusts to slowing demand and emerging sector trends. Our earnings estimates, which are far below consensus figures, reflect these challenges.
ZTO suffers from declining earnings quality and two accounting issues that we feel make it a risky, unattractive investment. Our 12-month target price for ZTO is US$13.31, based on 16 times our blended 2019-20 EPS estimates. We rate the stock Sell.
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Funding the farmers – with better financial services
Good signs, bad signs
High time for a check-up
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we will provide an analysis of the performance of selected stocks that just joined the Stock Connect last week.
ZTO Express (ZTO US)‘s earnings will fail to meet the high expectations of sell-side analysts and investors who seeit as a cheap proxy for Chinese e-commerce activity.
China’s express sector revenue grew 43.5% YoY in 2016, the year ZTO went public. Last year, revenue growth was just half that (21.8%), and we expect the sector’s growth to continue to moderate over the next few years.
The express sector is also evolving in ways that will put downward pressure on profitability and require greater investment from the express companies.
We expect the profitability of ZTO’s express business to decline in the medium-term as the company adjusts to slowing demand and emerging sector trends. Our earnings estimates, which are far below consensus figures, reflect these challenges.
ZTO suffers from declining earnings quality and two accounting issues that we feel make it a risky, unattractive investment. Our 12-month target price for ZTO is US$13.31, based on 16 times our blended 2019-20 EPS estimates. We rate the stock Sell.
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.
We are positive on GDS as the business remains in rude health due to strong revenue growth, rising margins and high revenue visibility. Overall, we would participate in the public offering at the placing price.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
ZTO Express (ZTO US)‘s earnings will fail to meet the high expectations of sell-side analysts and investors who seeit as a cheap proxy for Chinese e-commerce activity.
China’s express sector revenue grew 43.5% YoY in 2016, the year ZTO went public. Last year, revenue growth was just half that (21.8%), and we expect the sector’s growth to continue to moderate over the next few years.
The express sector is also evolving in ways that will put downward pressure on profitability and require greater investment from the express companies.
We expect the profitability of ZTO’s express business to decline in the medium-term as the company adjusts to slowing demand and emerging sector trends. Our earnings estimates, which are far below consensus figures, reflect these challenges.
ZTO suffers from declining earnings quality and two accounting issues that we feel make it a risky, unattractive investment. Our 12-month target price for ZTO is US$13.31, based on 16 times our blended 2019-20 EPS estimates. We rate the stock Sell.
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.
We are positive on GDS as the business remains in rude health due to strong revenue growth, rising margins and high revenue visibility. Overall, we would participate in the public offering at the placing price.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
ZTO Express (ZTO US)‘s earnings will fail to meet the high expectations of sell-side analysts and investors who seeit as a cheap proxy for Chinese e-commerce activity.
China’s express sector revenue grew 43.5% YoY in 2016, the year ZTO went public. Last year, revenue growth was just half that (21.8%), and we expect the sector’s growth to continue to moderate over the next few years.
The express sector is also evolving in ways that will put downward pressure on profitability and require greater investment from the express companies.
We expect the profitability of ZTO’s express business to decline in the medium-term as the company adjusts to slowing demand and emerging sector trends. Our earnings estimates, which are far below consensus figures, reflect these challenges.
ZTO suffers from declining earnings quality and two accounting issues that we feel make it a risky, unattractive investment. Our 12-month target price for ZTO is US$13.31, based on 16 times our blended 2019-20 EPS estimates. We rate the stock Sell.
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.
We are positive on GDS as the business remains in rude health due to strong revenue growth, rising margins and high revenue visibility. Overall, we would participate in the public offering at the placing price.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Starting with bad news in Korea, Homeplus REIT (HREIT KS)‘s IPO was pulled on the 14th of March which when it was supposed to price. The reason cited was weak demand which stemmed from growth concerns and difficulty in valuing this business.
On the other hand, Hong Kong’s IPO market is getting busier. This week alone, we had Dongzheng Automotive Finance (2718 HK) and Koolearn (1797 HK) that have already opened for bookbuilding and will price next week. We also heard that Sun Car Insurance is already started pre-marketing and it will likely open its books next week. The company had only just re-filed their draft prospectus last week.
In India, the focus is on Embassy Office Parks REIT (EOP IN) as this is the country’s first ever REIT IPO. It is also the first time there is a strategic tranche in an Indian IPO which has been taken up by Capital Group. Sumeet Singh has pointed out in his insight that with cost of debt of the REIT being at 9 – 9.25%, it is hard to fathom buying equity at a FY2020E dividend yield of 8.25%. This yield had already been inflated by the lack of interest payments. For detailed explanation, read his insight, Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond.
In other countries, we heard that Leong Hup International (LEHUP MK) is aiming to pre-market next month whereas, in Australia, there had been chatter that Prospa Advance Pty (PGL AU) may be back for an IPO again after it had beaten its own estimates from the IPO prospectus.
Accuracy Rate:
Our overall accuracy rate is 72.4% for IPOs and 63.7% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
FriendTimes Inc. (Hong Kong, >US$100m)
Frontage (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.
Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.
We are positive on GDS as the business remains in rude health due to strong revenue growth, rising margins and high revenue visibility. Overall, we would participate in the public offering at the placing price.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Starting with bad news in Korea, Homeplus REIT (HREIT KS)‘s IPO was pulled on the 14th of March which when it was supposed to price. The reason cited was weak demand which stemmed from growth concerns and difficulty in valuing this business.
On the other hand, Hong Kong’s IPO market is getting busier. This week alone, we had Dongzheng Automotive Finance (2718 HK) and Koolearn (1797 HK) that have already opened for bookbuilding and will price next week. We also heard that Sun Car Insurance is already started pre-marketing and it will likely open its books next week. The company had only just re-filed their draft prospectus last week.
In India, the focus is on Embassy Office Parks REIT (EOP IN) as this is the country’s first ever REIT IPO. It is also the first time there is a strategic tranche in an Indian IPO which has been taken up by Capital Group. Sumeet Singh has pointed out in his insight that with cost of debt of the REIT being at 9 – 9.25%, it is hard to fathom buying equity at a FY2020E dividend yield of 8.25%. This yield had already been inflated by the lack of interest payments. For detailed explanation, read his insight, Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond.
In other countries, we heard that Leong Hup International (LEHUP MK) is aiming to pre-market next month whereas, in Australia, there had been chatter that Prospa Advance Pty (PGL AU) may be back for an IPO again after it had beaten its own estimates from the IPO prospectus.
Accuracy Rate:
Our overall accuracy rate is 72.4% for IPOs and 63.7% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
FriendTimes Inc. (Hong Kong, >US$100m)
Frontage (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
For years semiconductor makers and investors have worried that Moore’s Law will end. Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Last Friday, Gds Holdings (Adr) (GDS US), the largest third-party data centre operator in China, announced the placing price of its public offering of 11.9 million ADS. At the placing price of $33.50 per share, GDS will raise net proceeds of $385.5 million which will be used for the development and acquisition of new data centres.
We are positive on GDS as the business remains in rude health due to strong revenue growth, rising margins and high revenue visibility. Overall, we would participate in the public offering at the placing price.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Starting with bad news in Korea, Homeplus REIT (HREIT KS)‘s IPO was pulled on the 14th of March which when it was supposed to price. The reason cited was weak demand which stemmed from growth concerns and difficulty in valuing this business.
On the other hand, Hong Kong’s IPO market is getting busier. This week alone, we had Dongzheng Automotive Finance (2718 HK) and Koolearn (1797 HK) that have already opened for bookbuilding and will price next week. We also heard that Sun Car Insurance is already started pre-marketing and it will likely open its books next week. The company had only just re-filed their draft prospectus last week.
In India, the focus is on Embassy Office Parks REIT (EOP IN) as this is the country’s first ever REIT IPO. It is also the first time there is a strategic tranche in an Indian IPO which has been taken up by Capital Group. Sumeet Singh has pointed out in his insight that with cost of debt of the REIT being at 9 – 9.25%, it is hard to fathom buying equity at a FY2020E dividend yield of 8.25%. This yield had already been inflated by the lack of interest payments. For detailed explanation, read his insight, Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond.
In other countries, we heard that Leong Hup International (LEHUP MK) is aiming to pre-market next month whereas, in Australia, there had been chatter that Prospa Advance Pty (PGL AU) may be back for an IPO again after it had beaten its own estimates from the IPO prospectus.
Accuracy Rate:
Our overall accuracy rate is 72.4% for IPOs and 63.7% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
FriendTimes Inc. (Hong Kong, >US$100m)
Frontage (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
For years semiconductor makers and investors have worried that Moore’s Law will end. Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.
Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months. Focus on Healthcare and Retail Names)
India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Starting with bad news in Korea, Homeplus REIT (HREIT KS)‘s IPO was pulled on the 14th of March which when it was supposed to price. The reason cited was weak demand which stemmed from growth concerns and difficulty in valuing this business.
On the other hand, Hong Kong’s IPO market is getting busier. This week alone, we had Dongzheng Automotive Finance (2718 HK) and Koolearn (1797 HK) that have already opened for bookbuilding and will price next week. We also heard that Sun Car Insurance is already started pre-marketing and it will likely open its books next week. The company had only just re-filed their draft prospectus last week.
In India, the focus is on Embassy Office Parks REIT (EOP IN) as this is the country’s first ever REIT IPO. It is also the first time there is a strategic tranche in an Indian IPO which has been taken up by Capital Group. Sumeet Singh has pointed out in his insight that with cost of debt of the REIT being at 9 – 9.25%, it is hard to fathom buying equity at a FY2020E dividend yield of 8.25%. This yield had already been inflated by the lack of interest payments. For detailed explanation, read his insight, Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond.
In other countries, we heard that Leong Hup International (LEHUP MK) is aiming to pre-market next month whereas, in Australia, there had been chatter that Prospa Advance Pty (PGL AU) may be back for an IPO again after it had beaten its own estimates from the IPO prospectus.
