A top line miss from Tesla (TSLA) sent shares of the EV maker down 6.3% AH on Wednesday, dinging more investor confidence amid a rout in tech stocks. TSLA last hit the $208 level in June 2021 – when factoring in the summer split – and shares are now down nearly 50% since the beginning of the year. Production bottlenecks were cited as causes for the sales miss, as well as logistical issues with deliveries and battery supply chain pressures.
Quote: “There weren’t enough boats, there weren’t enough trains, there weren’t enough car carriers. Tesla got too big,” Elon Musk said on a conference call. “I can’t emphasize enough we have excellent demand for [the fourth quarter] and we expect to sell every car we can make as far in the future as we can see. To be frank, we’re very pedal to the metal come rain or shine. We are not reducing our production in any meaningful way, recession or not recession.”
Strong vehicle pricing still helped Tesla generate nearly $3.3B in quarterly profit, almost matching the company’s record in Q1, though it expects to finish the year just shy of its 2022 target of boosting vehicle deliveries by 50% Y/Y. In order to do so, the automaker would have to hand over 500K cars in the final three months of the year, which would be 45% more than its prior record for quarterly deliveries. Musk also floated the idea of a stock buyback of around $5B-$10B in 2023, and sees a potential path for Tesla (whose market cap is now under $700B) to be worth more than Apple (AAPL) and Saudi Aramco combined (they are currently valued at $2.3T and $2.1T, respectively).
Elsewhere: Musk commented on his pending $44B acquisition of Twitter (TWTR) after recently changing course to follow through on his purchase agreement. “I am excited about the Twitter situation,” he declared, calling it “an asset that has sort of languished for a long time but has incredible potential.” “The long-term potential for Twitter is an order of magnitude greater than its current value, although obviously, myself and the other investors are obviously overpaying for it with Twitter right now.” (75 comments)
Americans should brace for a recession, according to Amazon (NASDAQ:AMZN) founder Jeff Bezos, who has become the latest to warn about doom and gloom on the horizon. “Yep, the probabilities in this economy tell you to batten down the hatches,” he wrote on Twitter, in response to a CNBC interview of Goldman Sachs’ (GS) CEO. In the clip, David Solomon cautioned businesses to think more cautiously and to factor volatility into their economic outlooks.
Snapshot: Many have recently been warning of a coming U.S. recession, like JPMorgan (JPM) CEO Jamie Dimon, who said that the storm could arrive in the next six to nine months amid “very serious” headwinds like inflation, rising interest rates, quantitative tightening and the war in Ukraine. “The worst is yet to come,” the IMF added last week, saying the U.S. economy will continue to stall. Even President Biden conceded that a recession is a possibility, but only expects it to be “very slight” if it occurs.
Many company executives are likely to internalize Bezos’ message as he is someone who clearly has his finger on the pulse of many parts of the economy. Not only can he size up transactions taking place in the retail space, but Amazon Web Services (responsible for the bulk of the company’s profits) supports nearly a third of all cloud businesses worldwide.
Outlook: The U.S. is already in a technical recession following two straight quarters of negative real GDP growth (-1.6% in Q1 and -0.6% in Q2). Any decision on a formal recession is left up to NBER’s Business Cycle Dating Committee, which has been responsible for setting the dates of peaks and troughs of the U.S. economy since 1978. The funny thing is that the committee generally waits a while after a recession has begun to officially pronounce it, and on occasion, even after it is already over.
An escalation of Russia’s war in Ukraine is showing no signs of cooling down even as the two sides prepare for a grueling and long cold winter. Vladimir Putin has declared martial law in the four regions of Ukraine that Moscow recently annexed, giving local governors emergency powers that could lead to sweeping restrictions on travel and property seizures. The decree also orders the creation of territorial defense forces in Luhansk, Donetsk, Kherson and Zaporizhzhia, while tightening security at key facilities and checkpoints.
Quote: “We are working to solve very difficult large-scale tasks to ensure Russia’s security and safe future, to protect our people,” Putin said in televised remarks. “Those who are on the frontlines or undergoing training at firing ranges and training centers should feel our support and know that they have our big, great country and unified people behind their back.”
More sanctions could also be in the works on word that Russia has deployed Iranian-made Shahed-136 “kamikaze” drones to bolster its efforts on the battlefield. Western powers say usage of the UAVs would violate U.N. Security Council Resolution 2231, which restricted certain transfers from (or to) Iran. More than 220 drones targeting critical infrastructure have reportedly been shot down over the past month, while Kyiv has invited UN Secretary-General Antonio Guterres to inspect some of the remains it has collected.
At risk? Iran has repeatedly denied supplying any military hardware to Russia, while the Kremlin has warned the United Nations against investigating its use of drones in Ukraine. “Otherwise, we will have to reassess our collaboration with them, which is hardly in anyone’s interests,” Russia’s Deputy U.N. Ambassador Dmitry Polyanskiy declared. The events are playing out as U.N. officials negotiate with Moscow to extend and widen a July 22 deal that resumed Ukraine Black Sea grain and fertilizer exports (the pact could expire in November if an agreement is not reached).
More investigative journalism from the Wall Street Journal is reporting on how federal officials working on the government response to COVID-19 made some “well-timed financial trades” when markets tanked and rallied at the beginning of the pandemic. In fact, March 2020 was the most active month for trading by officials across the federal government, including the Department of Health and Human Services, while some officials even started trading in January 2020, when the U.S. public was largely unaware of the threat posed by the coronavirus.
Some examples: Then-Transportation Secretary Elaine Chao scooped up more than $600K in two stock funds while her agency was involved in the pandemic response, while her husband, Republican Sen. Mitch McConnell, led negotiations for a market-enhancing stimulus bill. Similarly, a deputy to top health official Anthony Fauci, Hugh Auchincloss, sold off thousands of dollars in stock funds after learning about pandemic risks in January. Treasury’s Jeff Goettman also bought Boeing (BA) shares while being involved in administering the stimulus package for the planemaker, and invested in GE (GE) before the company secured lucrative contracts to supply ventilators.
To be clear, it is very hard to convict lawmakers of insider trading, as agency ethics officials rarely have a full picture of what employees are working on or the information that they are privy to. Many of the rules center on the types of stocks officials can trade, not when they can trade, and there are no restrictions on diversified mutual funds or funds managed by external accounts. Another hurdle is proving the “material” part of “material non-public information,” as well as events that happen on the macro scale (like the pandemic) or affect entire industries.
Go deeper: Members of Congress have a lot of privileged and classified information that could move stock prices, as well as financial incentives from companies that routinely lobby Congress. Those decisions could also play a role in how much a given stock is worth, and Congress sought to counteract that in 2012 by passing a bill known as the STOCK Act. While the legislation requires lawmakers to disclose trades within 45 days, many say it doesn’t do enough to prevent insider trading and conflicts of interest. Another report by the WSJ last week centered around trades by government officials that invested in companies that lobbied their agencies for favorable policies. (8 comments)
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