Unravelling Interest Rates, Commodities and EV's

Hello and welcome to the Market Maker end of week podcast, and we have a special guest, what I'm going to call it, because guess who's back?

Oh yeah, look out!

Where have you been?

Been around and about. Um, yeah, but I went over to Zurich actually, which was Super nice. I'd never been to Zurich before. So just popped over there, just saw a few clients like UBS and had a chat with St. Gallen University. And yeah, very nice little trip. Thanks very much. How's rainy London been?

Well, I think we should move on. It's not been pleasant. Not a great deal that's been going on. The odd patch of sun. But look, we're Keen to get you back on because I've actually indeed had a little bit of an extended vacation from Easter, and so I'm quite keen to, to hear from you in the same position as I'm sure some of the listeners of what's been going on. So I thought we could divide the episode today into two sections. One, a little bit of a global macro update, just generally on the train on the way in, on the commute this morning, also headlines talking about Fed and kind of higher rates for longer. And again, pushing back on this idea of, yes, rate cuts are coming, but not quite yet. And so just quite keen to see where that sits at the moment in terms of how markets have been reacting, whether stocks are still holding firm or not. And then the kind of a side shoot from that are the headlines around similar connected subjects, gold, copper, both on a bit of a tear at the moment. So interested as well to get your, your insights on that. And then the second subject to discuss is a little bit more focused on a single stock, and of course we've got to talk about Tesla. And that's because Tesla's quarterly deliveries declined for the first time in nearly 4 years, uh, this year. I know, I know you're loving this. You're gonna smile on your face while I read that, uh, Piers, but I'm going to add some more little, some more flavor to this. An unmitigated disaster. Oh, Tesla boss was, quote, putting gasoline on the fire through his behavior.

Wow.

Uh, not my words, those, but Dan Ivis, uh, a well-followed US equity analyst in the States. So yeah, we'll get around to that a bit later because, you know, I, I like a good conversation about Tesla. So yeah, let's kick it off then. Let's what, what's going on at the Fed and just generally the vibe in global markets at the moment?

Yeah, the vibe, I, I'd say, um, the vibe, we kind of, kind of flip-flop a little bit through the last, I would say, month or so, flip-flopping between, right, hang on a minute, the US economy staying stronger than we had thought, hang on a minute, does that mean that inflation isn't gonna move down to the 2% target. It's currently at 3. Is it going to get stuck at 3 because the economy's stronger? And actually, we'll look at some of these commodity markets in a second, right? Commodity prices are on the rise. That's inflationary. And so it's kind of that move to, well, maybe the Fed aren't going to be able to cut rates as much, right? But the mood has been, well, hang on, this economy is super strong. So I guess the conundrum has been in investors' minds, is the economy strong enough to essentially trump the reduction in interest rate cut expectations? So from a stock market point of view, normally if you just look at the interest rate side and if you say, right, we've gone from expecting 6 rate cuts to now only 3, if you just looked at that alone, That's really negative, and you'd expect stock markets to get slammed. They have not. They've stayed high. And because at the moment investors are going, well, okay, fine, no rate cuts, but the economy's on a tear. So you kind of— and, and I'd say if you look at, well, something like just like the S&P 500, it's that kind of US bellwether kind of stock market. Then if you look at a sort of chart of the last 12 months, then, you know, we're at the top and it's a stellar rally and it's all-time ever highs. And if you think about it, we were trading, almost touched the 4,000 level back at the start of November, and here we are 5 months later and we're at 5, above 5,200. So it's been a phenomenal move and we're still at the top. If you zoom into the last like 1 month, then there's question marks as to whether this rally has got any momentum left. And, and it's still at the top, but it hasn't broken new highs now for a good 3 weeks, right? So some are saying, well, maybe now we're at this equilibrium from a stock market point of view where, okay, rate cut expectations have been lowered, the economy stayed strong, and they're kind of equaling each other out. And maybe we're around the top for now, and we want to see what happens next. So what does happen next? Is it that inflation even maybe goes back up. Now, if that were to happen, that might push the Fed rate-cutting cycle out even further. And I think that could be a negative catalyst that might lead these stocks back lower, um, because, you know, ultimately, can this economy stay this strong if these inflationary headwinds remain?

