Ep.44: The EV Market Bubble & Netflix Strategy Change

Okay, hello and welcome to episode 44 of the Market Maker podcast where I'm joined by co-founder of Amplify Piers Curran, and we're going to talk over quite a few things, uh, this week. To give you a bit of an idea, it's a busy one to unpack. We've had Biden's infrastructure bill got signed into law, uh, cryptocurrencies have had a pretty terrible week, uh, from the record high I think it was 9, 10 days ago in Bitcoin, it's down about 20%. Profit taking, regulatory developments happening that were actually tied into that bill passage earlier this week have been pointed at as reasons. Oil prices, some significant declines have been seen there, comes amid US and China talking about tapping reserves. Apparently the administration in the US has been tapping up India and Japan too to get involved. Talked about this plenty of times before. About how he needs to look like he's doing as much as he can, as much as analysts, I think, are pretty much of the thought that it ain't going to happen. But nonetheless, Biden and Xi had a virtual date, first time in a while, seemed to go off without much of a hitch, not that we're expecting a great deal to happen. And of course, it's pantomime season, or soon to be. And so Brexit's still going, not a lot's changed. I hate you, I love you, and back again. And we're pretty much at the same point. I won't go into the details, but not a lot has changed, as you can imagine. So for this week, I wanted to focus on 3 themes, kind of like we always do. So we're going to look at this explosion that we're seeing in the electric vehicle market, these EV pure plays, as they're being named. So I want to talk with Piers about that. We're going We're also going to have a chat about policy divergence. We touched on this, I think, a week or two ago when we were talking about what's happening in Europe compared to US, UK, but it came— it materialized in market prices this week. Euro's got really badly hurt by what is this divergence of timing of when their policy's going to tighten, essentially. So we'll delve into that, and then we'll finish with a bit of a conversation on a single stock perspective on Netflix. Because they made an announcement about changing of strategy that I think actually is very much needed, and I'll explain, uh, kind of why. But before I get into the first question, don't forget we're on the Mission to 100, and that is 100 Apple ratings and reviews. We're on 90 peers at the moment. Okay, we're closing in.

10 to go.

10 to go. So if you're listening, if you have not yet rated this podcast and you enjoy it, thank you, but go one step further for us and leave that rating and review because we just— our target has been for the last couple of weeks to get it to 100 by year end, and we're well on track, but everyone counts, so go and do it. All right, first question then. Let me give you, Piers, a bit of what's been going on.

Give me.

You know, I mean, we've talked about Tesla a lot. I'm probably not going to talk about Tesla much, actually. However, Tesla obviously is the key ingredient, you could probably say, of why everyone's obsessed at the moment by these EV moves. But kind of two that I want to talk about, and then we'll bring in some of the more traditional auto manufacturers. Lucid, Lucid Group market value moved past Ford Motor earlier this week. Lucid was one of those SPAC deals. There's been many, I can't lose count. Um, but so context, um, so they went past Ford Motor in their value to $89.9 billion following a 24% run-up in their stock price after executives had told investors that reservations— reservations, that is— for its first vehicles had jumped and that its production plans for 2020 were still on track. Of course, the company is not yet profitable, still very much in the early days of generating revenue. In fact, its Q3 revenues— what do you reckon?

Q3 actual revenue, uh, if they A quarter revenue.

Yeah, for Lucid, it's a fairly new company.

Yeah, $21 million.

You might need to revise that down a little bit.

Wow. Oh, I'm—

$232,000 US dollars revenue. Whole quarter, whole Q3 revenues. $232,000, and they're worth $90 billion. Okay. It goes further. Where did they get that from? Well, they're not selling any cars, of course. They haven't made one yet. So where's that coming from? Formula E Electric Racing League. It's coming with a deal that they struck with them. They actually reported a net loss of $1.5 billion for the first 9 months, including a loss of half a billion. For the quarter. So that was— this is again reignited it this week, but it comes after Rivian, company with no revenues, big losses, went public, exceeded— it's even bigger, of course, as we know, $100 billion. Couple of things there that I heard on a really good podcast I was listening to from the— well, you know, the FT, huge organization, they have specialists in these areas. So I'm going to lean on him for some facts. I think they're good ones just to a couple of things, Rivian, which was deep links with Amazon. So Amazon owns 20%.

Yeah.

So that's a big chunk.

Well, and they ordered, pre-ordered 100,000 trucks, wasn't it?

Right. So they got 100K trucks and obviously getting into bed with the biggest logistical company on the planet that's growing. And growing all of the time has amazing potential, of course. But one of the things this analyst was highlighting was something called execution risk.

Right.

Which I think was just a good way of putting it. He was talking about the ramping up of customer services, increasing production. He was talking about managing supply chains. And that was an extension of other things I started reading about. Okay. So like, Lithium batteries, like, what's the key components of that? And all of these car companies keep pumping out these numbers. Surely there's not enough of the material to meet these insane targets that they're putting out. So yeah, I mean, that, that was the kind of context. And he kind of bookended it with Volvo, who listed very recently. And Volvo have an electric sub-brand called Polestar, and when that lists, it's going to be bigger than the parent group.

