Feb 4, 2020

Axios Generate

Hey D.C.-area friends: I’m moderating a conversation on the Future of Clean Growth at the British Embassy on Tuesday, Feb. 11, at 6pm ET.

  • Panelists include Dr. James Kelly, Gingko Bioworks; Julian Critchlow, U.K. Department for Business, Energy and Industrial Strategy; & Michelle Patron, Microsoft Corporation. RSVP here to attend (spaces are limited) or check out the livestream.

🇨🇳 Axios China — by our new China reporter, Bethany Allen-Ebrahimian — relaunches tomorrow. Subscribe here.

Today's Smart Brevity count: 1,228 words, 4.5 minutes.

🎶 And, Feb. 1 marked 40 years since Blondie released today's classic into tune...

1 big thing: Tesla's meteoric market rise
Expand chart
Data: Money.net; Chart: Axios Visuals

Tesla's stock is going nuts again in pre-market trading this morning, climbing another 13.3% to $884.

  • That's after yesterday's 20% surge to close at $780-per-share — basically triple the price a half-year ago and even far above the bump that followed its well-received Jan. 29 earnings report.

The big picture: The string of new record share prices signal market confidence that the Silicon Valley electric automaker has a bright future after some very rough patches in recent years.

Why it matters: As Generate readers have heard me bang on about before, this is more than a drama (and sometimes comedy) about one company — Tesla's health is important for the growth and cachet of electric cars more broadly.

Driving the news: There seem to be a few reasons why Tesla's stock is jumping again this week.

  • A bullish Argus Research note making the rounds yesterday raised their price prediction to $808 per share from $556.
  • “Despite past production delays, parts shortages, labor cost overruns and other difficulties, we expect Tesla to benefit from its dominant position in the electric vehicle industry and to improve performance in 2020 and beyond," the firm said, per CNBC. (The first, uh, four clauses of that sentence tell you what a wild story this is.)
  • Panasonic said yesterday that its joint battery venture with Tesla turned a profit for the first time, per multiple reports.
  • Oh, and a weekend note from the firm Ark Investments projected the share price reaching $7,000 (!!!) in 2024.

But, but, but: Axios' Joann Muller wants to take the room down a notch. She notes that Tesla still lost $862 million in 2019, although was profitable in the second half of the year. She says...

"Tesla’s soaring stock price is not based on its financial performance. Instead, it’s trading on investors’ expectations for the future."
"They’re buying into the hype from CEO Elon Musk about demand for Model Y, Cybertruck and Tesla Semi. As always, execution is what matters. And if history is any guide, Tesla will hit a few speed bumps with these products, too."
Bonus: EV quote of the day
"An OEM’s climate change strategy may be the #1 driver of long term cost of capital and share price performance vs. any other factor."

Who said it: Morgan Stanley analysts, referring to "original equipment manufacturers" — which really means big automakers — wrote this in a note yesterday.

The context: It's one of their observations ahead of General Motors' Q4 earnings report and investor presentation coming Wednesday.

Why it matters: It's another sign of how emissions and electrification strategy are increasingly important for the industry, even though EVs remain a minuscule portion of sales.

The big picture: "We see significant potential for auto firms, such as GM, to execute a decarbonization strategy (including full electrification of the fleet) that can drive significant cost reduction in [cost of goods sold] and cost of capital," they note.

2. One seemingly clear thing about Iowa


Ok — so the Iowa Democratic caucuses are a total mess and we don't know who won, but polling suggests voters in the state really care about climate change (albeit not as much as health care).

Driving the news: Via AP's coverage of polling they commissioned: "About 4 in 10 ranked health care as the most important issue facing the country, while 3 in 10 identified climate change as the top."

  • That's one of the results from polling conducted for several days before the event for AP and Fox News by a University of Chicago research group.
  • "[C]lose to 9 in 10 Iowa Democrats support taxing carbon-based fuels such as oil, coal and natural gas. Nearly half were strongly in favor of the proposal," they note.
  • Click here for the methodology.

The big picture: That's not the only polling to show climate change among Iowa Democrats' priorities. Via ABC News' coverage of their entrance poll...

  • "Forty-two percent of Democratic caucus participants called it the most important issue in their choice; of the rest, 21% picked climate change; 18%, income inequality; and 13%, foreign policy."

Quick take: That's consistent with various polls earlier in the election season that have shown climate change among the topics that voters in crucial state contests are most interested in.

Go deeper: Poll: Early state Democratic voters care about climate change

3. BP earnings buck Big Oil's recent trend

BP's profits are down but its stock is up this morning because its Q4 earnings came in ahead of estimates.

Why it matters: The report is a break from what has been a rough earnings season for oil majors thus far. The company raised its dividend and announced completion of a $1.5 billion share buyback program.

But, but, but: Lower oil and natural gas prices are still dragging down profits.

  • BP said its Q4 profits were nearly $2.6 billion, down from nearly $3.5 billion the same period in 2018.
  • Its full-year profits were roughly $10 billion, compared to $12.7 billion the prior year.

Where it stands: BP's stock is up 4.9% percent this morning to $36.97, although that's still several dollars per share below where it was a year ago.

What they're saying: "BP’s results have come in slightly better than expected, but they are still a reflection of the challenging environment for oil and gas companies — the effect of which we also saw with Royal Dutch Shell’s update last week," Stuart Lamont, an investment manager at Brewin Dolphin, wrote in a note.

What we're watching: Incoming CEO Bernard Looney will reportedly describe new climate goals for BP in his first remarks as chief executive Feb. 12.

4. The hurdles facing women in energy

Axios' Marisa Fernandez reports: Women have a higher level of underrepresentation in all levels of employment in companies in energy and related industries compared to other sectors, new data shows.

Where it stands: About one-third of women in oil and gas, utilities and engineering jobs surveyed by consultancy McKinsey say they're usually the only woman in the room.

  • That's often an invitation for systemic challenges and microaggressions in the workplace, they found.

By the numbers: The survey found for women in energy, resources, and infrastructure (ER&I) jobs...

  • 38% of women said they needed to provide more evidence of competency compared to 15% of men in their field.
  • 41% of the surveyed women have had their judgement questioned in their area of expertise, compared to 39% of men.
  • 42% of women of color believe they missed out on a promotion because of their race, compared to 3% of white women.

Methodology: McKinsey reviewed 30 companies and survey data from 6,000 respondents in the ER&I sectors.

Go deeper: Women won't see equal pay for another 257 years, report says

5. Catch up fast: batteries, methane, coal

EVs: Toyota and Panasonic have completed plans for a new battery joint venture, which will be called Prime Planet Energy & Solutions and will begin operations in April.

  • "[T]he joint venture will supply batteries not only to Toyota but also, broadly and stably, to all customers," the announcement states.
  • CNET has more on the effort, which was first unveiled a year ago.

Climate: "The U.S. drilling industry flared or vented more natural gas in 2019 for the third year in a row, as soaring production in Texas, New Mexico, and North Dakota overwhelmed regulatory efforts to curb the practice, according to state data and independent research estimates," Reuters reports.

Money: "Two of Australia’s largest investment funds are backing a Silicon Valley start-up with more than $1bn to lower the costs of renewable energy projects," the Financial Times writes.

  • Per their story, Generate Capital has raised money from the AustralianSuper pension fund, the Queensland Investment Corporation, and others.

Coal: "Anglo American Plc will get out of thermal-coal mining in the next few years, following larger rivals in exiting the dirtiest fuel as investors ratchet up pressure over climate issues," per Bloomberg.