And I saw Jerome Powell, the Fed chair, spoke at a fireside chat. I think it was yesterday. And he said that recent— by the way, what is a fireside chat? I was going to ask you that. I thought I'd say it because that's what it's called and I like saying it.

Was there literally a fire? I don't know. That's kind of— it's just, I guess, an informal Do they mean basically just an informal chat kind of?

Yeah, I think that's what it's supposed to be. So the history of this is that fireside chats were a series of evening radio addresses given by Franklin Roosevelt between 1933 and 1944.

Right.

Wow.

There you go.

But yeah, we move on. So Powell said at one of these fireside chats, that recent inflation figures, though higher than expected, did not materially change the overall picture. He reiterated his expectation that it will likely be appropriate to begin lowering rates at some point this year. So in terms of then this equilibrium, it doesn't sit there, as we know, for long before the scale tips one side or the other. Yeah. So is the key So there's two forms of looking at this, right? There's our assumption, which is looking at incoming data, looking at jobs data still to come, which is after when we're recording this, inflation figures in particular. And then the second point is what the movement of that language one way or the other. So at the moment it's status quo, right? To change probably in the coming weeks.

Well, yeah, it's, that's right. And I'd say probably his, his comments yesterday. If anything, were more— were on the hawkish side, where he— I think he's basically trying to— because look, he cemented this new idea at their last meeting, the new idea being 3 cuts all in the second half of this year, right? He cemented that. He landed that nicely, that, that change in expectation. Look at the stock market, it's still on its highs. I think what he did in— on next to the the log fire last night, he, he massaged that expectation further out. And I think he's trying to move to say, we're not going to be cutting in July, we're going to start cutting later. That might still mean 3 cuts this year, but actually, you know what, it might mean 2. And I think ultimately it still comes back to inflation, right? And so it's data dependent. And does— the big worry is inflation starts ticking back up. Now, when you look at the evidence this week, then, well, actually on Friday last week, and then again yesterday, we had two data points that were very worrying on the one hand, if you are concentrating on inflation and you don't want it to go back up, but actually very positive on the other hand, if you're thinking about economic growth momentum. So these two data points, so the one on Friday was core PCE, which is an inflation a set of inflation numbers that the Fed pay very close attention to. There was one component of that set of readings called the PCE spending. So by how much are consumer spending going up, if you want to simplify it? And it came in at +0.8%, which was way higher than expected. So that's showing that the consumer's still super solid and, and spending more. Um, and then the data— so that's inflationary, right? Then the data yesterday the ISM Manufacturing figures. So this is quite an important one. A lot of investors pay close attention to this. It's called the ISM Manufacturing. Other countries have a similar reading. They call it something else, though. They call it their manufacturing PMI. But essentially, it's, it's looking at the manufacturing sector. And the thing about that is it can be seen as a lead indicator to things like consumption, because ultimately, how much are consumers spending? What would you spend money on? Products and services. Well, let's just look at the products side. Well, the products obviously need manufacturing before you can buy them. So if you're looking at the manufacturing sector, it's almost like a lead indicator towards how the industry is feeling consumer demand is going to be for these products. And the ISM manufacturing figures jumped sharply, showing activity in the manufacturing sectors picking back up. That's positive from a, let's say, GDP growth point of view. It's inflationary, though. And what was super noticeable about this figure, it came out, the reading was 50.3. Now with this ISM figure and indeed the PMI figures, it's basically 0 to 100. Okay. And 50 is the midpoint. If the reading is above 50, it's showing that the manufacturing sector is in expansionary conditions. They're manufacturing more. If it's below 50, it's contractionary. So 50 is super important. Now, this reading on ISM Manufacturing has been below 50 for 16 months in a row, okay, until now, and it's gone back above. So it's actually a really kind of landmark moment. And here's a, a stat for you, which I just read this morning, and I didn't realize the ISM Manufacturing— so that the data goes back to 1951, ISM Manufacturing readings, okay, month on month. And the longest time that the survey had been below 50 without a recession in that entire period of 75 years basically was 14 months, okay. Until now. Now we've had 16 months with no recession. Now my point, I guess, is what I'm saying, you know, we were waiting for the recession that never came. And I think with the rearview mirror now, I think it's become more and more clear that actually COVID and these supply-side disruptions caused havoc and really made it incredibly difficult to predict, you know, what's this economy doing. This economic cycle was the most unusual we've seen in our lifetimes. And actually, the— it was the unusual inputs like chronic supply chain constraints that have kind of messed up all the normal trends and patterns. And so whilst we're looking at the data going, hang on, ISM manufacturing has been below 50 for months and months and months, recession. The yield curve's inverted, right? We should be having a recession. Inflation's too high and interest rates have gone up sharply. Well, we should be having a recession. And we haven't. And I think it's now become, becoming more clear that it was the freakish nature of the cycle because of all the COVID inputs that has meant it's been the, the usual patterns have been irrelevant. So this data this week, ISM Manufacturing back above 50, way above expectations, has fed into this now concern that maybe inflation might start going back up. Powell said, um, we're not yet done. So by the log fire yesterday, when he was talking about the Fed's job in bringing down inflation, he said we're not yet done. And he said, we do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down towards 2%. So that comment, in line with the strong data, It's just got people thinking, hang on, maybe 3 cuts isn't going to happen this year either.

