Tech:Links for 18th June, 2019

  1. “”I did my first valuation of Tesla in 2013, and undershot the mark, partly because I saw its potential market as luxury cars (smaller), and partly because I under estimated how much it would be able to extract in production from the Fremont plant. Over time, I have compensated for both mistakes, giving Tesla access to a bigger (albeit, still upscale) market and more growth, while reinvesting less than the typical auto company. In spite of these adjustments, I have consistently come up with valuations well below the price, finding the stock to be valued at about half its price only a year ago. This year marks a turning point, as I find Tesla to be under valued, albeit by only a small fraction. Even in the midst of my most negative posts on Tesla, I confessed that I like the company (though not Elon Musk’s antics as CEO and financial choices) and that I would one day own the stock. That day may be here, as I put in a limit buy order at $180/share, knowing fully well that, if I do end up as a shareholder, this company will test my patience and sanity.”
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    The forever excellent Aswath Damodaran on his latest valuation of Tesla, and now he even has skin in the game. If you want to understand how to value a company, you can’t do better than Prof. Damodaran, and if you want to begin with a particularly challenging, but inevitably interesting company, you can’t do better than Tesla. For both of these reasons, worth reading in some detail.
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  2. “Since it began operations in 2010, Uber has grown to the point where it now collects over $45 billion in gross passenger revenue, and it has seized a major share of the urban car service market. But the widespread belief that it is a highly innovative and successful company has no basis in economic reality.An examination of Uber’s economics suggests that it has no hope of ever earning sustainable urban car service profits in competitive markets. Its costs are simply much higher than the market is willing to pay, as its nine years of massive losses indicate. Uber not only lacks powerful competitive advantages, but it is actually less efficient than the competitors it has been driving out of business.”
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    Speaking of tech and automobile companies, this article is an extremely bearish take on Uber – with fairly convincing reasons to boot. A very long, but ultimately very convincing (and depressing) read. The party ought to end soon.
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  3. “Uber also has a very limited ‘network’ effect, because drivers can and do jump to whatever platform offers them the best terms – indeed most Uber drivers use all available platforms, and they accept rides from the platform offering them the highest rates – and customers can do the same (most customers have multiple ride-hailing apps on the phones, and can easily choose the cheapest). This means that even if Uber survives, it will likely always remain an extremely low margin business.”
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    Another take on the same issue – I don’t necessarily agree with all the economic arguments made in the piece – for example, I think the cost of owning a car as opposed to hiring one for a drive is under-emphasized – but the broader conclusion is all but inevitable.
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  4. “The Tesla position would presumably be that the addition of LIDAR would not have materially avoided the car accident and loss of lives, but this is going to be tough to showcase since in theory any use of LIDAR is going to incrementally improve the safety odds, assuming it is used wisely, and so it’s another part of the uphill climb by Tesla to avoid getting summarily dinged for their lack of LIDAR.They also cannot make the argument that they did not know about LIDAR or were somehow unaware of it, which is quite obviously not the case, including that their self-offered anti-LIDAR rhetoric acting as their own admission that they knew about LIDAR and made a deliberate decision to intentionally exclude it.”
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    Read this article to get a sense of what LIDAR is, and why it is important (or not) in the world of autonomous driving – but also read this article to get a sense of how cost-benefit arguments work in the real world, along with a great way to understand opportunity costs.
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  5. “Americans associate electric cars with the luxury of Tesla, the unrivaled conveyance of choice for the Sand Hill Road set. But these newly assembled vehicles, part of a family of SUVs called the Tang that retails from about 240,000 yuan ($35,700), are aimed squarely at middle-class drivers in the world’s largest electric vehicle market, China. Their manufacturer, BYD Co., is in turn the No. 1 producer of plug-in vehicles globally, attracting a tiny fraction of the attention of Elon Musk’s company while powering, to a significant extent, a transition to electrified mobility that’s moving faster in China than in any other country. Founded in Shenzhen in the mid-1990s as a manufacturer of batteries for brick-size cellphones and digital cameras, BYD now has about a quarter-million employees and sells as many as 30,000 pure EVs or plug-in hybrids in China every month, most of them anything but status symbols. Its cheapest model, the e1, starts at 60,000 yuan ($8,950) after subsidies.”
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    Uber, Tesla, sure. But have you heard of BYD? Or put another way, China had to come up sooner or later.
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Links for 13th May, 2019

  1. “There should be limits, too, on the rights investors can sign away. In recent years, some companies — such as Smartsheet and Twilio — have done dual-class issues in which the extra voting rights expire after a certain number of years. These sunset provisions preserve the potential benefits of leaving initial control in the hands of founders, while avoiding the risk of creating a dynastic birthright. That’s a sensible compromise. The Securities and Exchange Commission, or the exchanges it oversees, should make such provisions mandatory.”
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    A very useful article to help understand how to think about IPO’s, Uber, Lyft valuations, mandatory disclosures from firms and how they try to get around the issue – and the excerpt above is yet another example of a favorite adage of mine: the truth always lies in the middle.
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  2. “We find that between 1300 and 1400 a 10 percentage point higher Black Death mortality rate was associated with a 8.7 percentage point fall in city population, but between 100 and 200 years later, the impact of mortality was close to zero. When we examine the spillover and general equilibrium effects of the Black Death on city populations, we similarly find negative effects in the short run, and no effects in the long run. Cities and urban systems, on average, had recovered to their pre-Plague population levels by the 16th century.”
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    A worrying article, especially towards the end, but two major takeaways for me: cities matter, and trade matters. But my major takeaway is there is (yet more) cause for worry.
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  3. “Unfortunately, the world’s most prominent specialists are rarely held accountable for their predictions, so we continue to rely on them even when their track records make clear that we should not. One study compiled a decade of annual dollar-to-euro exchange-rate predictions made by 22 international banks: Barclays, Citigroup, JPMorgan Chase, and others. Each year, every bank predicted the end-of-year exchange rate. The banks missed every single change of direction in the exchange rate. In six of the 10 years, the true exchange rate fell outside the entire range of all 22 bank forecasts.”
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    Forecasts are useless. I cannot be more serious when I say this. Forecasts are useless. But foxes are better at the impossible then the hedgehogs – this article helps you understand these terms, and their usefulness. This blog is about becoming a better fox!
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  4. “Again, one can argue that the amount of redistribution should be larger. But it would be untrue to argue that a significant amount of redistribution–like doubling the after-taxes-and-transfers share of the lowest quintile–doesn’t already happen. ”
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    The always informative Timothy Taylor on taxes, their composition, their effectiveness and the resulting redistribution in the United States of America. Also, read the book that is reviewed in this article – the entire book is worth your time, but the chapter on income tax is what I was reminded of.
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  5. “When Paul Romer expresses an opinion, it is always worthwhile to listen because it is always well-considered. In an opinion piece in the New York Times, he puts forward a proposal to restore what he terms is the “public commons” of the provision of information in support of democracy. He actually puts forward two linked proposals: one for a target on targeted ads by digital platform companies and a proposal that the tax is progressive (which may be a check on dominance). The latter is interesting but I will just focus on the former here.”
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    I do not recollect if I linked to the Paul Romer piece that is linked to in the excerpt above – in case I did not, please go ahead and read it. The rest of the current article speaks about why Romer’s proposal is a good idea, but not necessarily implementable right away.