Ryan
Sep 6, 20235 min
Weekly Update
For you Americans, I hope you had a nice 4th of July! To everyone else, I hope it was a good Tuesday :)
Let’s get right into this week’s news!
Tesla
Tesla released its delivery and production numbers for Q2 and they were above expectations. The company produced about 480k vehicles, 96% of which were either Model 3’s or Model Y’s, and delivered about 460k cars. The company is now over a 1.9 million production run-rate and will be at 2 million in no time. While this seems like a lot, it’s still only 1/10th of the company’s long-term aspirations.
Because of the relatively easy year-over-year comp, production numbers for the cheaper models were up 90% and 9% QoQ. The quarterly numbers can really jump around so it’s important to zoom out and see if the company is delivering on its 50% annual production growth goal. So far, so good.
In other news, Kentucky announced that EV companies must use Tesla’s charging standard if they wish to participate in the state’s tax credit program. As noted last week, Washington and Texas have expressed interest in doing this but Kentucky has already put legislation into motion.
To round up the Tesla news, the company announced late last year, the pilot of Tesla Electric. This was a select program in Texas where Powerwall owners could make money from Tesla’s autobidder. The Powerwall is a battery that stores solar energy so that when the sun isn’t shining, energy can still be used. And autobidder is software that buys energy at low prices and sells it at higher prices. Putting these two technologies together, it turns out that some homeowners are making $150/day during the hot Texas summer.
Currently, Tesla doesn’t have bidirectional charging but that would be an interesting future. One Tesla is equivalent to about 5 Powerwalls in terms of storage so with bidirectional charging, your charged Tesla could power your home in the event of a blackout. At the latest investor day, Drew Baglino, the SVP of Powertrain and Energy said they could provide bidirectional within 2 years. But Elon was more negative on it, maybe because he just wants people to buy more Powerwalls. But it would be cool to have that functionality as a backup.
In the future, as things just get cheaper, it will be fairly normal for a house to have Tesla solar panels, an Enphase inverter, a Powerwall, and then a Tesla in the garage. The energy from the sun will be stored and sold back to the grid when it’s profitable to do so and then, of course, your Tesla will be charged as well. It’s quite likely that our energy expenditures will be more like an investment where we get paid back over time rather than spending several hundred dollars per month. It’s expensive to buy Powerwalls, solar panels, and a Tesla, but after the investment is paid off, it would be very nice to not pay for gas or electricity. That’s still a long way off because the pay back periods can still be quite long but Tesla could eventually replace your local utility.
Snowflake
Amidst the Snowflake Summit and investor day flurry, one piece of news that went under the radar was that the company received level 4 clearance for the Department of Defense. The details don’t matter as much as the fact that Snowflake is becoming a safe choice for decision makers. As part of its recently announced Government cloud, this authorization will enable the company to sell more into the public sphere.
Snowflake also invested in two new start-ups, Reka and Cart.com. Reka is a startup that recently came out of stealth mode, founded by DeepMind researchers. The company has developed a way to make large-language-models more easily deployable for enterprise use cases. If that sounds like gibberish, it’s basically trying to make models that are more specific to individual business problems rather than a general sort of GPT-3 answer. And Cart.com is an e-commerce platform that provides end-to-end solutions for businesses looking to establish or expand their online presence. It offers a range of services, including website development, order fulfillment, inventory management, and marketing support. I like how Snowflake’s venture arm actually invests in promising companies that have partnerships with Snowflake. I think it’s a good capital use rather than keeping a bunch of cash on the balance sheet.
New Companies
Sometimes an interesting company filter is the amount of exciting news you can find. This is very subjective since it’s whatever piques your own curiosity but it can be helpful because I do believe it’s important to really understand a company well if you’re likely to hold on for a long time. Otherwise, I think the only way to have super long holding periods is to have a hard and fast rule that you never sell. But for me, there are two companies that really stick out — the first is Tesla. There is so much Tesla content out there and the company is always announcing new factories, new products, and Elon is always saying crazy stuff. All of this generally means that my conviction grows stronger over time as I understand the long-term vision and see tangible progress towards the end-goal.
The other company is Nvidia, a stock I haven’t owned for a long time – to my absolute detriment. I have underestimated the company time and time again and it has proven me wrong many times over. But there is always some conference or some very technical news out there on Nvidia. To be honest, I haven’t deserved to hold onto the company because a lot of the technical details go right over my head. I’ve spent hours studying the company but it is fairly nebulous to me because I haven’t used CUDA and don’t truly understand the software lock-in aspects to the business. I trust Jensen Huang, the founder, immensely and I believe he’s one of the best vision-casters but sometimes it’s hard for me to have that as the sole investment thesis. But now, I feel like I’ve missed the boat on Nvidia. At a trillion dollar market cap, how much higher could it go? On the other hand, there is this slide from the Tesla AI Twitter account that estimates Tesla’s compute needs going up 30x over the next 18 months. And Nvidia will literally be supply-constrained for the next year. They can’t make GPUs fast enough at this point. All of that VC AI money is going straight into Nvidia GPUs. Maybe it really could be a $10 trillion company one day if it truly empowers a gigantic shift in how things are done through AI. That seems crazy but it’s quite possible that, by the end of fiscal 2025, Nvidia could be doing like $30 billion in EBIT. After all, next quarter’s run-rate alone is almost $20 billion. And the company will be growing well over 50% by then. At a 50x multiple, that’s a 50% return in a little over 18 months. The valuation is definitely high but not so high that there is absolutely no room for forward returns. That slide about a 30x increase is stuck in my mind but that capacity won’t be wholly serviced by Nvidia. Tesla will try to create some of its own infrastructure, especially as Dojo is supposed to launch this month. I feel more comfortable with Tesla’s valuation and the AI optionality. But Nvidia could still have legs as an investment. At this point, I’m just rambling but the main point I wanted to get across is that it’s a superpower to follow companies that really pique your interest. The virtuous cycle of deeper understanding allows you to hold through the tough times and you’ll be more engaged and excited about the future. The numbers have to back up the narrative but if the company is profitable and growing and you’re really excited about it, it’s quite likely that you’ll make money if you have a really long time horizon. Ideally the valuation is reasonable as well, but I think it’s underrated to really believe in the company you’re investing in.