So how is that feeding into other asset classes? We've talked about stocks a little bit, but the other one that's been flagged is gold's persistent rally.

Yeah.

So is there any read across from what you've been talking about there?

Well, I think there is. We talked about gold a few weeks ago. I mean, gold this year has made new all-time highs, and, um, it broke above the July 2020 high and notably broke through the $2,000 ceiling for the first time in its history. Um, and this was actually end of last year, right? And it's really shot up since. So this— the, the first 3 months of this year has been a steep uptrend for gold. And we talked a few weeks back about how that might be foreign governments, you know, switching out of their kind of dollar, US dollar reserves, selling their US dollar reserves and buying gold instead. And we talked about those kind of factors that might be leading to that. But I think what might now be the, the kind of next catalyst for what's been now a continuation of this move to the upside may well be these inflation fears coming back in, because gold is an inflation hedge. And so you might be seeing some buy-side volume coming in now because of inflation expectations.

So just explain to me very shorthand, inflation hedge. What do you mean by that and how does gold provide that?

Well, okay. Yeah, good question. So let's say you got dollars, right? You just got hard cash. Well, inflation is bad news for your cash. Because we, you know, what can you buy with your $100 bill, right? Well, depends how quickly prices are going up and the faster prices go up, well, the less you can buy with that $100. Your, your $100 becomes less valuable. So this is what we talk about. This is the, this is inflation eroding the value of money over time, right? So if you think inflation's going to rise, Don't hold cash. Instead, the old school hedge has been don't hold it in cash, buy gold. And it's really been, if you look back over decades, decades, decades, decades, then gold has had a very strong positive correlation with inflation. It's thought to be one of the assets that's most correlated to inflation. So the point is, Take your $100 bill, buy some gold. If inflation rises, well, history tells us that the gold price rises in line with that. So then when you're ready to buy your products, fine, you then sell your gold and you get more than $100 back because it's gone up in line with inflation. Okay. So it's been the best inflation hedge out over the super long term.

So this is a completely behavioral phenomenon then?

I think it might be. Yeah. I mean, because when you listen to that explanation, you think, okay, fine, kind of makes sense, but why? What, why is gold correlated to inflation? What's the technical fundamental reason? And I think there kind of isn't one. So yeah, I would say it probably is a behavioral like default Hang on, inflation's going up, buy gold.

