CES 2023 Day 0 – Cars, cars & more cars

EV, not Auto – Soggy reality.

• Making electric cars is not nearly as exciting as vehicles that drive themselves, but the fact that they are here now as opposed to “sometime in the next 10 years” means that they will be headlining the show this year.
• This continues the theme of reality over narrative that has been forced upon the technology industry now that valuations have been crushed and capital is scarce.
• This is exemplified by the fact that a tractor maker (John Deere) is delivering one of the major keynotes this year.
• It is not lost on me that getting a tractor to drive itself up and down a field in a straight line with no other obstacles is not exactly difficult, but sentiment is now so poor that this is all the industry is confident of delivering on schedule.
• Another example is the LVCC Loop where Tesla vehicles ferry people around the LVCC in tiny tunnels at 30mph or less which I have argued would be much more effective if they were pedestrianised (see here).
• The original promise was that autonomous pods would be zipping through undercity tunnels at 200kph / 150mph but reality once again got in the way.
• The LVCC loop, like an empty field, should be one of the easiest environments to convert to autonomy but the drivers are still there as it appears the sensor suite can’t handle the proximity of the walls.
• CES headlining with John Deere, BMW and Stellantis would have been unthinkable just 2 years ago and is a sign of how much things have changed from last year.
• Hence what we are going to see is a series of electric vehicle launches and a lot of discussion about how the software-defined vehicle will be delivered.
• This is far more difficult than it sounds but centralising software in the vehicle is required to deliver the ability to updates and services to the vehicle without an expensive visit to the dealership.
• This will predominantly feature in electric vehicles rather than petrol vehicles given that it requires the vehicle platform to be recreated almost from scratch.
• This is happening anyway in electric vehicles meaning that digitising EV is far simpler than trying to retrofit digital onto a legacy platform.
• This is why digitisation and electrification go hand in hand and I suspect that together these two will be the main themes of the show this year.

The Twitter effect.

• Also making the rounds in the pre-show chatter is the example of Twitter and what this means for the ability of social media and the app economy to function with far fewer employees.
• Twitter’s headcount is down by 70% but the service is still functioning and hardly anyone has noticed a difference in the service.
• Twitter proponents will point to the recent outage and the fact that R&D cuts take some time to manifest themselves in weaker products as evidence that the cuts have hurt the functioning of the company.
• However, I think that everyone suffers outages from time to time and it has been a long time since I have seen any new R&D-driven features appear in Twitter.
• At the same time engagement with the service has increased significantly, meaning that with a 70% headcount reduction, Twitter may now be cash positive.
• This raises the question as to whether the other social media companies like Meta, Snap and so on are also substantially overstaffed and whether their financial woes could be fixed with large headcount cuts.
• Meta has spent the last few years recruiting content moderators like crazy because its AI has not been good enough to do the work of humans.
• Although revenues are struggling, engagement with Meta’s services continues to be strong and so I suspect that if it was to really take the knife to the fat, a lot of cash could be generated without harming the underlying business materially.
• This would be a much better way to raise money to invest in the Metaverse because, at the moment, it is shareholders who are footing the bill as EPS is likely to decline again this year.
• Using Meta’s own forecasts for 2023, I can derive EPS of $5.58 which is far below Wall Street consensus and would indicate a 2023 PER of 22.8x which is very expensive for a company where earnings are in decline.
• Meta’s shares seem to be pricing in cuts to OPEX that Mr Zuckerberg has said he doesn’t want to make.
• Hence, I don’t think the shares are cheap and I still don’t want to think about bottom-fishing this unless it hits around $70 per share.
• There are far more interesting things to look at in a stock pickers market that is likely to persist for 2023.