Can Tesla survive automotive – if not broader economic – slowdown?

Elon Musk, he’s polarizing. He should probably go, Or at the very least, he should take a Zuckerberg type-role and find his own Sheryl Sandberg.

But the cars are a different story. It’s hard to, say, watch Marques Brownlee and say to yourself, “Damn, I want that car…”

[I, on the other hand, opted for the Boosted Board as my own electric vehicle]

Anyway, Tesla didn’t begin shipping the Model S until 2012. That means that the company has never faced a downturn in the automotive sector. Nor has it faced a world with rising interest rates. A few quick thoughts:

  • The company has never existed as car sales fell: The challenge becomes – can they still increase sales even as the broader auto market shrinks? Maybe. It’s probably unlikely, but it’s a company that is dependent on brand value. That should help the company weather any economic turmoil, but it’s not a given that fanboy-ish behavior will outweigh broader macroeconomics. Not to mention increased competition in the electric auto space. Electrek wrote recently that Mercedes-Benz is building a new battery factory for electric vehicles in the US. VW wants to sell 1 million EVs in the next seven years, according to The Drive. Meanwhile, Volvo is working wtih Nvidia on a self-driving platform (The Verge). There is no shortage of action in the space, and while Tesla has the competitive advantage right now, it may not always be the case.
The company has never existed in a rising interest rate environment: Speaking of macroeconomics… Big economic trends also have an outsized impact on Tesla. The company has also never existed when rates were higher. Since the company is so dependent on financing, any tightening of financial conditions is only going to put the company under more and more pressure. Which is a big problem when the bills come due: Tesla said it doesn’t need financing in the near future (Business Insider), but the company has three debt payments that will come due between November and March that total around  $1B. The company has around $2.2B in cash, but nearly a billion of that is for Model 3 deposits. If the company does have to raise cash, it’s going to be at a higher rate. For a company already living on the cash flow edge, that’s tough.

But this begs the question, could a downturn in the US economy actually help Tesla? If rates come down as investors seek the safety of US Treasuries, could the company actually tap into cheaper capital? Or would the company’s ongoing (and growing?) risks force investors to demand a premium to shuttle cash Elon’s way?

Again, Tesla has never really existed in a time when spreads between corporate bonds and Treasuries have widened. But on one hand, this is Tesla, which has track record of squirming out of financial jams. On the other, 2008.

Adobe Premiere Rush: First Impressions

Adobe released its Premiere Rush app today. It’s a scaled-down version of the full-fledged Premiere, designed for YouTubers and social creators. But is it right for you?

Here are the highlights from the video:

Adobe released Premiere Rush today, it’s on-the-go video editor.

A few quick first thoughts about the concept – it’s really great. If you have been editing video on your phone, chances are you’ve been using Apple’s iMovie app. It’s… adequate. But it is incredibly frustrating after you’ve been using something like the full-fledged Adobe Premiere for awhile. So it’s great that Adobe has gone ahead and released a scaled-down version of Premiere, which we all know and love.

But it’s exactly that – scaled down. It’s nice you can now use a timeline-based video editing app on your phone. And not only that, but it will sync to your desktop version of Premiere, so you can start on your phone, and most likely refine and finish on your laptop.

A few other features:

  • Transitions between videos are nice, along with color grading. Still though, these are going to be hugely limited compared to what you’re doing on the desktop version. You get three transition types. Color grading is limited to 12 presets, though you can use your own presets from your desktop version, or you can adjust sliders like you would in any other editing program.
  • You can add titles from Adobe’s own stock. The only problem – it’s damn near impossible to edit some of the smaller text areas. Please Adobe, let me edit from the dropdown, not directly on the playhead. It gets really difficult to put the cursor in the right spot to delete the word. We can partly blame Apple for its insistence to exclude a delete key on its keyboard, but that’s another video altogether.
  • Audio uses Adobe Sensei, which automatically adjusts the volume of the background music during voiceovers. On your voiceovers, you can even balance out the sound, reduce background noise, just like the desktop.
  • You can change your setup for your video to be vertical or horizontal. So it is finally easy to edit video specifically for IGTV. Is this the beginning of the IGTV boom? I’m… skeptical.
  • I did have some trouble syncing to my desktop. Only a few of the assets – like the voiceovers – came through. Not sure if that’s a bug, or if there’s some other connection I might have to make.
  • I also had trouble exporting from my phone. I eventually had to export in 720p because 1080p kept crashing the app. But, I’m using an ancient iPhone 6+, so that’s not really a surprise. But hopefully future updates will take care of that. 