And behavioral meaning that then why things like Bitcoin were mentioned before and somewhat disproven, but it could shift to other products. Is, is that possible? I mean, do you not get this in silver, for example, or other precious metals?

Well, I guess the, the other thing about gold, because think about it, if inflation's going up, you could argue, well, then that's bad news for economic growth. Cause interest rates are going to have to go up and et cetera, right? So other commodities like silver, silver is a precious metal. Yes. Like gold, but silver has a lot more industrial use cases, right? Industrial usage. So gold's price is more sensitive to the economic cycle. Sorry, silver's price is more sensitive to the economic cycle. Gold is a safe haven. In one aspect, right? So if inflation's going up, well, fine, you're getting your kind of safe haven covered as well as this inflation hedge. So yeah, I wouldn't say gold is going to be changed to a precious metal like silver as your inflation hedge, but Bitcoin, I mean, who knows? Yeah, obviously people talking about it as the gold of the future. And maybe it will be, but that's in the future.

Okay. And then the other metal, non-precious industrial.

Yeah.

I just wanted to get your thoughts on was another one that's moving up at the moment is copper. So what's going on in the copper market?

Well, I think like when you think about more broadly, right, inflation, is it going to go back up? Then actually you got a lot of commodity prices that are rising. So gold, we've just said new highs. Oil's like at a 6-month high. Um, and you know, oil's one of the most important commodities from an inflation point of view because it's so widely used. So when the things like oil goes up, and then that's pretty important from the inflation picture overall. So oil's at a 6-month high. Cocoa, we talked about cocoa, I think a few weeks back. That's still, I mean, it's quadrupled in 6 months. But copper is another key one. And again, we call this, it's like a bellwether sort of commodity in that its use cases is so embedded and widespread across the economic system globally. Of course, copper is used in most electronic all electronic products because of its conductivity. Okay, so it's— this is what's used on PCB, printed circuit boards, in your electronics. Okay, so, um, the demand for copper is very linked to the economic cycle. So when the economies are booming, we're buying more stuff, more electronics, right? You need more copper to manufacture that stuff. Copper demand goes up, copper prices go up. And then opposite, when we're getting a crash, of course, we consumers buy less and then demand for copper drops, prices drop. Okay. So it's a very industrial metal, very in line, prices very in line with the economic cycle. And an important thing, because yeah, it's in everything, right? So if the copper price is going to rise, then this will feed through into an inflationary situation. So copper's up at the moment. It's actually testing its high from 2023. So it's up near a kind of 12-month, uh, well, it's made a new, yeah, just over 12. It's like a, it's like a 14-month high, but it's right on the January 2023 top. So if it goes any higher, we're talking about the highest since, uh, the summer of 2022. Okay, so why is it on the up? And you could argue, well, all right, from a demand point of view, You know, isn't it the case that the US economy is strong? It is, but then you can counter that by saying the Chinese economy is weak. So when we think a bit more globally, the argument isn't quite as strong as to say growth momentum is amazing because it's not. So what's going on here? And actually, when you look at the pricing, whilst I've said it's at a 12-month or 14-month high, what's more interesting is looking at the difference between the spot price. So that's if you're buying physical gold today versus the futures price. So you can use derivatives to basically lock in a purchase price for gold that you're going to make in the future. So if you look at June, so that's 3 months out from now. Okay. If you know you're going to need copper in June, because you're an electronics manufacturing company. So I'm going to need copper all the time, every month for my manufacturing process, right? So let's say in June, you know, you're going to need to buy X tons of copper. Well, you can lock in a price for that today. You're not going to buy it until June, but you can lock in that June price today using these futures contracts. Now, the difference between today's buying physical gold today versus locking in that June price, the difference is $105. Per ton. So it's $105 per ton more expensive to buy gold in June than it is to buy gold today. Now, that is the widest that spread has ever been. So that means that we have a short-term, um, expectation that copper prices are going to ramp higher in the next few months. And the reason behind that is basically it's all about China. Most kind of electronics get manufactured in China. And so China's a very important market for copper. Now, to make copper usable in the manufacturing process, you need to get it through a copper smelter. And there's raw materials that are needed by these smelters. And China has more copper smelters than anyone else on the planet. Basically, they've got too many is really the bottom line in a shrinking economy. And so they've got too many. And what's happened is the demand for raw materials has gone— there's become an imbalance and it's meant the raw material costs, prices have spiked. And it's meant that actually copper smelters in China are now making a loss. The cost of their input has gone up so much that it is no longer covering the revenue of their output. And so actually, you've got this phenomenal sudden shift, and it's— it has been sudden. We're talking about over the last sort of 4 weeks, all of a sudden these smelters are now loss-making businesses. And so we're expecting these Chinese smelters to now collectively reduce output. So we're expecting a supply cut. So less supply of copper means that the prices are going to rise. Now, when you've got the US consumer staying strong, well, then that imbalance, that supply-demand imbalance, has suddenly just shot out. And you've got demand really strong in the US, the biggest global market, and you've probably got a sudden supply drop. So this is why copper prices are rallying.