Yeah.

What do you reckon?

I think that we're in, you know, we're in, um, insanity world. I, I think we finally arrived, and I think this EV kind of price or valuation and price behavior is ridiculous, but it's happening. I think the key questions are, why is it happening? How is it possible? Then more importantly, I think, what happens next with regards to price? I think we're definitely in an EV bubble. Definitely put Tesla right in that category as well. It is ridiculous that companies that haven't even generated any revenue yet are getting valued like $100 billion or whatever Lucid was, nearly there, right? And Rivian more than. $100 billion. And I think it's crazy. I think partially it's to do with if you missed out on the Tesla trade, it's like, I'm not going to miss this next one. I think actually it's quite a lot of psychology in here where investors missed out on the Tesla story and they want to get in early on this one because, well, they're going to be trillion-plus businesses as well because they're going to be like Tesla. I think it's entirely irrational, that thought process, because A, Tesla being over a trillion dollars, in my humble opinion, is not fair valuation. And I think that's way, way overinflated. And number 2, I mean, at least Tesla are way down the track or way down the road here with regards to actually becoming a car manufacturing company. In the end, as your FT mate was saying, execution risk. I mean, big time execution risk. And it's not easy. And actually, I was reading an article, like when cars first became a thing, industrial revolution and turn of the 19th century. And there were actually, in 1910, there were 250 American car manufacturing companies.

Wow. Okay.

And that's because this new thing came out and they're like, right, everyone's scrambling to try and make one, to try and cash in on this, this great opportunity. And 250 companies, but that was where it peaked. Um, about by the end of that century, um, it kind of basically— and I'm gonna simplify it here, but basically went down to 3: Ford, General Motors, Chrysler, the big 3 US giants. Okay, so you had 250 to 3. Now I think you're getting another kind of mini episode of that again with now electric vehicles, and it's like everyone's scrambling to get to market. It's such a huge sort of opportunity, and obviously Tesla has got the first mover advantage on that front. And fine, that's partially why their valuation's so high. But there's a lot of companies out there that are trying to scramble for this. And it's not just your traditional, your existing big autos. It's actually then you've got your pure play, your Rivians of this world, which are brand new companies that are focusing only on electric vehicles. But Yeah. So there's actually quite a few out there. And from an investor's point of view, I guess you've got to understand that it's about trying to pick the right one or the right ones. And there are many out there. I mean, I know we've been hearing a lot about Rivian and Lucid recently, but there's actually— you could say the Chinese kind of EV manufacturers possibly have a a better advantage than maybe some of these US ones that are just coming to market. And that's just because I think China are a bit more— I think it's 50% of electric vehicle cars are sold in China at the moment. They've been a little bit more progressive from a government policy point of view in pushing that transition to electric vehicles. And so you've got some big Chinese players like Aiways and Li Auto and NIO and WM Motor and these lot. You've got some European ones as well, like Rimac in Croatia. Spain, you've got Hispano-Suiza. Here in the UK, there's a company called Arrival manufacturing electric vans. But yeah, I mean, look, basically in terms of execution risk, is Lucid worth $100 billion? No. Why not? Well, actually, they might not make it. This execution risk, obviously, firstly, they've got to actually start to produce cars. And so this is the biggest risk of all. It's that production, really difficult thing. And Tesla nearly failed, by the way, when they were going through their, what they described as their production hell. And it's about giant presses and paint shops and assembly lines. And getting that right is an absolute nightmare. But then you mentioned service centers. And it's not just being able to build these cars, it's then actually selling and maintaining them. So it's that distribution and service network, which just on its own is an absolute minefield and a nightmare to execute and get right. And Tesla aren't even there yet. Do you know how many Tesla servicing centers there are in the US? What do you reckon?

50.

We've got 113. The big guns have like 10,000.

Yeah.

Tesla got 113. So there's still execution risk on Tesla's side as well, by the way. So yeah, I think, look, we're in a bubble. I think a lot of it's to do with investors missing out on Tesla and wanting wanting to make up for that. I think obviously these companies, they're not being valued as autos. Obviously, they're being valued as tech firms. It's like tech and it's like software-driven, software-defined businesses. And that's how they're being valued. And yeah, I think we're in a bubble. And I think it's dangerous because it doesn't mean we can't see these prices carry on going up, by the way. And we may well do. But yeah, I just think in the end, the valuations that they are today, I think they will never get— they'll never justify them. And I'm not touching it with a bargepole.

Well, one thing that came out overnight was Jim Farley, who's the CEO of Ford.

Yep.

