Tesla touts $25,000 electric car at Battery Day. Carvana continues to perform exceptionally. Why?

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The Top MarketBites Investment Stories for September 23rd, 2020
TOP STORY 1: Tesla Battery Day: $25,000 Tesla on the way? – Here is what you need to know!

What is happening?
Elon Musk hosted Tesla’s “Battery Day” yesterday. Tesla aims to produce a $25,000 electric vehicle in 3 years. The Gigafactories in California, Germany, and China are going to produce Tesla’s in-house, proprietary battery technology. Shares set to open down as much as 7% today, as investors expected more immediate results from the EV maker. 

Why does this matter?
Tesla is on track to achieve 5 consecutive profitable quarters, but there is a lot of room to improve a 1% net profit margin. Tesla’s reliance on third-party battery vendors like Panasonic has created major bottlenecks. So Tesla is aiming to slowly bring battery production in-house by leveraging its Gigafactories. They are also working on a proprietary battery technology that can cut battery costs by 50% and also expand range by more than 50%! Tesla’s proprietary “tabless cell” batteries can make the $25,000 model a reality in 3 years, according to Musk. (Good luck Tesla engineers to actually stick to that ambitious timeline!)

The Takeaway:
Tesla achieved 50% vehicle delivery growth in 2019, and is on track for 30% – 40% in 2020 even though battery shortages continue to weigh on car deliveries. The big question remains, how fast can Tesla diversify away from Panasonic and build its new “revolutionary” batteries in-house. Wall Street will continue to expect A LOT from the EV maker to justify an almost $400 billion valuation for a company that generated $24.6 billion of revenue in 2019.


TOP STORY 2: Father, Son used car salesmen add $5 billion to their wealth in a single day. Let’s look at their business; Carvana!
What is happening?
Carvana shares surged almost 31% on Tuesday after the company expects to set multiple records in the 3rd quarter. Goldman Sachs upgraded the stock from a HOLD to a BUY the same day. 

Why does this matter?
Carvana’s online used car marketplace has taken the world by storm. Carvana’s market capitalization has soared to $39 billion since 2012, and the stock appreciated almost 2,000%. The company’s father and son founders are collectively worth $21.4 billion. To put that into perspective, industry veteran Carmax has been around since 1993 and the entire company is “only” worth $17 billion.

How? – Carvana maniacally focuses on delivering an Amazon-like online car buying experience. Customers can choose from over 19,000 cars online and complete a purchase within 10 minutes. And most often your car is available in 1 business day! The website is intuitive and fun to use, and the cars are backed by “CarMax like” guarantees. Carvana’s focus on the consumer is paying off as its revenue nearly doubled to $3.9 billion in 2019. The company currently sells around 200,000 vehicles a year, but the founders see 2 million/year car sales a close reality.

The Takeaway:
Carvana’s aggressive growth strategy has been paying off in a stock market environment that continues to favor growth over profitability. Also, the skyrocketing stock price has made it even easier to get access to cheap debt to fuel further revenue growth. Carvana’s meteoric rise has drawn some skepticism from short-sellers. Roughly 25% of the company’s shares are sold short (betting the stock price will fall). Expect a lot of volatility in this name moving forward. 


DEAL & IPO WATCH:

– 3M said to explore $3.5 billion sale of Food Safety Division
– Deutsche Bank, Credit Suisse, UBS continue to explore possible mega-bank merger
– GoodRx, the prescription pricing platform, is going public today. IPO price set to $24 – $28 range that would value the company at around $10 billion.


WHAT ELSE IS HAPPENING:
– Trump court plan quickens with a pick due Saturday – (read here)
– Amazon to sell a $500 Prime Bike, going after Peloton’s turf – (read here)
– Billions rotate through giant Tech ETF thanks to options boom – (read here)
– Some airlines are removing passenger seats to make room for cargo. Smart move as passenger traffic came to a halt due to the pandemic  – (read here)
– NBA might not start until 2021 – (read here)

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