So the people who would have the intel to capture that type of move would be the commodity traders.

Yep.

And so don't think of commodity trader being, you know, a guy sat at a screen in a financial institution. We're talking commodity traders in a sense of people who trade these products physical. Using derivatives in addition.

Yeah.

Yeah.

You're talking about the Glencores who everyone I imagine has heard of, but there's other ones like Vitol, Trafigura, you know, these types of commodity trading houses. They're absolutely primed to take advantage of this. And actually I was reading about Vitol. They've just been like, I think they've had 5 years in a row of best-ever profits, really, since you could say this commodity price move, really since the Ukraine crisis. Um, you know, broadly commodities have gone up and Vitol have been just been smashing it to the point where, um, their kind of net profits, um, well, actually I got figures for 2022. I know it's a bit old, but it's quite staggering. In 2022, they made $15.1 billion. This is, by the way, the biggest independent energy trader. This is just on energy. This is Vitol. $15.1 billion in 2022. They paid on average, so they got 3,311 employees. Do you know what the average salary plus bonus was in 2022? $785,000 per person on average, 3,311 employees. Um, anyway, Trafigura also smashing it. And yeah, commodity The commodity trading house has never had it so good. And yeah, with this copper stuff, cocoa kicking off, gold highs, oil on a nice uptrend, it's, it's like perfect, perfect storm for these guys to really cash in.

So we talked there about supply and demand, and in particular, um, tweaking that dial, let's say, on either side can dramatically move the price. So that might lead us on then to talking about the EV market.

Yes.

And trying to— I guess the catalyst for the discussion is Tesla, but the bigger picture here, and there are some, I guess, unique factors it would seem that Tesla can pin some underperformance on, but is there a bigger, broader EV thing going on here?

