Wednesday 05/02/20

1. In CAR NEWS, EU/US fear parts shortages due to coronavirus, BoJo moves the goalposts for “dirty” cars and Tesla goes higher while Ford’s operating income falls
2. In RETAIL NEWS, Macy’s announces store closures, Ikea plans to shut a UK store and Kantar stats show supermarket winners and losers
3. In INDIVIDUAL COMPANY NEWS, Snap adds users (as does Disney+) and eBay gets an offer
4. In OTHER NEWS, I bring you the Sapporo ice festival…

So the coronavirus hits supply chains, BoJo cracks down further on “dirty” cars, Tesla continues to go bananas and Ford suffers…

EU and US carmakers warn ‘weeks away’ from China parts shortage (Financial Times, Edward White, Song Jung-a, Joe Miller and Peter Campbell) shows how the effects of the coronavirus are spreading to industry as senior execs at car manufacturers say that plants in the US and Europe may face imminent closure due to dwindling supplies of Chinese car parts. Hyundai said yesterday that it had to close all of its South Korean car factories for precisely this reason and it now looking for new sources. * SO WHAT? * Many analysts expect the effect of the virus on car sales and supply of Chinese-made parts will be worse than that of the SARS outbreak in 2003 because the country has become a much bigger manufacturing hub in the intervening years. Travel restrictions and factory closures in the country that have been imposed in order to stop the spread of the virus have led to a dwindling of supply. Given that no-one knows how long this will last, car makers and parts suppliers are being forced to think of contingency plans and potential closures. All of this is exposing supply chain weaknesses and when this outbreak eventually loses momentum, it will give everyone food for thought regarding their future diversification. Perhaps ultimately, this will be good news for smaller suppliers outside China if customers decide to broaden their supplier lists.

Carmakers face soaring costs as Johnson ‘moves the goalposts’ (Daily Telegraph, Alan Tovey) shows that the announcement Boris Johnson made yesterday that the deadline for the end of sales of new hybrid, petrol and diesels (basically, all cars with an internal combustion engine) will be brought forward from 2040 to 2035 has been criticised by automotive companies who would face huge costs and shortages of battery materials. * SO WHAT? * This is a massive storm in a teacup and the auto manufacturers are just complaining for the sake of it. 15 years is ages away and all sorts of tech advances can be made in that time. IMO, the manufacturers are bound to object because if they don’t, they risk looking like push-overs. No doubt green campaigners will say this isn’t soon enough, but I guess you can never please everybody.

I mentioned Tesla’s incredible share price yesterday, but it is still a major talking point today. Saudi Arabia wealth fund misses out on big Tesla spoils (Daily Telegraph, Olivia Rudgard) shows that the kingdom’s massive sovereign wealth fund has missed out on the most recent rally as an SEC filing shows that the Saudi Public Investment Fund sold almost all of its 8.2m shares in the company over the final quarter of last year. Investors have been going crazy for Tesla’s progress on its new China factory, two consecutive quarters of ACTUAL profitability and the prospect of two new models – the Model Y and the Cybertruck – going on sale in the near future (unless there are delays 😜). Short-sellers face wipeout as Tesla shares rocket up (The Times, Tom Howard) shows that sceptical hedge funds are another party to have lost out massively from Tesla’s rally because many of them bet a lot of money that the shares would go down in value. Shares in the company have more than doubled since the start of this year and they are up a whopping 400% since June. According to Data Group S3 Partners, short-sellers have already lost almost $8bn in 2020 alone! * SO WHAT? * I continue to think that Tesla’s valuation is absolutely ridiculous (it’s currently worth more than VW, Ford and General Motors combined!), but I guess you can’t argue with momentum. Although it is the most shorted stock in America, it continues to rise on hopes for the future and, as Tesla: death or glory (Financial Times, Lex) points out, momentum trading algorithms magnify share price moves in large-cap stocks. If more people continue to believe the hype, maybe Tesla’s belief will become self-perpetuating – but I still believe this is based on very shaky foundations.

In contrast to this, Ford’s operating income falls by two-thirds (Wall Street Journal, Mike Colias) highlights a poor fourth quarter performance and a downbeat outlook for 2020, sending the share price down by about 10% in after-hours trading. The company blamed problematic product launches of the Explorer and Escape SUVs and its Super Duty pickup truck as well as rising warranty costs and a $600m bonus payout to United Auto Workers. It has also suffered more than other overseas manufacturers in the Chinese market due to having a stale model line-up. * SO WHAT? * CEO Jim Hackett was brought into Ford in May 2017 in order to revitalise the company.  Ford has yet to return to earnings growth and profitability outside its domestic market despite cutting jobs and facilities all over the place. There is still a LOT of work to do although obviously, there will be increasing speculation as to whether this is a Ford problem or a Jim Hackett problem. What a contrast to Tesla’s current success!

