Wall Street Lunch: Climate Activists Target Tesla’s German Plant?
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Summary:
- Tesla’s Gigafactory in Germany evacuated due to fire and power outage, environmental organization being investigated for arson.
- J.P. Morgan says EV makers set for a historic impact on gasoline demand, predicts a contraction in global gas demand by 2025.
- Check out Wells Fargo’s list for momentum names to play and contrarian plays to avoid.
Sean Gallup/Getty Images News
Listen below or on the go on Apple Podcasts and Spotify
Employees evacuated, production halted at the factory in Germany. (0:16) 2025 could be historic for gasoline demand. (1:01) Target rallies on improved holiday profit. (3:00)
This is an abridged transcript of the podcast.
Our top story so far
A fire and power outage at Tesla’s (NASDAQ:TSLA) plant in Germany led to a full evacuation.
Police in Brandenburg are investigating a letter the force received pointing to an environmental organization known as Vulkangruppe as responsible for arson at the site.
Local media reports in Germany indicate the letter called for the complete destruction of Tesla’s Gigafactory.
The Brandenburg state interior minister said: “If the initial findings are confirmed, this is a perfidious attack on our electricity infrastructure. This will have consequences. Thousands of people have been cut off from their basic supply and put in danger.”
Tesla was forced to temporarily halt production at the Gigafactory located close to Berlin after all employees were evacuated. The company employs about 12,500 people in the region.
Also in electric vehicle news, EV makers are set for a historic impact on global gasoline demand in less than a year. That’s according to J.P. Morgan.
Strategist Marko Kolanovic says increasing pressure from electrification and efficiency gains will likely lead to a contraction in global gas (XB1:COM) demand in 2025 for the first time ever outside of a recession. They predict a cumulative loss of 900,000 barrels per day by 2030.
“Moving along the electrification road. 21.6 million electrified vehicles (battery EVs, plug-in hybrid EVs, and hybrids) were likely sold worldwide in 2023, or 33% of total auto sales,” he said. “The market is moving from early adopters to early mass majority in Europe and China, while the US remains a nascent market.”
“Fully or partially electric vehicles are now a meaningful share of the fleet, representing about 7% of the global fleet.”
In today’s trading
Stocks are choppy again, with the major indexes in the red. The Nasdaq (COMP.IND) is faring the worst, down more than 1%.
There was a double dose of weak economic data.
The February ISM Services index fell more than expected, down to 52.6 vs. 53.0 consensus and 53.4 prior. But the prices paid component showed some easing on inflation after a spike to 64 in January. It dropped to 58.6, lower than expectations for a decline to 62.
And January Factory Orders fell -3.6% vs. the -3.1% consensus. Factory orders excluding transportation fell -0.8% vs. -0.3% prior.
Among active stocks
Target Corporation (TGT) rallied after the retailer posted improved profitability in the holiday quarter.
Target said comparable sales decreased 4.4% during the quarter vs. -4.6% consensus. Same-day services (in-store pickup, Drive Up, and Shipt), which represent more than 10% of total sales, increased 13.6% in the quarter, led by growth in Drive Up.
Target’s operating margin rate was 5.8% vs. 3.7% a year ago. The gross margin rate was 25.6% of sales vs. 22.7% a year ago and the consensus estimate of 25%.
The gross margin improvement reflected lower markdowns and other inventory-related costs, lower freight costs, lower supply chain and digital fulfillment costs, and a favorable category mix. Shrink costs were lower than a year ago, as continued increases in store loss rates were more than offset by the timing of inventory accruals compared with 2022.
Target beat estimates on the EPS line at $2.98 vs. $2.42 consensus and $1.89 a year ago. Looking ahead, the company expects Q1 comparable sales to fall 3% to 5% and Q1 adjusted EPS of $1.70 to $2.10 vs. the consensus mark of $2.07.
Elsewhere, NIO (NIO) set their sales guidance for Q1 at the low end of what the Street was expecting, underscoring the competitive market for EV sales in China.
For Q1, NIO is forecasting deliveries to increase between 0.1% and 6.3% to a total of 31,000 and 33,000 vehicles, and total revenue to be between RMB 10.5 billion and RMB 11.09 billion. This compares to estimates of RMB 11.05 billion.
And Apple’s (AAPL) iPhone sales in China fell 24% year-over-year in the first six weeks of 2024, amid rising competition from Chinese rival Huawei Technologies. That’s according to a report by Counterpoint Research.
Huawei continued to attract strong demand for its Mate 60 series, one of the only bright spots to the start of the year. Total China smartphone unit sales fell 7% year-over-year during the first six weeks of 2024.
And in the Wall Street Research Corner
The recent dominance of momentum strategies should continue, and investors should resist the urge to bottom-fish, according to Wells Fargo’s equity team.
Analyst Chris Harvey says: “Why should trend following keep working? Partly because that’s what it does.”
“In April 2020, we advised investors to take a contrarian stance and go bottom-fishing as the valuation of the contrarian basket was very attractive. That is not the case today.”
They recommend tilting to price momentum when adding new names and “selling ‘broken stories’ quickly as they will likely languish; economic growth will not help.”
Among the 20 Overweight-rated stocks they list with high momentum are Spotify (SPOT), Nvidia (NVDA), Meta (META), and Elastic (ESTC). Among the Underweight-rate stocks with low momentum are HP (HPQ), Zoom Video (ZM), Roku (ROKU), and Ford Motor (F).