Well, yeah, let's talk— let's start broad. Um, so I've got some stats. On the manufacturing side, obviously there's been a boom in global car manufacturers panicking and pivoting to EV. Obviously, we'll come on to Tesla in a minute. Tesla were, you know, right at the forefront of that, you know, one of the trendsetters 15 years ago, right? More. And so They were well ahead of the game, but it's only been in recent times that the big boys, you know, your Volkswagens and your Toyotas and your all the rest of them have now panicked. Hang on, we've missed the— before we miss the boat, let's throw all our money into now manufacturing EVs. Okay. And then you got the Chinese coming as well. So the BYDs of this world, we were talking about BYD, that's a Chinese EV. Electric vehicle manufacturer, pipping Tesla to become the biggest EV manufacturer in the world. So you got the Chinese coming in as well. And actually, this has led to, um, 10.5 million electric vehicles being produced in 2023. Okay, now we're expecting in 2024, we're expecting that 10.5 million to move up to 13.5 million. And then in 2025, on current trends, we're expecting 18 million electric vehicles to be manufactured. So we have got that, that is a 70% increase in global EV output in 2 years. Okay, that's what we're expecting. Obviously, it could change, but currently expecting 70% growth. Now, that's the, that's supply, right? So now, well, what about demand then? Is demand going to grow to meet that increased supply? And currently that is looking way off. And actually last year was a massive, I think, yeah, a bit of a pivot, a bit of a pivotal year because for all, you know, for years we've been thinking, right, everyone's going to pivot to EVs. Demand's going to ramp and carry on ramping. This is the, this is the, you know, just going to continue to be an unstoppable trend. Except last year, all of a sudden it was like, oh, hang on, EV demand. Well, perhaps it isn't going up quite as fast as we thought. And there were 9.5 million EV sales globally last year. So straight away you got a supply oversupply, 10.5 million manufactured, 9.5 million purchased. That's why you've seen people like Tesla cut prices, because they've got an oversupply, you know, in the warehouse and they need to shift stock. Okay, we're going to have to cut prices. Now, the big problem— yes, last year was an imbalance, 1 million oversupply. The big problem is down the track, because whilst demand— sorry, whilst supply is accelerating, supply growth, we're expecting demand to stall. So actually, this year in 2024, currently expectations are that 9.8 million vehicles will get purchased. So bearing in mind we're expecting 13.5 to be manufactured, so that is a— what is that— a 3.7 million vehicle oversupply in 2024. We had a 1 million oversupply in 2023, 3.7 2024. We don't have demand expectation figures for '25 yet, But given that the supply is expected to accelerate even further, you're expecting this supply-demand gap to widen. And this is a disaster from an EV manufacturer's point of view.

So just give me then a couple of bullet points. Why is the demand so lackluster?

I think it's probably a few things. So infrastructure not being rolled out fast enough. Okay, so like EV charging points, let's just keep it simple, just hasn't been rolled out successfully enough, certainly not globally. China's probably the leader in all of this and fine, their EV sales are looking, you know, their EV adoption is better than anyone else. But infrastructure is one, cost is another. So these EV cars are just, they're just more expensive. Now the governments have trying to be, they've tried to subsidize these, but look straight out, it is still more expensive, right? And when you've got a cost of living crisis because of inflation, then it's impossible to go, oh yeah, I'm going to now step up and buy a much more expensive vehicle than I've used to be buying. And then finally, I'd say it's that And maybe it's all tied into what I've been talking about with that inflation. And I guess people's, you might say, the environmental momentum, that switch to green energy, has just come off the boil. It's no longer the kind of driving force it once was. And I think there's been other things people have been worried about, like the inflation and the cost of living crisis. And so I think that environmental momentum has dampened, and I think that's also played a role here.

Yeah, it's funny how so the, the circle that it follows, because you're exactly right. I think consumers feeling that, that tightening of the purse strings, but then you look up and you see these big multinational companies like Shell or BP pivoting completely on their green strategy, right? Um, so then one thing leads to another and it's like, oh, fossil fuels again. Here we go, Trump, Trump back. But, but maybe we could talk, um, a little bit then about— let's go into Tesla. Yeah, and then we could talk about how Tesla is performing in the broader mix of that Mag Seven.

