Dear reader,
“All of humanity’s problems stem from our inability to sit quietly in a room alone.” So wrote Blaise Pascal, the 17th-century philosopher and tech wizard. That characteristic has spawned a huge transport industry, the focus of Lex’s analyses this week.
The car most powerfully epitomises the human desire to roam freely. So it is appropriate that Elon Musk, a Promethean advocate of free speech in the eyes of his fans, has made his billions from electric vehicles.
Billions more to come, according to Morgan Stanley. Analysts there claim a supercomputer project at Tesla could add $10tn to the company’s total addressable market.
The beauty of TAM figures for bulls is that they are not disprovable, so you can make them as large as you like. Everyone else should treat them with caution.
While “supercomputer” automatically sounds cool, the machines themselves are for the most part a mature technology that does a lot of boring data-crunching. They are like Pascal’s mechanical calculator, only bigger.
Tesla’s Dojo project is also pretty vague in scope. It appears focused on developing chips for autonomous vehicles.
Having said that, Tesla may be on the way to achieving dominance in autonomous driving technology. One remembers how Microsoft killed the desktop operating system as a competitive category with Windows. To comment on this or any other aspect of our coverage, please email me at [email protected].
It’s worth wondering whether Tesla could ever sell robocar chips to Chinese vehicle makers, given worsening east-west political and economic polarisation. Lex suggested earlier this year that businesses such as BYD could flood the European market with cheap electric vehicles, given their cost advantages. This week, the EU threatened to hit them with import tariffs if it found breaches of anti-dumping rules.
China would doubtless retaliate. That would leave European manufacturers, which have been slow to get into EVs, in a pickle. No wonder the shares of Volkswagen, Renault and Stellantis trade at a pathetic 3 to 3.5 times forward earnings.
US automakers Ford and General Motors are just as exposed to Chinese competition in the mass market segment. A strike by the United Auto Workers trade union has therefore come at a bad time for them. GM’s hopes of maintaining a North American operating margin of 10 per cent are slim.
Stiffer bilateral trade curbs would hurt GM more than Ford. But they would be inevitable if China invades Taiwan. There were 20 Chinese warships on exercises in waters around the contested island this week. Lex expects the cost of insuring Asian shipping to rise, which would put upward pressure on the rates charged by AP Moller-Maersk and its competitors.
A basic global war cover premium might cost 10 basis points of a ship’s value annually. Sailing into a serious conflict zone adds 100bp to 150bp, judging from Black Sea rates.
Cruise ships operated by Royal Caribbean and its peers will steer well clear of Taiwan, unless they want to risk situations reminiscent of the Gary Larson cartoon “The Love Boat steams into the Strait of Hormuz”. This depicts passengers partying on deck as gunboats hove into view.
Hostile natives in heavily visited cities such as Venice and Barcelona will, meanwhile, have little impact on the buoyant cruising industry.
Aviation has received a terrific boost from the resumption of mass tourism. Carriers are juggling that benefit with rising fuel and labour costs. On Wednesday, American Airlines became the latest operator to admit that profits would suffer. Airlines should consider curtailing capacity beyond anything Pratt & Whitney engine recalls have coincidentally required.
Capacity is always constrained at peak times on the UK’s dysfunctional rail network. The cocktail of labour disputes, mismanagement and underfunding has, however, helped online ticket platform Trainline. While rail operators have been closing ticket offices, Trainline’s fare sales rose 23 per cent to £197mn in the first half.
I was lukewarm on Trainline as a flotation when it came to the market in 2019. The shares are now well below the listing price and look like better value.
I will wrap up our thoughts on transport with Getir. Lex dislikes online food delivery services because they lack sustainable competitive advantage. So it hardly surprises us that the Turkey-based fast deliveries group is in talks to raise funds at a valuation of $2.5bn, compared with $12bn previously.
One Lex reader summed up the outlook in this comment: “I fancy a cheap but newish second-hand electric moped. Where’s the car boot sale of Getir inventory?”
Making carbon-neutral tracks
I’ve often wondered what went on behind the scenes when a chief executive such as Fiona Hick crashes out after a short incumbency. My guess is that the new boss says “This isn’t what I expected” to which colleagues reply “You aren’t what we had expected either.”
Hick tarried only six months as chief executive of Australian miner Fortescue. It is not clear why she stepped down. But the assertive management style of founder and executive chair Andrew “Twiggy” Forrest might have something to do with it. Gossip suggests his plan for a rapid transition into renewables may have spooked senior executives.
No such ructions at BP. Instead, chief executive Bernard Looney resigned after less than three years because he had failed to disclose the extent of past personal relationships with colleagues. He takes credit for forcing the UK oil major to face up to the energy transition. The question is whether his departure creates an opportunity for backsliding.
The International Energy Agency claimed this week that demand for hydrocarbons would peak before 2030. Lex is not so sure. Assailed by climate change denialists and lacking a basic government-backed road map for transition, bosses are losing their nerve.
Stuff I have enjoyed this week
I do not think the FT is always best at everything just because I work there. But the paper’s reporting of the Ukraine war has been dispassionate and informative. This upsum of Ukraine’s stalled summer offensive by Christopher Miller and Ben Hall is a case in point.
Outside work, I enjoyed a small exhibition on the interlocking spheres of British modernist art at the Isokon Gallery in Belsize Park, London. And I was impressed by the learning and rhetoric of Professor Richard Drayton in his 2019 Gresham lecture “Slavery and the City of London”, which I encountered while researching the subject.
The picture at the top of this column is of another scholar, St Jerome. I cheated via brutal cropping to suggest he is alone, like the everyman of Pascal’s quote. In fact, the saint’s faithful animal companions, a small dog and a large lion, doze contentedly in the foreground of the original engraving.
Enjoy your weekend, whoever you spend your quieter moments with.
Jonathan Guthrie
Head of Lex
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