Entrepreneur

F’king hell mate

Follow the data, people. Apologies for the amount of climate change related posts of late. It is the climate alarmist silly season. The video above shows how easy it is to manipulate mindsets. Good to see that our PM Scott Morrison was thinking about smart drive-thrus. After all, as we showed, kids love McDonald’s ahead of climate strikes so merging technologies and fast food should connect the next generation. Uber should be looking to develop their rideshare app to go via fast-food chains. ScoMo has his finger on the pulse.

Atlassian billionaire Mike Cannon-Brookes doesn’t agree although he did reveal what an expensive Bellevue Hill private boy school education does for teaching how to respect the highest public office in Australia. ScoMo was dead right not to attend a summit where the organizers deliberately banned those from coal-related nations from speaking whilst demanding their cash. No need to join a summit where most of the attendees are from nations with high levels of corruption and have a sole purpose to cash in on the guilt of weak-willed western nations.

Maybe MC-B should reflect on what the UN summit does to cause children to meltdown thanks to irresponsible adults feeding them with unfounded scaremongering. That is where the anger should have been placed in that room. Who needs to show up? Then again behaving like children is a bit of a theme at climate summits. Profanity too.

Being a successful software developer doesn’t always extend to being an axe in other fields. CM also made reference to why MC-B should be supporting the Minerals Council of Austalia as so much of his business actually relies on it.

Why Gerry Harvey’s comments on diversity obsessed companies speak more about our superannuation fund managers

Harvey Norman is currently valued at over $5.1bn, which is c.4x the combined value of Myer and David Jones. Good on Gerry Harvey for getting stuck into the stupidity of diversity quota obsessed boards. He is right. Why are certain funds requesting Harvey Norman hit these soft and irrelevant targets adopted by David Jones & Myer so they can invest under their self imposed ESG guidelines? Surely any company’s performance (assuming they aren’t illegally exploiting child labour) should be all that matters to shareholders? If it works without this gender balance nonsense why fight to change a winning formula?

If anyone is ever fortunate enough to meet Gerry Harvey’s wife, Katie Page (the CEO), it isn’t hard to work out that her gender wasn’t a selection criteria. Fistfuls of competence were. She gets it and not for one fleeting second could anyone ever get the idea that she plays up to the gender card. An utterly pleasant, generous and intelligent individual.

If Gerry Harvey & Katie Page thought Harvey Norman shareholders’ best interests were served by an all female board it would done so based on skill and ability to add value. The gender wouldn’t even be a factor.

Have you noticed why Harvey Norman hasn’t followed the group think pervading all the other companies who pulled their adverts off the Alan Jones Breakfast Show? Because Harvey Norman doesn’t pretend to judge the personal political beliefs of its customers. They only wish to provide the best possible goods that meet market demand, not chase imaginary pixies in the quest to morally preen. However it perfectly describes the decision making processes inside less competent boards when they blindly follow the herd rather than independently validate scenarios based on data, relevance and common sense. We now know over 40 companies didn’t.

The only diversity required is that of thought – not gender, race, sexual preference or religion. However don’t be surprised to see locals run Harvey Norman’s overseas businesses – driven by the fact they understand local conditions better than a helicoptered expat.

Maybe it is high time these superannuation funds actually decide to do some homework on the companies they invest in. To drop this focus on nanny-state driven diversity targets and actually look at the companies themselves as “businesses”.

CM guarantees that the companies that focus on this socially constructed diversity balance nonsense will severely underperform when tough times approach. Because decisive leadership in a crisis can be found with leaders like Katie Page, not with those companies that put everything else but ability as the key selection criteria.

The bigger concern down the line will be that these CSR/ESG and equality obsessed fund managers will have parked so much money in the wrong names that the retirements of millions of Aussies will be severely crimped by this muck. Let there be no mistake – super holders will not thank these woke investors for chasing irrelevant internal constructs over viable businesses when reality dawns that they have much less than they anticipated for retirement. Maybe that is what CM should have said to the ATO when he set up his SMSF.

Why doesn’t Atlassian lead the charge if it is such a great idea?

Coal.png

Atlassian Co-Founder Mike Cannon-Brookes (MCB) has put forward a vision that is so compelling for Australia to junk its $70bn coal industry, it is a real wonder why he has not decided to deploy the tech giant’s own capital to seize those obvious riches? He believes coal will be worth zero in 15-25 years. If it is such a dead industry, can he explain why China’s coal-fired power (great infographics here) has grown from 200GW in 2000 to over 900GW today? Or India that has grown from 61GW to 221GW of coal-fired power gen? Why would Adani persevere in the face of 8 years of government and regulatory roadblocks in Queensland if coal wasn’t on the menu for India’s future?