Right. So yeah, Tesla, I mean, if you just look at their— well, their share price is down 30% this year. I mean, we're just start of quarter 2 here. We've only had 3 months and it's down 30%. But it's worse than that when you, when you look back. If you go back to, uh, hang on, I had the chart up. Let me just get it back. So currently it's trading at— let's just round it— it's at $170 per share. Okay. The start of 2024 is at $250, but its all-time high was actually back in November '21, like that peak of the sort of post-COVID bubble for tech stocks, if you like. And that hit $400. So its all-time high was $400. It's now trading at $170. So that's like a, almost a 60% drop, right? So look, the share price has been hammered. And the news this week that's kind of put it back on the front pages is that they reported a 9% year-on-year decline in first quarter vehicle deliveries, massively missing the expectations figure. Okay, so it's kind of, it's further fuel on that fire of, you know, the EV revolution is stalling. So 9% drop. That's despite the fact that Musk quite sharply cut prices. Remember, back end of 2023, cut prices. So these cars are cheaper, and yet deliveries are down by 9%. Now, why is this happening? Well, we've talked about maybe the demand side has just not increased like we thought. There's then the competition, so the BYDs of this world, the Chinese electric vehicle competition. You could also say that, I don't know, bad corporate governance at Tesla. You know, there was that saga a few months back. Musk wanted a $55 billion pay packet. The Delaware court slapped it down and said no. So that's all like wrapped up in that kind of governance scenario. There's political risks. So talking about deliveries and production. So actually in Germany, I don't know if you saw this story a few weeks back, Musk wanted to double. So in, in Europe, uh, Tesla only have one manufacturing plant, it's in Germany, and Musk had plans to double the output. Currently that factory can produce 500,000 cars a year. He wanted to double it to a million. And basically the local community where this factory is, it's like an hour outside of Berlin, voted against it. And so he's— they've said no. So he's like, oh, okay. So, you know, he's— he was wanting to increase production, but there's maybe some political risks in the mix to that. Um, so they're, they're kind of all the negatives, and it's all looking a bit, well, worrying, right? But I mean, there's always an opposite side to the argument, of course. And so now remember, these figures, it's 9% down on deliveries. So that's not, that's not talking about sales, I was talking about deliveries. So was there, or did anything happen that might have disrupted the ability for Tesla to deliver? And one point is, well, yeah, in Q1 there was a lot of disruption in the Red Sea, due to the Houthi kind of campaign on cargo ships. Now, Tesla did have to shut down one of their production facilities for 2 weeks because they didn't have enough components because of that. So you could argue, well, that's one. And is that a long-term problem for Tesla? I mean, I don't know. That's hard to say. That's a geopolitical call, right? So that's one thing. You could think, I don't know, the optimists are saying the US has been a particularly slow market to adopt EV. And yes, the infrastructure part plays a role there. But right now, the US, on average, US households have 2 cars and pickup. And so the optimists out there would say, well, you know, It won't take much for— whilst we're not expecting the household to entirely move to EV straight away, there might be a first step where one of their cars becomes an EV and the other one remains a petrol or diesel. And so they're saying that if that were to happen, and that's a big if, but if it were to happen, then the demand story could flip pretty dramatically and very positively. So the optimists out there are thinking that that's going to happen. You could argue long term, you know, the move to green is unstoppable. We might be in a bit of a dip on that trend, but ultimately that's the long-term direction. And so yes, demand's weak here, but you know, that's, that's, that's, that's going to change. And finally, prices. So as these manufacturers produce more, um, the prices to the end user should go down, economies of scale and all the rest of it. And we're expecting Tesla to deliver their new cheaper vehicle in 2025, which will only cost $25,000. Tesla, um, Musk is telling us. So it could be finally that issue that consumers have, that hang on, oh, it's just too expensive. Well, maybe that'll change, and, and they'll— the cost will come in line with kind of fossil fuel driven vehicles. So that's the optimist's view. Tesla's in a rut because of its own internal stuff, but because of also the broader situation, but ultimately it's still a good bet.

I think the optimism pessimism thing's interesting. I think it's just over what timeframe, right, that you're giving this thing. Because yeah, I kind of subscribe to the idea of this is a blip when I'm thinking long term. So it depends what you're in the game for.

Are you buying Tesla? Is that what I'm hearing?

Averaging in on, uh, so, uh, well, no, I'm not saying any more on that.

Oh wow, I never thought I would see the day.

It's just got so— it's just got— you know what, it just got so negative that that's when I start to get— I start to sniff around like a dirty vulture.

But I would caution you, there is a saying about picking bottoms. If you try to pick bottoms, you get smelly fingers.