And he came out and outlined then— I mean, you can imagine the board meetings at Ford and GM and the others, Chrysler, at the moment. I mean, they must be thinking that, what have we got to do? And somehow they've started plucking numbers out, and the CEO's come out with some, again, unachievable— I will go as far as saying— targets, but almost like to try and keep pace, I guess, with what's going on. Um, and he was talking about— well, and again, the medium used. What do you reckon to communicate this to the market that Jim Farley used to talk about his new targets?

Um, well, social media.

Yep. Twitter. Yep. That's two. As to— as has the VW boss Herbert Däss, or Dais, he's also been using Twitter more frequently as well. I mean, it's borderline slightly tragic, but yeah, that's what—

that's exactly what I was thinking. I think you're not actually Elon Musk and you will never be Elon Musk. Stop trying to be. It's embarrassing.

Yeah, it is. I don't know who does the strategy, but equally so, I don't know who designs these, these US trucks like Rivian and that they need speaking to as well. But that aside, the other thing I was— for numbers then, for Ford, they expect to produce 600,000 battery vehicles a year globally by the end of 2023, which is double their current target. So he's just come out, it's doubled it. That number though would still lag Tesla's expected sales volume by 2023, which is to be above a million. So there'd still be only about half of Tesla if all forecasting is met. Ford has gone from selling basically nothing in EV space last year, and they've sold about 19,000 is the figure, 18,900 in the first 3 quarters of this year, to give you an idea of where they're at the moment. So they're right in the infancy of this. For this point in time. Um, but my other point that I started looking at when all this was happening earlier this week was there was an EU-funded report that was talking about, uh, critical raw materials regarding then different components— bauxite, cobalt, lithium, natural graphite. I started thinking, okay, so how do we play this? I don't want to touch these, these EV stocks, they're just insane. Um, so I know a lot of people have been talking about like lithium batteries and how do we get commodity exposure to that. And I just started looking at geographically, okay, where do these components, kind of these ingredients, come from? And so for lithium, um, main global producers: Chile, China, Argentina, right, uh, are the top ones. Chile dominates in China.

Yeah, I use Chile, but yeah, Argentina in there, interesting.

Yeah, we're talking about 85% all coming from Chile and China combined. If you're looking, looking at the EU sourcing, because this then starts in my mind because, you know, I'm into geopolitics and so on, like, okay, so who are the EU dependent on and for their own, their own industries? And actually they're 78% reliant on Chile, right? So the numbers start to skew a little bit. In that sense. And so, yes, it was just quite interesting looking at this, um, in different ways and how this could be played and, and so on.

But yeah, they're gonna have to scale. I mean, like, thinking about numbers in terms of expected, um, electric kind of vehicle sales, I mean, like, to give you an idea about— I think it's about 95, um, so pre-COVID actually, because obviously car sales got hammered in COVID. Pre-COVID I think it was about 95 million cars per year— sorry, in that one year were sold. Okay. So that's like your— let's call it your run rate, right? And we're expected by 2025 to get back to that 95 million. This is all cars, right? Not obviously, not EV here. So in 2018, of the 95 million, you're talking over 90 million of those are petrol or diesel, right? And obviously the trend is going to shift. We're expecting car sales to go up total, but also the EV portion of that to steadily build. So by 2030, for example, they're expecting the total car sales to break through 100 million, and they're expecting— of that, they're expecting about 25 million of those to be EV. So we, we're going to go like from 5 million to 25 million, um, and then by 2035 they're expecting that EV market to be more like 50 million. Okay, 50 million EV cars built and sold in 2035. That's the forecast according to The Economist. Now, that's given how difficult it is to manufacture these things, and just look at Tesla And they're only now just getting up to 1 million. And I know Elon has ambitions to hit 10 million by— I'm not sure what his date was, but in the next decade, I think. But if Tesla get to 10 million, let's say by 2035, that's another 40 million units that's got to come from somewhere else. And given they're further down the road here, I'm just kind of questioning some of these sort of forecast. But talking about execution risk with the likes of Lucid and Rivian and all these players that have no revenue and haven't really built any cars on scale, that these factories, I mean, that's a billion dollars a pop. Tesla's building one in Germany, they're building one in Texas. These are going at a billion dollars apiece. So I mean, I guess given the amount of capital they've raised by going public, I guess at the moment, Funding is there and fine, and it's cheap and fine. I guess they can set about this project with a large amount of cash, but it doesn't mean they're going to be successful.

Yeah. I won't mention where cobalt, which is in nearly almost every commercial lithium cathode chemistry, what country that comes from, because good luck trying to get consistent supply coming out of there.

What? North Korea? Congo. Ah.

Which is no attempt to have a jibe at the Congo. It's just an unstable place. And so that is definitely not what you want when there's high demand and dependency as a key product. Facilitate the manufacturing process. But let's move on. Let's talk about— let's shift it to the policy divergence. And this was something we were talking about. So I just really wanted to provide a bit of understanding here of two things. What's happening now? So perhaps I can get everyone up to speed. And then perhaps you can talk about then the implication and how to structure then, I guess, a way to think, how to structure an investment decision. And timing is obviously key to any investment. And so for painting a bit of a picture of what's going on, I'm going to talk about Europe first. And our conversation in this segment is about the divergence of policy emerging between Europe and elsewhere, US namely, and the UK. So in Europe, what's going on at the moment? Well, the main thing is COVID. COVID cases are heading in the wrong direction and rapidly so at this moment in time. Austria is the latest this morning. They're going to go into—

what's full lockdown, right?