It’s all going on with Macy’s, Ikea and UK supermarkets…

Macy’s to close 125 department stores, exit weakest malls (Wall Street Journal, Suzanne Kapner) shows that the troubled department store is having to cut about 20% of its outlets over the next five years as consumer tastes continue to evolve. It will also be cutting around 10% of its corporate and support staff (about 2,000 jobs) and shutting down a number of offices, including a dual HQ in Cincinatti. * SO WHAT? * This is a far cry from when the company operated over 800 department stores, including the Bloomingdale’s chain, but it just has to change – and QUICK – in order to survive. On the upside, the company has already refurbished 150 of its best performing locations, with another 100 to come this year, but it is obvious that the company is against the clock. Department stores everywhere are suffering, so it’s absolutely vital that management makes huge (and often painful) changes in order to ensure long term survival.

In Ikea to make first UK store closure as visitor numbers disappoint (Financial Times, Patricia Nilsson) we see that Ikea has decided to shut its multi-storey Coventry store, which has been continuously loss-making since it opened in 2007. 352 staff will be in consultation and the store will close in the summer. Ikea currently has another 21 stores in the UK. * SO WHAT? * This is no doubt a part of Ikea’s long-term plan to abandon/broaden its out-of-town “big

box” format to open smaller town-centre formats. It recently bought a shopping centre in Hammersmith and has already opened city centre stores in Paris and Moscow as part of the new initiative. It seems that Coventry’s seven storey behemoth proved to be just too big.

Dry January boosts low-alcohol sales for UK supermarkets (The Guardian, Zoe Wood) cites the latest data from Kantar which shows that sales of no-alcohol and low-alcohol beer surged by 37% in January, with demand for adult soft drinks rose by 3%. Euromonitor analysts have pointed out that UK sales of no-alcohol and low-alcohol beer have doubled over the last four years. Veganuary has also grown in popularity and helped sales of meat substitutes like soya mince and veggie burgers. * SO WHAT? * I think that people’s general desire to have healthier lifestyles with minimal discomfort have coincided with/driven vast improvements in alcohol and meat alternatives. I have personally found this to be true! For instance, I happen to like Brewdog’s Punk IPA (although I must say that Elvis Juice is my absolute fave), but when I went to a barbecue over the summer I had Brewdog’s Nanny State – which has NO alcohol. I was amazed at how beer-like it was – and I continue to experience the same amazement at the taste of Beyond Meat’s burgers. BTW, I have not been paid to say this – I am just telling you this as an average consumer. Also anecdotally, one of my alcohol-loving friends, who has a very senior role in the wine business, did dry January and “forced” himself to drink alcohol alternatives. His conclusion: no/low-alcohol beer – great, no/low-alcohol wine – rubbish! 😁

Snap and Disney+ add users and eBay fields an offer…

Snap adds users despite fierce competition, though guidance disappoints (Wall Street Journal, Georgia Wells) highlights a quarterly increase in users but the revenue increase and 2020 outlook fell short of analyst expectations, sending the share price down by over 10% in after-hours trading. * SO WHAT? * Snap has been doing well from selling ads, but is facing increasing competition from the likes of ByteDance’s TikTok. The company’s share price also suffered from having to pay $187.5m in legal costs related to its 2017 IPO. The company has yet to report a profit since flotation.

Subscribers boost for Walt Disney (The Times, Robert Miller) shows that, although not yet three months old, Disney+ managed to attract 26.5m subscribers by the end of December. This was above analyst expectations and

shows that it is on its way to catching up with Netflix and Amazon Prime Video. Disney itself announced a 36% increase in revenues with a superb performance from its film studios.

In NYSE owner Intercontinental Exchange makes takeover offer for eBay (Wall Street Journal, Cara Lombardo and Corrie Driesbusch) we see that ICE’s offer could value eBay at over $30bn, in its latest approach to buy the online auction site. There are no formal talks going on currently and ICE issued a statement late on yesterday confirming its interest. ICE is predominantly interested in eBay’s core marketplace business and not its classifieds business, which eBay has considered selling off for about $10bn. ICE’s shareholders expressed their displeasure with the potential purchase by selling ICE’s shares down by 7.5% while eBay’s rose by 8.8%. * SO WHAT? * eBay is particularly vulnerable to takeover approaches at the moment as it doesn’t have a permanent CEO (the last one left in September) and recently reported declining quarterly profits and a downbeat outlook for revenues. We’ll just have to see how this pans out.

And finally, in other news…

As some of you know, I did Law & Japanese at uni many years ago – and two years of that involved me studying at a university in Tokyo. Since then I also worked as a stockbroker for two-and-a-half years in Tokyo and over all that time, I really wanted to go to the world-famous Sapporo Ice Festival! Unfortunately, it was one of those things I never managed to get round to (that, and going to watch sumo wrestlers train), but it kicked off yesterday, as reported in Sapporo Snow Festival opens amid coronavirus fears and unusually warm winter (The Japan Times, https://tinyurl.com/re9vqob). It sounds like it will be a bit muted this year, though, given the coronavirus outbreak…