Yes. So does the famous saying go. One interesting final part with Tesla was I did see that, and I guess it kind of fits into your counteracting the supply chain disruption, because not only COVID, you've now got the geopolitical situation in the Red Sea. And I saw that in the news today, Tesla are going to be sending a team to locations in India for a proposed multi-billion dollar plant according to sources.

Yeah.

So that I guess could be interesting as well to watch. I guess geographically then, if you're thinking about US, Central Europe, Western Europe, and then you've got Asia wrapped up in India.

Yeah.

Kind of dominating these global locations slowly.

Yeah. India's been the wor— I'm like thinking about, yeah, from a manufacturing point of view, a manufacturing hub. Yes. I think from a demand point of view, India's been shockingly behind on Indian people buying EVs. I think they're one of the worst, like, let, something like less than 2% of car sales are EVs in India. So far behind. And yeah, so, and there's a lot of in— like talking about infrastructure problems. I mean, the infrastructure challenges in India are just monumentally large. So They'll be a— that's that— that they'll continue to lag, I guess, is what I'm saying, from an internal demand point of view. But from a, yeah, global manufacturing hub perspective, yeah, makes sense.

Okay, so, uh, Tesla in the mix of the Mag-7 then. What does that look like in the current—

well, there was an interesting— I was reading, uh, in the FT, there was an interesting kind of spin on this thing, you know, going back to where we started this hot. We're talking about the S&P stayed up there. It's kind of— it's up at its highs. And actually, it's quite impressive that that's happened given that two of the Mag Seven— so the Magnificent Seven are those stocks that have been responsible for most of this rally, like the 2023 rally, um, and two of the seven have had really bad 2024s. We've spoken about one of them, Tesla's down 30%. Um, Apple's the other one that's down 8% this year. So if you've got two of the Big Seven down sharply, then actually it makes it all the more remarkable that the S&P is staying at its highs, actually. Um, but they were just looking at Tesla and thinking about, you know, how does, how does Tesla compare to the other six? Should Tesla have been in the Mag Seven in the first place? The argument now that it's dropped 30%, the arg— it's easy now to come out with the argument that maybe it shouldn't have been. But the main point is thinking about their business. And the point was that Tesla operates in a business where it's still in its infancy and the economics of it all are much less settled. We're not sure about demand. Yet. You know, we're not sure about supply, we're not sure about prices and, and all the rest of it. It's still in its infancy. Point being, way harder to predict and forecast. Um, so should Tesla be alongside the other 6? The point being, the other 6 are in dominant, you know, positions in very mature industries. So think about Alphabet, so that's Google, Meta, Microsoft, Apple. So Alphabet and Meta, you know, digital ads, you know, they absolutely dominate the planet. Okay. And that is a very mature industry. They got big moat. Then obviously Microsoft enterprise software and Apple smartphones. Okay. They dominate these mature markets. If you think about Amazon and Nvidia, you might say it's a little bit less secure, but they still enjoy deep competitive moats. So Amazon's retail platform and AWS and data and logistics, and then obviously Nvidia is in the class of their own AI chips scenario. So I guess the argument was that Tesla's position is not a dominant position in an infantile market. It maybe used to dominate if you go back 10 years, but we're talking about BYD overtook them, was the biggest manufacturer of EVs. So Tesla does not have a dominant position in an infantile market, which is exactly the opposite case for all the other 6. So should it be— should it have been in the 7 in the first place? What do you think?

Well, just put it to the community. I'll add a poll to this release on Spotify if you're listening there. So if you just go on the show, you'll see a poll. Should Tesla have been in the Mag 7 in the first place? And you need to vote yes or no, and we'll update then on the next episode.

Let's see. All right.

Thank you, Piers. I feel much more comfortable now. Complete visibility on the world of finance. Thank you.

Okay, we can go into the weekend relaxed.

All right, thanks everyone and, uh, enjoy your weekend.

Catch you later.