Charts of the Month - July '22

Tesla vs. Toyota

At first glance, this chart may not have much ‘shock’ value.

The ratio of a company’s Capex to Revenue is a good gauge of their investment in hard assets that are expected to generate future cash flows, relative to its size. Capex is an investment for growth as opposed to capital spent on maintenance or current operations. Said differently, Capex is cash invested in the long-term growth of the business.

Tesla and Toyota are spending about the same on Capex relative to their respective Revenues, ~9%.

This chart becomes shocking when you realize Toyota did $67 billion of revenue last quarter, vs. Tesla’s $19 billion. Do a little math and in nominal numbers, Toyota spent ~$7 billion on Capex last quarter vs. Tesla’s less than $2 billion. On average over the past five years, Toyota has spent 12x more on Capex than Tesla. Yes, Toyota spent twelve times as much as Tesla on hard assets that will fuel the future growth of the company.

We don’t want to beat the “Tesla’s competitors are coming” narrative to death, as it’s been out there for a long time now and we’re not anti-Tesla, or Musk. But there’s good reason for alarm. Toyota is coming in hot, and a quick look at their EV and Hybrid lineup either out now or coming down the pike, should be downright frightening for Tesla and their shareholders.

Honestly, I respect the hell out of what Tesla has done, not necessarily for making an amazing car and a transcendent company (no comments there), but instead for what they’ve forced their competitors to do - completely reinvent themselves on the fly to meet new consumer demands (which Tesla all but invented).

But it’s going to take a miracle for David to continue to go toe-to-toe with the Goliaths that are beginning to wake up.

It Ain’t Over Yet!

Diego has already written extensively that he doesn’t believe this bear market is over – not by a long shot.

Now, as a personal rule, I rarely believe Diego without having some empirical backup to support his sometimes slightly exaggerated claims (not his fault, it’s a byproduct of his being half Italian).

But, from a high level, and without getting overly technical, looking at the below I’m forced to somewhat agree with my amico.

Buckle. Up.

Energy Arbitrage

Jacob recently covered all things Natural Gas through a Geopolitical lens in his last report, and in our Doomberg interview we went deep on the nat gas debate as well. The topic has become mainstream as the war in Ukraine carries on and inflation, at its core being driven by high energy prices (affecting food and most consumer goods as well) has yet to find a top anywhere around the globe.

Gas price is now front and center, and as the European summer is quickly coming to an end, autumn is approaching and with it, cooler temperatures. This winter is going to be one of the most pivotal in modern times as the entire continent, and especially Germany, will depend on EU member states agreeing on lowering demand for nat gas (in the case of a full cut of imports of Russian natural gas) if they want to be able to heat their homes during winter (slight understatement). If EU history is of any guidance, political gridlocks are coming, and with instability already arising in Italy and France, the next six months are likely to be filled with plenty of future case studies of What NOT to do in an Energy Crisis.

The U.S. has promised 15 billion cubic meters of Liquid Natural Gas (LNG) to partially make up for the loss of Russian imports, but that’s only about 10% of the total imports Europe gets from Russia. For the rest, Europe will be dangerously dependent on Vladimir Putin to heat their homes as the cold roles in.