Austria, full lockdown. Yep, hard lockdown from Monday, 20-day lockdown for everyone. And this is one of those— we won't talk about it here because I know it's a political divisive point. Europe have been very much taking a strategy of locking down unvaccinated people. They're segregating the two and treating them differently now, which is obviously very divisive, uh, from a societal level. But that aside, so Austria are going to enact a full lockdown, 20 days for everyone.

Yeah, including the vaccinated.

Yeah, absolutely. The lockdown will continue though for the unvaccinated to an unspecified time at this point in time. The other one then is Germany. Germany is applying pressure on citizens to get their shots. They're restricting certain mobility and so on in unvaccinated areas across pretty much the, the whole country where that's apparent. One of the key facts with Germany is that it's less than 70% are fully immunized at this point, and that puts them quite a bit behind Spain, Italy, Portugal, so on, on vaccine uptake. Germany's actually lagged a little bit And they could be deemed to be a little bit slow because of the political environment on the coalition side at the moment, making decision-making quickly quite difficult. Then there's Ireland. Ireland have had quite a big uptick as well, increasing pressure on their infrastructure. Bars, restaurants got to close by midnight, cinemas, theaters. And this is very different from Britain, which I know there'd be anarchy if this happened. But in Ireland, cinemas and theaters, you've got to prove that you've had a vaccination. Um, and also people are being advised in Ireland now to work from home, is one of the things. And then we could go into Greece, Czech Republic, Slovakia— it's not looking good. So that's Europe. At the other side, the UK. Now the UK has seen an uptick in COVID cases. We had almost like a such a great run of declining cases, it was inevitable to end probably at some point. And that has happened. It started to move a little bit higher again once more. But the main things with the UK economy as drivers for this divergence theme is they didn't pull the trigger earlier this month, as we discussed, with the rate hike. Big shock because they were kind of using forward guidance that was leading markets to believe they pulled the trigger and they didn't. Now, one of the main points that they were awaiting was the impact that the end of furlough was going to have on the labour market. And this week we've had labour data and we've had also CPI data. Now, the number of workers on UK company payrolls rose sharply last month. It came evident despite the end of the furlough scheme after record increase in people moving from unemployment into into work ahead of the closure. So they've jumped back in before the end has happened. And so it's smoothed out. And if anything, it was actually a little bit lower than people were expecting. And coupled that, then CPI came in at a 10-year high. People know inflation's going higher. The Bank of England telegraphed this. It's going to go even higher than where it is at the moment. But the point is it's going higher, faster than what markets are expecting, which which is what's spooking people a little bit. So 4.2%, analysts were looking for 3.9%. Now, the final piece of the puzzle here is the States, and obviously the main one, because we're talking about the Federal Reserve and US economy. So yesterday, arguably one of the more reliable policy doves, if I can call him that, Charlie Evans came out and said— and this is again the nuance of central bank comms— He said, "I'm more open-minded," is now what he's saying, "to raising interest rates next year than I was 6 months ago." Follow that with the comment the day before by the New York Federal Reserve Bank President John Williams, and he said, "Inflation increases are becoming broader-based," which they are. I mean, that's a fact. But the fact that they're saying it, and both these guys sit in a more center, slightly leaning dovish way. And so saying these things is, you know, getting markets to pay attention. And we've had JP Morgan this week, they've brought forward their rate hike call, not going to wait, they're going to do it next year. They join Citi, MS, GS. So all the banks are realigning themselves now to a more aggressive timeline. So that, that's the context.

Yeah. I mean, I think that— well, starting with the last one first, the Fed and the US. I mean, I think that— I think maybe we talked about something a few weeks back. And it was that idea, or maybe it was even last week, where I think it was Goldman's actually was saying that they would expect— oh, no, it was your Fed watcher. What was his name? Tim Dewey, right. And he was saying that the Fed can really— in terms of them getting more hawkish, it's about not touching that tapering. So it's not accelerating tapering, it's more starting to talk about maybe hiking rates sooner and bringing that rate hike expectation into 2022, end of 2022. And he said that actually they could wait until March until they start to even talk about that. I think that's why this is a slightly hawkish pivot here, because we're thinking, well, it is likely given the current situation that a rate hike by the end of next year, yeah, I can see that happening. But if they're already talking now, then often it takes 6 months to just get the market teed up and prepped and ready. So I mean, these doves talking like that could bring that rate hike maybe into the middle of next year. So I think it is hawkish, definitely. Um, obviously here in the UK, yeah, getting over that, that furlough fear, if you want to call it that, in terms of the risk that, that, or the unknown, that, that kind of unknown risk that presented towards the kind of economic momentum and so on. And so that's reduced. So yeah, fine, maybe maybe we should be looking at the Bank of England making a move. But December, I mean, traditionally they like to wait till they— quarterly they have a meeting which also brings not only are we changing policy, but it's also then refreshing all of their economic models and forecasts. And normally they like to change interest rates alongside those updates to their forecasts and their models.