The International Energy Agency (IEA) notes the following on coal,

Coal power generation increased 3% in 2018 (similar to the 2017 increase), and for the first time crossed the 10 000 TWh mark. Coal remains firmly in place as the largest source of power at 38% of overall generation. Growth was mainly in Asia, particularly in China and India.

Note in the following map, yellow and red are levels of intensity and in operation. Grey is that idled or shut down.

Coal Fired Power.png

Global wind and solar installations account for about the same as China’s current coal-fired power capacity.

MCB’s idea that we should export the sun and wind is utterly fanciful. The amount of transmission loss over distances in Australia would be massive. Our own energy market operator, AEMO, noted that energy transmission losses for those wind and solar farms located furthest from the main load hubs, in north Queensland, western NSW and some in Victoria could suffer marginal loss factors (MLF) of up to 22%.

To think our closest neighbours – New Zealand, Papua New Guinea & East Timor – are at least 200km away from our extremities. At least 500km to major city centres like Port Moresby. That is assuming our ecomentalist Department of Environment would fast track approval for Cape York and the Daintree Forest to be logged and turned into a wind and solar park to then run some cable to Port Moresby. The problem with MLF is that if Port Moresby demanded 1MW of energy, then it would need to pay for more than it needed to anticipate the MLF which would grow the further the demand was from the main load hubs that could supply it.

To add to the problem, Australia’s ridiculously high power prices would be completely unattractive to the likes of Papua New Guinea. They would be better off ignoring Australia’s transmission and self-supply. That is exactly what it is doing. PNG currently get 30% of its power from hydro, 40% from gas and 24% from oil. Note it has signed a memorandum of agreement to install, you guessed it, a 60MW coal-fired power station in Lae. Energy security is on the menu.

MCB has suggested we set up local manufacturing to harness all of our local resources. Once again, a great idea on paper, but in practice, our prowess in low-cost manufacturing has a terrible track record. The now defunct auto industry is exhibit A on that plan.

As is so often the case for celebrity billionaires, thought bubbles are often free to them but costly to others. Tesla shareholders know that feeling. Who could forget JCB’s retweet of Greta Thunberg at the time of the election, imploring Australians to “not f*ck it up“??

MCB may drive a Tesla and have plans to make Atlassian 100% powered by renewables by 2025 but for the sake of shareholders it best he sticks to his core business unless he plans to divert capital to diversify Atlassian and harness this green future. Perhaps he should put Greta Thunberg on the Atlassian board as an executive director on renewable exports?

Apple to buy Tesla? Is Tim Cook on autopilot?

If Apple truly stumped up for Tesla that would make two companies that are complete novices at auto manufacturing. It would be the Apple Lisa of the auto world.

Worse for Apple it would signal that the world’s largest company is completely out of creative ideas and its existing product line up was truly approaching stall speed. It already is but and the lack of transparency only adds to doubts.

Rumours circulated that Apple considered a $240/share purchase back in 2013. 6 years ago Tesla was full of hope. Now the stock is full of hype. It has been a litany of disasters from fatal crashes, production hell all the way to complete wishful thinking on Level 5 autonomous driving which Israeli company Mobileye, a leader in the field, believes is decades off.

Let’s assume a $240 per share deal was done. Apple would pay around $40bn and assume another $12bn or so in debt.

The most dangerous strategy for highly successful companies is to throw spaghetti at a wall and hope some sticks. Tesla is by no means an overnight repair job. It needs the skills of Toyota to turn it around. Don’t forget Apple has no manufacturing expertise as its products are all built by 3rd parties. Toyota rescued Porsche several decades back and Lockheed Martin called in the production efficiency king to help build the F-35 Joint Strike Fighter better.

It reminds CM of the time Hoya bought Pentax back in 2007. Such was the earnings dilution against the incumbent high margin business, hunting for growth sent Hoya shares down 50% soon after the deal. Hoya was completely dominant in glass photomasks. Yet the $1bn merger of a 2’d tier camera/optics maker was thought of by the founder’s grandson as a total failure and divested many divisions.

Losses continue to mount at Tesla, senior management departures are a revolving door and demand is slowing. The recent cap raise sees investors well under water. The Maxwell Tech deal looks a dud for the management to accept an all share rather than an all share deal (if the tech is so leading edge).