Look, it’s great to have Adobe timeline video editing on my phone. It’s just going to be limited. No keyframing, making cuts is just kind of difficult, there’s no rate tool so you can’t speed or slow video to fit a certain length.
But it is a LOT better than iMovie. I’ll definitely be using this when I edit video on my phone, but I’m just not sure how often that’ll be. In the Instagram Stories era, why do you need to cut footage in the first place?

Snap: The view through rose-colored Spectacles

I’ve always hesitated to write about Snap because I have a good friend who works for the company, and I want to be supportive.

So I’ll bring up some good news about the company. It’s user metrics are growing!

Sort of. Let me explain.

The platform has shrunk in the past few months. Literally shrunk – fewer people using it for less time per day. There’s a lot behind that, including Instagram rolling out Stories, as well as the Snap redesign that was hated by all those tastemakers who matter.

According to Business Insider this week, Snap shares have wiped out $13 billion with a B from its market cap since that tweet. Clearly there’s more to the decline than just Kylie Jenner, but her role is not insignificant.

The (rare) optimistic note from Wall Street

But today, Brian Wieser from Pivotal Research upgraded Snap from hold to buy, saying his data show a “widening user base.” Weiser did acknowledge it is collectively spending less and less time on the platform, but at least its growing, right?

Weiser is one of the few champions of Snap on the Street.  He also said it isn’t too late for management to reverse usage trends and increase monetization. Sure, it’ll take some more platform tweaks (overhauls?) and pulling people’s attention from Instagram, but Snap once held the fire. With a little bit of luck, they can do it again, right?

The company has taken its lumps in the past few weeks. CEO Evan Spiegel sent out a memo that struck a positive tone, giving the stock a quick boost. But that was quickly shot down. BTIG’s Rich Greenfield said the platform is “the fastest way to communicate” 26 times. Clearly not true in our iMessage world.

Users are just posting less too, making it less compelling to open up the app.

Monetization is also an ongoing challenge. Greenfield said the shift to programmatic ads hasn’t been terribly successful.

But the CPMs on Snap are cheap, and as we’ve seen before, maybe advertisers trying to capture the best relative value is the best, winning strategy?

Err, let’s put a lid on that one and stick it back in the closet.

Tearing down and building up: Amazon wants Deliveroo, opens 4-Star store

It’s has been a busy past few days for Amazon:

  • Amazon has been in preliminary discussion to buy Deliveroo, which is based in London and sends out cyclists to deliver food. It now serves 200 cities in 12 countries and has a valuation of over $2B. (Reuters)
  • Amazon also opened its first 4-Star Store in SoHo. The store only sells items that are ranked four stars or more on Amazon. (The Verge)
  • The company announced it is raising its minimum wage across the company to $15 an hour. (CNBC)

On the surface, the first two – the potential Deliveroo acquisition and the 4-star store- are services that Amazon would really be able to provide to big cities.

Deliveroo really only works in places like London, which are dense and have a customer base who are willing to pay a premium to have their sushi strapped to the basket of a bike and delivered to their door. For a multitude of reasons, that model doesn’t work in Murfreesboro, Tennessee.

The 4-star store is going to sell (mostly) premium goods in premium real estate. It’s more of a marketing tool than anything for Amazon, a place where the company can point and say “look at all these awesome products we sell!” It’s no wonder they opened in SoHo, just like Google opened a pop-up to demo the Pixel and Dreamview in the neighborhood a few years ago.

But what if I live in Murfreesboro?

Well, last-mile delivery and the 4-star store news doesn’t help you much. You can still get two-day Prime shipping, of course, but there’s a small chance you’ll be getting a 4-star store anytime soon.

And last-mile food delivery requires density. It isn’t difficult to drive to your local restaurant to pick up dinner in car-centric Murfreesboro, so why pay someone else do do it? Papa John’s, for example, is partnering with DoorDash to deliver pizzas to rural customers, but there are questions how this would actually work in practice, and how profitable this might be.

But what Deliveroo and the 4-star store do expose is that there is clearly a gap in some of Amazon’s investments for a huge part of its customer base. And this brings up a question: are all these investments from tech companies that transform our physical space and our cities (in the cité sense – the feeling and livability of a city, rather than the ville sense, or the physical structure of the city)? Is there a chance that creates more political animosity toward Amazon and other tech companies?