Which is why the last meeting was such a shock, because that was that meeting. So now you've got to wait till February.

Yeah. And so, I mean, you don't have to wait until February. Obviously, they do have a meeting in December and it is a chance to maybe change policy. But I think I just still can't see it. I don't know what your thoughts are, but I'm a February, not a December for a Bank of England rate hike. Where are you on this now?

I know you called it well Last time I was just trying to bring up to refresh my memory of what Bailey has been saying this week.

I'm not sure we should necessarily listen to that.

So he said this week that he was very uneasy about the inflation outlook and that his vote to keep interest rates on hold early this month, which would have shocked markets, had been a very close call. So again, okay, he's kind of doing that whole thing where he's like, he's not resisting, yeah, the market movement to price more aggressively. So again, he's kind of shooing in that he's going to do it. I guess, I guess it comes down to the COVID situation for me now and how bad that gets over the winter period.

Yeah, right.

I— that what's happening in Europe does not scare me on that side. We talked about this before, the pattern development where it tends to happen in the UK first, like the Alpha Kent variation, then Europe catch it. And yeah, we've kind of led that. So I think what Europe is seeing, experiencing, obviously can have an impact, but I think it's— that's more— it's less impactful. Um, I also think that the booster rollout has been decreasing in terms of those people who are going to receive it. As we know now, it's people of your stature and wise years now are available for a jab soon. Um, and, and also they're talking about a double shot then for what was a single shot for under-18, 16, 17-year-olds. So it's like a— it's like a pincer strategy on both ends, bringing it in. Um, and so yeah, from what I read from people who are way more intelligent on this stuff than me in the scientific community, is that they don't foresee anywhere near the same type of situation as what we've had before. But I do think it warrants caution.

Yeah.

And actually, if you're going to believe, of which they're all kind of so scared of the immediacy of the inflation pressures now, they're all still saying it's transitory, but Yeah. And so, yeah. I mean, how does Baby come back from not delivering now in December? I mean, it'll be an utter disaster. But how— I mean, what's going to push him aside? Let's say the market continues to price him back and he doesn't do it. He gets outvoted. I mean, what is the pushback? I mean, markets won't like it, but—

Yeah. I mean, I think— I do think they do want to get— at least they want to get back to rates at 0.5%, which was the pre-COVID— you know, it was the kind of post-financial crisis low. They've obviously cut to 0.15%, so I think they do want to get back there. But I think that, look, it's coming. I mean, it's— I know we kind of splitting hairs here, um, and markets are obsessed about it, but it actually doesn't really matter in the long term. Do, do the Bank of England hike in December? Do they hike in February? You know, what about the Fed? Are they going to hike at the end of next year? Is it going to be in quarter 3 of next year? You know, in the end, they're going to hike. You know, we are on— we're at the start of the hawkish cycle. It's a monetary tightening cycle, and it started. And sure, the speed of it is important, but it's not as important as it's starting. So we're kind of on that hawkish trajectory. Now with Europe, and kind of going back to the point about divergence, Europe have not started their kind of hawkish tightening trajectory. And I think that's the key difference. And now people are speculating, actually, not only have they not started, but actually we don't think they're going to start anytime soon. And obviously the COVID situation is certainly making that belief all the more likely. And economically, they haven't recovered from COVID as well. And so I think that for from a sort of policy divergence point of view, it's been relatively easy to predict things like the euro weakening against the dollar. So coming back to the point about how do you start to develop sort of investment themes and ideas and strategies, it's about— it's obviously about the way markets behave, that they're not pricing in what's going on today. They're pricing in what we think is going to happen in the future. And no better example than the Rivian valuation, right? So it's about pricing in our future expectations. So you can't come to the table now and go, ah, what? Hang on, the Fed are tapering and— oh, hang on, Europe, the ECB aren't doing anything. Oh, right. I'm going to now short the Eurodollar, because a lot of the moves happened already. So it's about understanding the main themes that provide the big influences on price. It's then being an expert on those themes. And it's tracking those themes as you go along to identify when changes in direction are going to occur or are likely to occur. Then it's about spotting— it doesn't happen often when you get divergence. That's why this opportunity over the last few months and probably ongoing into next year is an unusual situation where you get central banks the size of the ECB and the Fed or the Bank of England actually going in opposite directions. Hardly ever happens. When it does, this is when you get big swings in those currency pairs. It happened back in 2014, 2015, when euro-dollar really opened up to the downside and almost got to parity. It got down to 1.04 in the end. And that was, again, another moment where the Fed started to hike. And actually, the ECB were cutting at the same time. They were literally going— not only talking about going in opposite directions, they actually were. And that's the only time that's ever happened in my entire career was to see the ECB and the Fed literally changing policy in opposite directions simultaneously. So now it's about the Fed are moving, they're tapering, but the ECB stood still. So you still got that divergence. It's not quite as dramatic as both going in opposite directions. But yeah, in terms of— you've got to be on top of these major macro themes, understand them really well, and then start to predict and build in a thesis in your head about how it's going to play out. And then, right, if I'm right, how will prices move between now and that moment in the future? I'm right, then I'm going to position myself accordingly.