Accuracy Rate:
Our overall accuracy rate is 72.4% for IPOs and 63.7% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
FriendTimes Inc. (Hong Kong, >US$100m)
Frontage (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
For years semiconductor makers and investors have worried that Moore’s Law will end. Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.
Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months. Focus on Healthcare and Retail Names)
India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.
Facebook Inc A (FB US) : Mark Zuckerberg sees the light or is facing the WeChat burn? It seems like the whole tilt towards ensuring a more safe, secure environment lies in its play to emulate WeChat…eventually. But first, it needs to address specific issues of data protection, security and privacy that plague the company and possibly think around altering its current revenues via the advertisement model.
The company certainly seems to be moving towards making a token/coin and is even hiring blockchain specialists. Could it look to make a Stablecoin? Work on a M-Pesa model ? Target remittances in countries like India? It seems a long road and arduous road ahead- but it has been dropping directional hints along the way.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.
Starting with bad news in Korea, Homeplus REIT (HREIT KS)‘s IPO was pulled on the 14th of March which when it was supposed to price. The reason cited was weak demand which stemmed from growth concerns and difficulty in valuing this business.
On the other hand, Hong Kong’s IPO market is getting busier. This week alone, we had Dongzheng Automotive Finance (2718 HK) and Koolearn (1797 HK) that have already opened for bookbuilding and will price next week. We also heard that Sun Car Insurance is already started pre-marketing and it will likely open its books next week. The company had only just re-filed their draft prospectus last week.
In India, the focus is on Embassy Office Parks REIT (EOP IN) as this is the country’s first ever REIT IPO. It is also the first time there is a strategic tranche in an Indian IPO which has been taken up by Capital Group. Sumeet Singh has pointed out in his insight that with cost of debt of the REIT being at 9 – 9.25%, it is hard to fathom buying equity at a FY2020E dividend yield of 8.25%. This yield had already been inflated by the lack of interest payments. For detailed explanation, read his insight, Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond.
In other countries, we heard that Leong Hup International (LEHUP MK) is aiming to pre-market next month whereas, in Australia, there had been chatter that Prospa Advance Pty (PGL AU) may be back for an IPO again after it had beaten its own estimates from the IPO prospectus.
Accuracy Rate:
Our overall accuracy rate is 72.4% for IPOs and 63.7% for Placements
(Performance measurement criteria is explained at the end of the note)
New IPO filings
FriendTimes Inc. (Hong Kong, >US$100m)
Frontage (Hong Kong, re-filed)
Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.
For years semiconductor makers and investors have worried that Moore’s Law will end. Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.
Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months. Focus on Healthcare and Retail Names)
India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.
Facebook Inc A (FB US) : Mark Zuckerberg sees the light or is facing the WeChat burn? It seems like the whole tilt towards ensuring a more safe, secure environment lies in its play to emulate WeChat…eventually. But first, it needs to address specific issues of data protection, security and privacy that plague the company and possibly think around altering its current revenues via the advertisement model.
The company certainly seems to be moving towards making a token/coin and is even hiring blockchain specialists. Could it look to make a Stablecoin? Work on a M-Pesa model ? Target remittances in countries like India? It seems a long road and arduous road ahead- but it has been dropping directional hints along the way.
The eagerly awaited and long promised Model Y is out and it looks…like Model 3. That’s OK, just no shock and awe which Tesla really needed to jumpstart sales momentum–and a wave of sorely needed cash reservations.
Tesla Motors (TSLA US) unveiled Model Y on, perhaps not coincidentally, March 14th which also is Pi Day. Pi is the fundamental ratio which demonstrates that all circles are related–as Model Y is overwhelmingly related with the seminal Model 3 which contributes 75-80% of the newcomer’s platform and technology.
Which means Model Y may be originating with Model 3’s many inherent problems, as I discussed in Tesla’s Plan B 2.0; Y Not, just as Tesla also is juggling the ramp-up of the newly launched $35,000-base model of Model 3 along with sales expansion into Europe and China as well as building a new plant on a shoestring in Shanghai. All this just as the company also has lurched into a radical new online-only sales model with apparently little if any considered preparation (see Tesla’s New Plan: Buy Before You Try).
Another is that Model Y won’t be available until late 2020–at best–which is much later than expected. It’s still not clear when or where Model Y will be in full production or, even more critical, when Tesla will make even a penny of profit on it. Model 3 only recently became marginally profitable, excluding the likely money-losing $35k version, and sales of more profitable but aging Models S and X are in accelerating decline.
And, as I observed last week, Tesla’s track record of long delays in delivering new models coupled with Model 3’s alarming quality and reliability may seriously diminish the hoped-for early bird reservation cash which the company sorely needs to ease its liquidity crunch. At the same time, the pending arrival of Model Y over the next year or so is likely to further dampen already waning demand for Model 3.
In any case, it’s too late for Tesla to preserve profitability in the calamitous first quarter, if not for the full year.
Continue reading for Bond Angle analysis.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
