When Black Friday comes… Steely Dan is dominating my mental soundtrack this morning. But, as I said in my column earlier this week, I like being away from the herd. So instead of focusing on mall traffic or the Amazon Prime (AMZN) business, I’m going to focus on a much larger consumer base than in the US: China.
The People’s Bank of China will reportedly reduce the required reserve ratio for most banks by a quarter of a percentage point by December 5, which would pour about $70 billion of liquidity into the economy.
I spend so much time in the energy industry that I’ve adopted his lingo. We always talk about marginal demand for a barrel of oil. So, if we look at the global economy, China represents marginal demand for…pretty much everything.
Yes, this obviously has an impact on oil, and the recent zero-Covid lockdowns in Beijing and other cities have effectively put pressure on oil through its Brent crude price benchmark. Brent is now flat at $85.30 a barrel.
But energy is still the best of a bad bunch of US stocks. I saw the statistic the other day that energy is the only one of 12 S&P 500 sectors that has so far posted a gain in 2022. Rest assured that I will not be selling any energy names now, nor do I intend to before the 23rd. December .
But when I look at the Chinese consumer, I focus on purchasing goods, not raw materials. The first name that comes to mind as China Play is Tesla (TSLA).
Chinese auto safety regulators announced another recall action Friday on older Teslas (models that were actually made at Tesla’s California facility). A terrible initial quality record combined with a weakened macro environment in China does not bode well for Tesla’s global growth prospects. Elon Musk knew he had to grow where the marginal growth was in the global economy, so he opened Tesla Shanghai. But the macro rules the micro, both in China and in the United States
Earlier this year, the Insane Clown Posse of sell-side analysts pretending to follow Tesla were scrambling over one another to raise forecasts for Tesla’s 2022 unit shipments. The high I’ve seen was 1.7 million units, but now, with slowing China and dire Europe (Tesla opened a factory in Germany this year) it seems the consensus is 1.35 million units delivered for Tesla in 2022. I think they will struggle to catch up with 1.3mm drives.
That drop in unit delivery forecasts was largely a factor in lowering analyst forecasts for Tesla’s deliveries in China. As delivery wait times mysteriously disappear on Tesla’s China website, we can see that demand has dissipated there. The Model 3 is 5.5 years old and no longer sells well in China (or anywhere else), and the Y, while selling well, is expensive for the average Chinese consumer.
Tesla has been portrayed as a China Play, and with China slowing down so much that its central bank is turning on the monetary faucet, look to Elon to continue to focus his energies elsewhere. Since TSLA’s stock is down about 50% this year, I don’t blame him for doing so.
(For some bonus content, and if you were understandably more focused on family and football yesterday than the Brazilian financial media, this is my interview with Brazil newspaper regards Elon Musk, Twitter (TWTR) and Tesla who posted yesterday on that excellent site.)_
Black Friday comes to everyone. Just make sure your wallet doesn’t have one today or any other Friday in the near future.
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