Yeah. And again, from an investment strategy point of view, going back to what we talked about with EVs, then it's about, okay, so what's the risk profile of this view that I have and how do I express that view in as low-risk way as possible so that I can have a directional bias but quantify and manage that risk. And so thinking about, okay, not outright position in an EV like Lucid, how can I play this in a different way to play the same investment theme?

Right. And you are looking into those commodities that are key to that kind of EV battery manufacturing is definitely one way. I mean, other ways. It's about— and diversification is really, really important, really important, especially in this EV space. As I said, not all these companies are going to make it. I don't care what valuation they've been given. Some of these aren't going to make it. So they might be worth $100 billion. Some of them will be worth zero in 5, 10 years' time. So you've got to kind of spread it around. And it's investing in and around that space. Like I've been invested for well over a year in a lot of EV charging businesses, because the infrastructure there is woefully inadequate and is going to— has to build. And so there's plenty of ways to play the EV space. I mean, I wouldn't be punting around buying Lucid, but making sure that Yeah, just kind of second and third sort of derivatives away from the actual vehicle, and then making sure you're getting nice and diversified by investing in lots of different things in that area.

Cool. Well, let's move on and talk about the final installment, if you like, which is Netflix. And Netflix, the reason to speak about them is they'll begin regularly reporting viewership numbers for its top programs and films. And that's quite a distinct shift in their strategy. And a bit of context here as well. So streaming, uh, generally watching television online, has obviously changed the industry an immense amount over the last decade. Um, but the problem that Netflix is facing at the moment is the fact that signups are drying up. They're coming off this monumental pump in their subs, their subscriber rate, because of the pandemic. Obviously, when everyone was forced at home at 2020, it hugely shot up. And it's not that investors don't know that that is never going to be sustained. It's just the fact that they've seen the company achieve such lofty heights, it anchors now to, okay, that's success. Even though we know that that's not able to contain that momentum. Market saturation, increased competition. There's a lot of reason for strategic change, I guess. And before I talk more about what I think this means and why they would've done that, I mean, I was looking at Apple. I know we talked many, many episodes ago about Apple at length, but one of the things I was looking at with Apple is about how it tried to maneuver itself away from its Achilles heel, which is a dependency on iPhone sale revenues. And I was reading, you know, about pull-push strategies, which in simple terms was talking about using set products like your Apple laptop, for example, and then using that as an avenue then to hook people in as a pull strategy to then sell them subsequent add-on types of products and services. But it was all channeled through a singular product. Whereas now they've moved to a push strategy, which is that every unique element of the business now has its own strategy to push out the products as their own product in their outright. So wearables, App Store subscriptions, TV, laptops, iPads, all the rest of it. And Apple have done a successful job at doing this. And it's a component of why, again, diverse— we go back to diversification. Diversification of a corporation to offset. And this then leads us back as a hook to Netflix. Because if you ever watch Netflix, when they release their quarterly earnings, I mean, it could go up 10%, could go down 10%. But up 10%, down 10% might sound— I guess if you're trading penny stocks or meme stocks, you might think 10%, that's nothing. For matured businesses, this is not a sustainable kind of approach. Shareholders don't want to see that type of price volatility. And so they've got to kind of think about, OK, so how do we address declining signups, saturated market, and what can we do? And one of the things I was talking about in the piece I put out earlier this week is about fighting a battle that you know you can win. Creating a distraction that starts to then take away the investor community's obsession with a singular metric of your firm. Kind of like Apple, people used to go, "Screw everything. What's the iPhone number?" The stock will move accordingly. With Netflix, it's the same with the subscription. That's an unhealthy place to be. Hence, the rationale to try and shift. So yeah, finding a battle that you can win. What I mean by that statement is start reporting your numbers. You've just come on the back of Squid Game, which was an insane success. Like, the second one isn't even a country mile, like, far apart. It's crazy. And so when you actually think of the Netflix originals, Squid Game, Bridgerton, Witcher, these sorts of things. And then you think about the firepower that Netflix has, because don't forget Disney+ and things like that, big companies, but they're fairly new arms and divisions of those businesses. And so Netflix is set to spend $17 billion on content, $17 billion on content. And during the third quarter alone, How many Netflix programmes do you think they released in the third quarter alone? What, new— I'm gonna say Netflix episodes of Netflix Originals. So new episodes from Netflix Originals within one quarter. Uh, 100. It's a good guess, and that's actually what Disney+ did. They did about 150, right? HBO Max did 200. Netflix did 824 original content.