I think that’s a big risk for Amazon, especially given our tribalized politics and the fact that Amazon and Jeff Bezos sits squarely in the middle of the partisan shit-tossing.

But I also think that beneath the surface, a lot of these investments could benefit suburban or exurban customers more than urban customers.

If you live in Manhattan, it’s easy to walk out the door and buy anything you want, or to have anything you want delivered to you. But this all costs money – a lot of it.

If you live in Murfreesboro, you can have the same goods that you can buy in specialty boutiques in Brooklyn delivered to your door, for free, in two days. That’s incredible for suburban and rural consumers, because it opens them up to the benefits of specialization that were previously only contained in cities. Even if you live in Midtown Manhattan, the market for Prime is gigantic compared to on-demand delivery, so it really doesn’t matter where you live.

Amazon’s $15 an hour minimum wage obviously helps suburban and rural customers the most. The company’s warehouses are largely in these areas, and would bump up the wages even outside of Amazon in those communities. To pay for this, Amazon would likely increase the cost of Prime, which is a direct shift of wealth into these communities with lots of Amazon distribution and logistics jobs.

The point is, the beneficiaries of tech aren’t all that obvious on the surface.  As Tyler Cowen argued in Bloomberg View in 2016, the technological revolution could favor suburban and rural customers the most. That’s worth considering next time you hear a certain resident of the White House engaging in Amazon/Bezos bashing at rallies in suburban or rural communities.

Could WeWork bring down Manhattan’s commercial real estate market?

Everyone loves WeWork, right? They have well-designed spaces in the best neighborhoods in cities. They’re a sort of physical manifestation of our entrepreneurial desires. Seriously, a bunch of good looking, plaid-shirted people drinking artisanal coffee and building wireframes of apps and whiteboarding video marketing spots? That’s just… cool.

So cool, that the Wall Street Journal just reported this week that WeWork now occupies more office space than anybody in Manhattan, just passing JPMorgan Chase. You know, the biggest bank in the country, with $2.5 trillion with a T in assets.

It’s really a testament to how much people love WeWork.

But its also sort of a problem. Or at least could easily become a problem.

The article noted,

WeWork is one of the biggest and fastest-growing of the “flex space” office providers, a group that also includes Knotel Inc., Industrious Office and IWG PLC. These companies rent office space from building owners, then sublease it for as short as a month or up to three years. They offer tenants greater flexibility than do traditional landlords, which typically lock in renters for a decade or longer.

In finance, this would be called a duration mismatch. If you’re managing a pension portfolio, and the average person in your plan is 20 years from retirement, you’d want all the assets in your plan to have a duration of 20 years – that is, to make sure any changes in the value of the liability (how much you must pay pensioners) are offset by changes in the value of that pile of assets (how much you’re investing now to pay them in the future). And note, it isn’t exactly linked to “years” in practice, but for simplification sake, we’ll run with it. This gets mathy because the change in the value of a 1-year Treasury note acts differently than the change for a 30-year Treasury bond when interest rates move.

All this is to say that this duration mismatch makes WeWork’s strategy incredibly risky. If they enter into a 30-year lease on some commercial real estate space, and sub-lease it for 6-months, 1-year, or 3-years to companies, they are banking that they’ll be able to replace those tenants with other tenants who can pay the same amount in a few years.

But what happens in an economic downturn? There will be less demand for that real estate space, so WeWork will either have trouble filling its space, or will cut prices to draw in customers. But at the same time, they have the same lease payment to make for their own lease on the space.

Anyone who has lost a job or has taken a pay cut when they have a mortgage knows how stressful this is. And when there’s a much bigger recession things can get ugly. Just think back to 2008 and 2009, when the entire US housing market fell into tatters because of an economic downturn.

That’s sort of the kind risk WeWork poses to the New York commercial real estate market. What if an economic slowdown puts pressure on smaller companies and entrepreneurs to cut costs? What then happens to all that commercial real estate space WeWork is leasing in New York? What kind of effect could that have on the bigger real estate market in the US?

JPMorgan is able to withstand a recession. They have a ton of money, and can raise capital quite easily. WeWork, on the other hand, is a private company that relies on private equity funding, but has also tapped into the bond markets for financing.

The results have been less than stellar. The WSJ wrote a story right after the first bond issue in April titled, WeWork Bonds Fall As Debt Investors Question Startup Stories. The bonds have recovered since then, but are still trading below par.

And oh yeah, the economy is humming along right now. WeWork’s story might get a lot more interesting when things get choppy.