Brief China: Tesla  – Now We Know The Y, But Not the How and more

In this briefing:

1. Tesla  – Now We Know The Y, But Not the How
2. China Housing: Price Growth Slowing Down, With YTD Y/Y Decline In Volumes
3. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019
4. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending
5. NASDAQ:GDS Placement – Visible Growth, Additional Ping An Investment

1. Tesla  – Now We Know The Y, But Not the How

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).

No wonder Tesla’s Vice President of Engineering Michael Schwekutsch just quit, an ominous signal.

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.

2. China Housing: Price Growth Slowing Down, With YTD Y/Y Decline In Volumes

The data released by NBS over the past 2 days shows the market for new home sales in China continues to slow down, with volumes in decline on a year-to-date year-on-year measure for January-February. Price growth is slowing month-on-month, though by one measure still rising faster year-on-year.

3. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019

The last three years have been characterized by significant M&A activity in the upstream oil and gas industry. As the oil cycle recovered from the price bottom in January 2016, lower asset prices and corporate valuations created opportunities for the companies with a stronger balance sheet to grow inorganically while their weaker competitors were forced to downsize their portfolios. 2018, in particular, has seen a surge of corporate M&A which has been driving consolidation in the industry. This insight examines the trends that have shaped the M&A markets since 2016 with a closer view of 2018 and the outlook for 2019.

Exhibit 1: M&A volume compared to the E&P index and the oil price since 2016

4. Koolearn (新东方在线) IPO Review – Yet to See Results from Increased Spending

Koolearn (1797 HK) is looking to raise up to US$S234m in its upcoming IPO.  We have previously covered the company in:

• Koolearn (新东方在线) Pre-IPO – Profitable Online Edu Company but Poor Sentiment Weighs
• New Regulatory Tightening on Online Education Reads Badly on Koolearn IPO

In this insight, we will look at the updates on financials and operating metrics, compare it to other listed online education companies, and run the deal through our framework.

The increase in spending on marketing has not yielded the intended results as the growth rates of student enrollment and gross billings slowing down. Furthermore, aggressive spending behavior is similar to that of STG and LAIX and both companies did not perform well post listing.

5. NASDAQ:GDS Placement – Visible Growth, Additional Ping An Investment

GDS Holding, the largest carrier-neutral, cloud-neutral data centre operator in China, is raising USD 400 million from a private placement. The deal was launched last night (US time) post the company’s results announcement. In this insight, we will cover: 

• Details of the deal
• Key takeaways from its 4Q2018 results
• USD 150 million investment by Ping An
• Its shareholders
• The score in our Placement Framework