Yeah.

And so to counteract this is they're only going to report— and this is where the massaging comes in— they're only going to report on the top 10. Programming, right? Because you don't need to know about the rubbish ones, of course. And so, I mean, the top 10 is probably going to smash nearly everything the other competitors have even got as their best performing, uh, just given the, the gap that exists. So it's kind of like they're not going to lose reporting on these metrics. And if you're first, I think, to market to really push the narrative in that direction I think you control that conversation, and Disney and the rest of them will have to report these numbers, and they will look rubbish. And thus you have first-to-market, uh, advantage in, as I've described, a battle you're not going to lose, you know.

Yeah, I like it. I mean, what I would say is that I'm looking at their subscriber numbers, the chart now, and Obviously, the strategy is to mask the fact those— the numbers growth's slowing, as you were saying. And there's 213 million paying streaming subscribers. That's as of the end of Q3 2021. So 213 million, that's up from 2020's number of 203 million. So they've added 10 million this year. Last year, I mean, it's hard because obviously COVID, I'm not even going to talk about the growth last year. Well, I'll say it, it was, what was it, 36 million were added in 2020 versus 2019. 2019 growth from 2018, they went from 139 to 167, so that's 28 million So yeah, 10 million growth this year is slowing, decelerating growth rates. And when these tech stocks trade at crazy multiple valuations, it's based on the idea that you've got an exponentially growing business. And that's how these tech firms get these inflated valuations, right? But when you're having declining growth rates, well, unfortunately that's not exponential anymore. And so Clearly, from a share price and a valuation point of view, that's bad news. So deflecting that is a good strategy. I mean, what I would say with Apple, people still do look at the iPhone number. It is still the most important. It's not the be-all and end-all, but it's definitely still the most important. So I think Netflix's strategy here is a good one, but it doesn't mean that we're no longer going to be interested at all in their subscriber numbers, because in the end, that's what pays them the money. And can they afford to pay all those billions in producing content? Well, yes, as long as obviously their subscriber numbers are strong and they can afford that. And I think in the end— and look, with all these tech stocks and these Rivians and all the rest of it, you know, in the end, they all kind of all get bundled together and they get these crazy prices. But look, long term They've got a product that they're selling to the end user. And unless the product's good, the company's not going to do very well. And I think Netflix have done the right thing in big-time investing in content, investing in their product. And Squid Game, you know, 2021 is just a phenomenal example of that paying off. Um, 1.6 billion That's the viewing hours of Squid Games. 1.6 billion hours of viewing time. And the next most popular was Bridgerton. I don't know, I didn't really like Bridgerton anyway. Bridgerton—

I didn't even bother.

625 million. That's number 2 on the list. So Bridgerton got 625 million viewing hours. Squid Games, 1.6 billion. Now that's the kind of stuff, by the way, that draws subscribers. So it'll be interesting to see next year if all this investment into content, if they can pull off some more Squid Games, then actually you may well see that, that subscriber number re-accelerate.

But so, so therein lies your, your downside. So like, like with everything, I don't want to sound like uber bull on Netflix because there is a definite downside. I think it was on LinkedIn where I was engaging with someone who interacted with my post. And yeah, the degradation of quality programming, that will definitely happen. Yeah, the, the producer-director— Squid Game, I think, as a script first came about— could be wrong, but I think it's about a decade ago— got shot down, not interested. The guy brought it back, um, and it just became a mega hit. Of course This, this guy, let's say he wrote this script and he's really passionate. This is my script, it's such a great script, hence the success, the global phenomenon comes around every now and again. Yes, this is a unique moment in cinema, some would say. Now what's going to happen is like, you can't just pull these out of thin air, but what will happen is Netflix will say, okay, we've got $17 billion for content for the year. How about I give you one— Pierce Curren, how about I give you, scriptwriter, a billion? Because worth it for us, makes business sense. I'm gonna give you a billion. Write me, write me a second series. And don't make it an 8-part series, make it a 10-part one. Because I calculated it earlier in the week, 2 more episodes— well, you do the math, right— of $1.6 billion over 8. And so you're talking multiple hundreds more hours spent and people downloading these episodes. So it makes business sense. The problem is there, you haven't even conceptually thought of the script yet, and you're already getting the business directing you to tell you how to do that. That's a surefire way of disaster as far as the quality of programming. So for sure, I think that this might not have a degree of longevity, but it is a necessity. To be doing it. And I think they will win. They'll be best in class for a foreseeable future. But yeah, what will happen as well is that, I mean, the algorithm already updated for me. I don't know about you, but I watched Squid Game. I smashed it the day after it came out. I just literally blitzed it for a couple of days and done it. And so all of a sudden the algo updated and I start seeing Korean about this, Korean movies here. So I can imagine what the content account director would have done at Netflix. Go, right, just go out to Korea, bang, spend $100 million, buy them all. Plug them in the algorithm, start pushing it all because people will start clicking around.

