I went on CNBC earlier this week to chat with Carl Quintanilla and Deirdre Bosa about our firm’s latest deep-dive research presentation on Tesla, which was published earlier this week. We didn’t have time to review each of the 91 pages of our presentation on live TV—shocking, I know—but it was nonetheless nice to talk through the highlights of our research and analysis. If you haven’t had a chance to review the presentation, here’s a link to our report. From the report’s summary:
“Our high-level view, which is based on several years of fundamental research, suggests that Tesla’s competitive advantages and growth trajectory over the next several years are still widely under-appreciated. This dynamic has set up one of the most attractive investment scenarios we have come across in our firm’s collective experience. Conventional Wall Street analysis consistently undervalues Tesla’s multiple business lines, its massive scale, its expanding margin profile, its leading revolution in complex manufacturing, its approach to real-world AI, its vertical integration, its software stack, and much more… If our thesis and investment research proves correct, Tesla shareholders would enjoy a profound investment return over the next several years, as detailed in the report.”
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Tech is a crowbar
This week, after Netflix reported a tough quarter, I was reminded of a smart Benedict Evans essay from 2019. The piece, titled “Netflix is not a tech company,” makes the argument that any perception of Netflix as a technology company is flawed. Rather, he argues, “Netflix is a television company using tech as a crowbar for market entry… The tech has to be good, but it’s still fundamentally a commodity, and all of the questions that matter are TV questions.”
“The more that we see new companies using software to create new businesses in industries outside of technology, the more generally this applies. In particular, I find this a useful way to look at, for example, the explosion of so-called ‘D2C’ – companies that are creating new consumer goods and selling them online ‘directly to consumers’ instead of going through existing retailing channels (at least to begin with). For all of these companies, it’s crucial to execute the online channel properly – the user acquisition model and funnel and browsing and shopping cart and logistics and so on all have to be good. It’s not easy to do this, and we often see legacy, physical retailers struggling. But again, executing this properly is not the same as defensibility. Selling online per se – even selling online really well – is fundamentally a commodity.”
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“The long run is simply the sum total of many short-runs strung together”
I enjoyed this Q1 Investor Letter from Kovitz, a value-oriented firm based out of Chicago. The letter hits on a range of subjects—from long-term investing and a new position in Spotify—but it primarily focuses on the current macro environment and some of the inflationary pressures that we’re all seeing. Perhaps most importantly, the firm comes to the relatively straightforward conclusion that I myself share: You have to stay focused, and you have to play the long-game. “Even if you knew – for certain – we were heading into a period of high inflation, how would you react?” Kovitz writes. “You would want to hold equity in a portfolio of businesses with durable competitive advantages that have the ability to pass through price increases greater than or equal to the inflation in their costs and a portfolio of bonds that displays minimal sensitivity to changes in interest rates and credit conditions
“That’s not to say that the short-run is irrelevant. After all, the long run is simply the sum total of many short-runs strung together. The key to maintaining a long-term focus is not to blissfully ignore what is happening in the now, but to acknowledge two fundamental principles. First, short-term movements in asset prices are inherently unpredictable as all sorts of market participants, many of whom have entirely different goals and motivations than us or our clients, move prices to an uneasy equilibrium on a daily basis. Second, history has shown us that the twin engines of human ingenuity and market-based capitalism are exceedingly good at driving capital to its highest and best use, and, over time, this process breeds progress, prosperity, and profit.”
“The key appeal for me is that he achieves all this using a wildly polymathic combination of neurology, psychology, philosophy, mythology and poetry. I have never encountered anyone who has assembled such a meaningful array of insights. So much modern non-fiction has the goal of enhancing characteristically left hemispheric ways of thinking. More objective rationality will solve all our problems. Yet McGilchrist persuasively argues that ‘the right hemisphere is responsible for, in every case, the more important part of our ability to come to an understanding of the world, whether that be via intuition and imagination, or, no less, via science and reason.’”
“Texas Instruments designs and manufactures semiconductors and other integrated circuits. The company sells that technology to electronic designers around the world. Listen as Brett and Ryan ask Jon questions about the company, its business model, and valuation.”
“In six months, Tesla has become the second largest insurer of Tesla vehicles in the state of Texas. By this summer, Kirkhorn believes that Tesla will be the largest insurer of Tesla vehicles, period. Rapid adoption is attributed to Tesla’s lower insurance prices, since both the driver and Tesla receive real-time driving feedback that impacts premiums. Traditional auto insurance won’t be able to compete because they will lack the vertically integrated, real-time data that Tesla can share and optimize. Regular insurance companies offer a tracking dongle to monitor driving habits and provide a discount, but those solutions fall short of the speed and gamification of Tesla’s good driver feedback loop. Separately, real-time feedback improves driving habits which make cars safer and lowers the risk to the insurer.”
This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the investments or strategies referenced were or will be profitable, or that investment recommendations or decisions we make in the future will be profitable. This article contains links to 3rd party websites and is used for informational purposes only. This does not constitute as an endorsement of any kind. While Nightview uses sources it considers to be reliable, no guarantee is made regarding the accuracy of information or data provided by third-party sources. Nightview Capital Management, LLC (Nightview Capital) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request.
Welcome to The Nightcrawler, a weekly collection of thought-provoking articles and analysis on technology, innovation, and long-term investing. The Nightcrawler is published every Friday evening by Eric Markowitz, Nightview Capital’s Director of Research. Subscribe below. In this evening’s email… Quote of the week: “Doubt is not a pleasant condition, but certainty is absurd.” Voltaire Embracing uncertainty as a competitive edge In …