If Apple truly wanted a car deal, it could buy an established maker like Fiat Chrysler with decades of production expertise and global reach for half the price. Not to mention a wide choice of vehicle styles to broaden the appeal to customers.

Although the history of car mergers, even between industry players, has led to some pretty disastrous outcomes. Daimler overpaid for Chrysler so badly that its shares cratered 80%. BMW bought Rover from Honda. Fail. Even Land Rover had to be sold by the Bavarians. Ford ended up selling most of its Premier Automotive Group stable – Aston, Lincoln, Jaguar, Land Rover and Volvo. Just Lincoln remains.

Tech companies meddling in the automobile sector reveals a graveyard of sad stories. Korean analysts jumped for joy when Bosch sold out its stake in the Li-ion batteries JV SB Li-motive. How could a Korean tech company proclaim to have a better read on the global auto industry than Bosch, a supplier to the major auto makers for over 100 years? Panasonic is already kicking itself hrs over the Tesla deal and management is highly unimpressed with Musk after his disparaging remarks made about production.

Have investors ever wondered why Tesla has no mainstream suppliers? Many are obscure parts companies from Taiwan. More established auto suppliers have been burnt by experiments before and they’ll only sign up for makers who have much better prospects and track records.

If anyone thinks Apple buying Tesla makes sense they need their heads read. The last 6 years have detracted value. Pre-pubescent fund managers who have never seen a cycle might see the value of millennial nirvana but the damage to Apple would be considerable. Just because Apple has been so successful doesn’t mean it won’t make mistakes. Tesla would be a disaster. It is in the product creativity blackhole of following the path of Hoya. It would be better to flutter at a casino.

Post election Swedish slap

To those international readers, Clive Palmer spent $60m on ads for his United Australia Party and gained no seats in either House or Reps or Senate In the federal election last week. Ouch.

Ding dong the switch is dead

Morgan Stanley has finally lowered its bearish scenario on Tesla from $97 to $10. CM wrote in October 2017 that the shares based on production of 500,000 vehicles was worth no more than $28 (refer to report page 5). That was based on rosy scenarios. Sadly CM thinks Tesla will be bought for a song by the Chinese. Maybe $4.20 a share instead of $420 “funding secured” levels.

The stock breached $200 yesterday for the first time since late 2016.

Morgan Stanley analyst, Adam Jonas, has still kept its base case scenario at $230 per share. His bull case is $391.

Where is the conviction? To drop a bear case target by 90% must surely mean the base case is far lower than presently assumed.

Jonas must assume the bear case is actually the base case. Sell side brokers love to hide behind scenario analysis to cop out having to get off the fence. His compliance department probably prevents him from realizing $10 is his true heart.

Tesla was always playing in a market that it had no prior experience. It is not to say the products didn’t have promise. The problem was the execution. Too much senior management turnover, missed targets, poor quality and too many Tweets from Musk.

The amount of bad press arising from a lack of service centers has driven customers to moan on social media at its amateur approach. The fragile dreams of being an early adopter are being shattered. Cash burn remains high and deliveries remain low. Some pundits think Tesla orders are under real pressure in 2Q 2019.

The recent all share deal with Maxwell Technologies has seen those holders -20% since the transaction a few weeks ago. CM argued how a company with such revolutionary technology could sell itself for all shares in a debt-ridden loss making like Tesla? If the technology was of real value PE funds would have snapped it up or at the very least made a bid in cash. That none was made speaks volumes about what was bought.

All of the arguments hold true in the above link, “Tesla – 30 reasons why Tesla will be a bug on a windshield

Tesla below $200 after a successful cap raise is not a good sign. It’s the faithful slowly tipping out. Await another imaginary Musk-inspired growth engine to be announced shortly to try prop up the stock price. Yet the momentum will continue to sink. The market is losing confidence in Musk. The 1Q results were diabolically bad.

Major holder T Rowe Price has stampeded out the door. The stock is too risky. Musk is a brilliant salesman but he has bitten off more than he can chew.

CM always thought that Toyota selling its Tesla stake was a major sign. Acknowledging that under the hood the company possessed no technology that Toyota didn’t already own.

Watch the free fall. The Tesla stock will be below $100 by the year end.

(CM does not hold Tesla stock)

Vale Nikki Lauda – A wise man gets more from his enemies than a fool from his friends

A wise man gets more from his enemies than a fool from his friends”

An amazing F1 World Champion. To survive that horrible Nurburgring fire and return to be a champion again.

Ron Howard’s Rush was a great film which captured the meticulous nature of Lauda.