Yeah.

The other thing here is that as much as Far East Cinema makes movies at a rapid pace compared to, say, an expensive and timely Netflix original, they will gobble up all of that industry. But the problem you have there is that I think a UK European market is more open to the prospect of foreign film. Yeah, that, that ain't— that goes down like a lead balloon in the US. I mean, Squid Game's unique, but I would say it's a— it is unique by case. And can they get foreign film into the US main market? I don't think so, not anytime soon.

Well, I, I don't know about that. I think they did such a good— I don't know how you watched Squid Game, whether you watched it— did you have it the dubbing on so it was in English dubbed, or did you go for something?

I mean, if you did, you're an idiot. I I mean, who does that? I mean, who watches like a foreign movie in dubbed English? I mean, I'm going to say, you're a jerk if you do that.

My point is, though, turn it on. Go and have a look. Turn on the dub. The dubbing for Squid Game was unbelievably well done, to the point where I know someone who watched the whole series and thought they were speaking in English.

Okay, define well done for me. Because the Korean dialect, yes, very nuanced.

And actually the shape of the mouth movements don't map across to the sound that's coming out. But I think, well, it's acting as well, right? The person doing the dubbing, they're an actor, and they need to make sure that the expression in the voice and the you know, is perfect and on point to match the, the, the imagery as it's moving. And I think the way they did that was phenomenally good, hence why it was so popular, by the way. And by the way, um, Money Heist is the— is, is number 2— oh, sorry, it's number 3 on the list. That's a Spanish film, right? So you're saying it's not working in America, but it is. The numbers are there. Money Heist is actually It's the— Season 4 was the third most popular. Season 3 was like the fifth most popular or something. Anyway, um, but you know, I think it's like if I was Netflix, I'd be hunting around Asian, you know, movie theaters and finding what are low-budget movies that are super slick, script's great, actually this is amazing, and then basically plucking that throwing a load of money at it and making it visually, you know, putting some budget behind it and then parking it on Netflix. I think that's a great strategy, and there's got to be plenty of little gems out there that can be plucked.

Yeah, I mean, that already is, um, The Departed. Leonardo DiCaprio, you remember that one? Yeah, that's a Hong Kong movie.

Ah, is that right?

Came out 15 years before The Departed. It's way better than The Departed. But that doesn't matter as long as people go to cinema and you stick Leo's name on the badge. Yeah, people, people get involved.

But I guess the other thing I was going to say about Netflix is it's, it's cheap. It's, for me, it's like cheap enough that you just don't think about it. I did— I probably didn't watch Netflix for probably 6 months, then Squid Games, and then after Squid Games I've watched more on Netflix than any other channel for the last 3 months. But during that 6-month period where I'm not watching it, I'm not thinking, oh, God, need to cancel that, need to cancel that. It's just not in my mind at all because it doesn't— because the price of— so I'm wondering those subscriber numbers, how many of those are actual active subscribers and they're actually watching content? And what I would be reporting if I was Netflix is reporting on the convert, you know, active subscriber viewers, you know, because that's surely gone up now.

Well, I mean, I think, I think it's the same thing, right? The viewership numbers, they would have seen them massively strike post-Squid Game. Yeah, serves the same purpose.

Yeah, that's a good point, in a way.

So they're just like, yeah, we need— this is like insane, we need to report this. Um, and I guess they're, they're comfortable with, as I said, the content that they're, they're doing.

It's good. And the key— and the key— the beauty of the strategy, as you said, the most important point here is that it's gonna force others to follow suit, and that's where they're gonna really shine. And that, you know, it's their ace card. And if others are forced to follow, competitors are forced to follow with issuing their kind of viewer hours figures, then, then yeah, this is where Netflix have pulled the smart one.

Yeah. And for any, like, movie buffs, I sympathize. The foreign languages are very complex, dialects are very confusing, and the Korean people I talked to say the dubbing was horrendous. And actually, you miss a huge proportion of the nuance of the narrative of the story because you cannot translate it into English without giving an overly expressive, then long dialogue to explain simple feelings. But anyhow, we're not movie buffs. We're here to talk about markets and strategy. But just saying, you shouldn't watch it in dubs. Anyhow, we'll conclude the episode and yeah, we'll be back next week as per usual. I'm still doing the Career Hacks series with my colleague Zhao. Really great conversations we've had so far. So we've got 2 more and then that micro series is done. So stay tuned because next week we're going to be talking about how do you tackle different types of interviewer kind of personalities. So he's got ones called like the Incredible Hulk, the King and Queen, the Yes Man, the No Man. Like he's got some funny stories. So worth tuning in for if you're a student. To get you best prepared for any interviews coming up. But with that, Piers, thank you as ever and have a great weekend, everyone.

Cheers, Ant. See ya.