SCS: What's Happening on November 17, 2021
Rivian is the third-largest automaker in the world by market cap and hasn't sold a car. Jay Lutz still doesn't think it's the right time to buy MSOS.
Automakers are in disequilibrium. The theme amongst popular FinTwit personalities is either the traditional manufacturers will reprice on the upside, the new EV start-ups will decline in valuation, or we will meet somewhere in the middle.
Of course, there is a lineage of thinking out there from the Cathie Wood types that EV companies may be able to miraculously maintain gross margins north of 20% over the long run. In this scenario, most of the traditional automakers would go bankrupt as they scramble to catch up and thus can’t come in with their low-margin model. This scenario would also see valuation metrics continue to expand thanks to AI and automated driving technology.
In case you haven’t been paying attention, from a valuation standpoint EVs are all the rage. What used to look like a laughable valuation gap between traditional automakers and Tesla has now morphed into an entire category of lunacy. Three out of the four largest automakers by market cap are EV companies. And Tesla has a valuation equal to all the traditional OEMs combined.
Wall Street is starting to wake up to what the disruption will look like. This morning Morgan Stanley downgraded dealership stocks like Penske, Sonic, Group 1, Lithia, AutoNation, and Asbury. The traditional dealerships are finding themselves in trouble as no start-up EV firms are using the traditional franchise dealer model.
Want a Tesla? Go to your local shopping mall!
At the time of writing, Rivian is trading around a $110B market cap. Let’s look at what the company has accomplished to date:
The company is currently pre-revenue, with deliveries expected to begin in Q1 of 2022.
At the end of Q3, Rivian had an order book of around 50k trucks. Plus, Amazon has ordered 100,000 of Rivian's electric vans.
Amazon has a 20% stake from having invested $1.345 billion.
Deliveries of the 2022 Rivian R1S SUV will begin in January 2022.
Perhaps it’s the share structure, the ownership, or the cool-looking trucks. I don’t know. But you read that right, the third-largest automaker in the world hasn’t even sold a car yet.
Macro: The Macro Themes Surrounding Equities
Novavax COVID-19 vaccine receives emergency authorization in the Philippines (SA)
Canadian Pacific Railway Starts Bond Sale for KC Southern Deal (BBG)
Canadian October Inflation Skyrockets to 4.7% as Price Pressures Accelerate Despite ‘Transitory’ Narrative (TDD)
Large-Cap News We Can’t Ignore
Lucid Group rallies again even as Morgan Stanley says play the EV theme with GM, FREYR or Aptiv (SA)
Beginning next year, Apple will send you parts and tools to fix your iPhone and Mac at home (TC)
Solar Car Maker Sono Motors Prices US$150 Million IPO (TDD)
Fisker Displays Solid Cost Control in 3Q 2021 Results, A Rarity Among Start-Up Electric Vehicle Manufacturers (TDD)
JPMorgan sues Tesla for $162M+ (WSJ)
Small Cap News
Jushi Holdings To Acquire Nevada-Based NuLeaf For US$62.5 Million (TDD)
Interra Copper Releases First Assays From Thane Copper-Gold Property (TDD)
GrubMarket, a software maker and e-commerce platform connecting farmers and other food suppliers with customers, raised a $200M Series E at a ~$1.2B valuation led by Tiger Global (PRN)
Canadian Small Caps With Jay Lutz
With much of the cannabis sector now having reported earnings for their third quarter, whether on a calendar or a fiscal basis, one thing has now become clear. The market simply isn’t growing at the rate many expected it to be.
In the current environment, the majors appear to be growing at rates between 2% and 5% within the US, while in Canada, we’re lucky if these names stay flat on a quarter over quarter basis. Of course, there are exceptions.
Mid-tier operator Jushi Holdings (CSE: JUSH) this morning reported 13.1% growth, while up here north of the border, Auxly Cannabis (TSX: XLY) reported 17% quarter over quarter growth earlier this week. While one was based on acquisitions and the other was based on genuine nose-to-the-grind hard work, the reality is that at the end of the day, neither name actually made money in the quarter.
Those names and a select few others aside, effectively what it comes down to is the simple fact that outside of acquisitions, growth has become rather stagnant.
So, the market has turned to other means of garnering excitement for investors.
This past weekend, we saw much said about the proposed States Reform Act, which was pushed forward by South Carolina Rep. Nancy Mace, a name that two weeks ago everyone responded with the statement of “who?” The proposal, which looks to decriminalize cannabis at the fed level, managed to make current cannabis investors get rowdy.
On Monday, following a weekend of relentless chatter on the topic, MSOS, an ETF for the cannabis sector, managed to open up almost a dollar higher than its closing price on Friday, before hitting a high of $33.80. Excitement quickly withered however when it became apparent that the investor sentiment was not what was expected and that Fintwit was effectively an echo chamber, leaving the ETF to close red on the day at $31.06.
The proposal also managed to get an opinion from the South Carolina Republican Party, whom in a note stated that “We support firm enforcement of existing laws against the abuse and distribution of controlled substances, and we oppose any effort to legalize the use of controlled substances,’ and that includes marijuana.”
MSOS meanwhile is now in the middle of its third straight red day this week, making us summarize this past weekend as “much ado about nothing.”
MEMEs of the Day
We started a new segment on our live stream talking about MEMEs:
Full Disclosure: Interra Copper is a client of the CanaCom Group and the Canacom Group is long Interra Copper. Steve Hyland owns a minority position in the CanaCom Group.