🔋 Tesla's big battery play

Tuesday, August 18, 2020 by Snacks
"_Did I mention I own a gin company?_"

"Did I mention I own a gin company?"

Yesterday’s Market Moves
Dow Jones
27,845 (-0.31%)
S&P 500
3,382 (+0.27%)
Nasdaq
11,130 (+1.00%)
Bitcoin
$12,332 (+4.27%)
10-Yr US Treasury
0.689%

Hey Snackers,

The hot new toy from Fisher-Price: "My Home Office," an 8-piece playset for preschoolers featuring fake laptop, fake headset, and fake latte. If only WFH were as easy as taking calls from a wooden iPhone — guess we gotta start them early.

The S&P 500 jumped to start the week but closed just short of its February record high (again). Meanwhile, the tech-heavy Nasdaq notched a record close.

Shots

1. The world's largest liquor maker will pay up to $610M for Ryan Reynolds' gin

Sounds like a European EDM DJ... Actually the world's largest liquor maker. Diageo is the liquor legend behind cabinet classics like Don Julio, Baileys, and Smirnoff. Its 200+ alcohol brands are sold in 180 of the world's 195 countries (#flex). Its annual report looks like a lifestyle mag (Johnnie Walker-filled mason jars abound). Soon, it'll get some Deadpool cocktails:

  • Aviation Gin: Ryan Reynolds bought an ownership stake in the gin brand in 2018. Since then, he's appeared in commercials that look more like Terrence Malick films (feat. citrus fruits misted with Ryan's tears).
  • $610M: How much Diageo could pay to buy Aviation, along with its producer Davos Brands.

Big faces = big money... Aviation won't be Diageo's 1st celeb-backed brand. In 2007, Diageo teamed up with P. Diddy to sell Ciroc vodka. In 2017, it dropped $700M+ for George Clooney's Casamigos tequila.

  • Diageo wants to lock in more celeb-infused growth now that bar sales are down. Ryan Reynolds could be its next Green Lantern.
  • Aviation's sales doubled from 2018 to 2019, coming in at $40M. In 2019, it accounted for 40% of growth in the super-premium gin segment.
THE TAKEAWAY

Celebs come with built-in brand equity... Brand equity = the extra value companies can squeeze from customers thanks to perception of their brand. Diageo’s OG portfolio = stuffy old liquor brands that don’t excite us. Diageo can win younger drinkers with Ryan's Millennial-friendly face (and charge extra). Its big investment will save it years (and millions) trying to make a new brand pop off. FYI, cosmetics giant Coty used the same strategy by acquiring Kylie Cosmetics.

Charge

2. Tesla stock gets an 11% charge on Battery Day hype

Just the batteries... Sounds like the RXBAR of electric vehicles. Tesla stock surged 11% yesterday partly because an analyst pre-praised its new battery tech (which, BTW, hasn't even been revealed yet):

  • Battery Day: Tesla's battery-flexing event on September 22nd. Some analysts expect Elon will unveil game-changing tech, possibly including a battery cell capable of 1M miles.
  • Batteries are the most expensive parts of EVs. If Tesla unveils a cheaper battery pack, it could become a top supplier for other carmakers, according to the analyst.

Tesla's Hinge interests... Obsessed with batteries. After all, batteries put the "electric" in Electric Vehicle. Tesla currently produces batteries with Panasonic at its Gigafactory in Nevada. It also sources them from companies in China and South Korea. It wants to do more:

  • In June, Tesla revealed plans to build a battery research and manufacturing facility in Fremont to expand its "small" battery-making operation.
  • In July, Elon said Tesla is open to supplying electric batteries to other carmakers. Tesla’s battery costs are already estimated to be ~20% below the industry average.
  • In September, we'll see if Tesla's new battery tech is impressive enough to expand its opportunity as a supplier.
THE TAKEAWAY

Tesla has a lot of EV competition... Bigger players like VW, Ford and GM are ramping up EV production (at lower price points). And governments are tossing around EV subsidies to encourage more environmental cars — Germany recently offered $7K off EVs priced under $45K (not helping Tesla). On the luxe side, Lucid just teased an EV sedan with a record single-charge range. It's highly unlikely that Tesla will ever get a majority of the EV market, but batteries have a higher barrier to entry. Tesla might have an edge there.

What else we’re Snackin’

  • Planted: Plant-based Impossible Foods raises a fresh $200M to develop new products like steak and milk (it's now valued at ~$4B).
  • Racks: Rackspace stock surges on word that Amazon might acquire a part of the AWS-focused cloud services company.
  • Burned: Yum Brands-owned Pizza Hut will close up to 300 locations operated by its largest (now bankrupt) US franchisee.
  • Deadlined: Over 75K US airline employees could lose their jobs on October 1st — now support is building for another $25B airline bailout.
  • Oily: Chevron is reportedly in talks to invest in one of Iraq’s large oil fields, even though oil demand has plunged on depressed travel.
  • Buffet: Warren Buffett’s Berkshire Hathaway slashed its investments in Chase and Wells Fargo, but loaded up on Bank of America.

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Tuesday

Correction: In yesterday's Snacks, we mentioned that all apps go through either Apple or Google's app stores. While that's true for iOS, there are other stores available for Android devices and apps can be downloaded through browsers as well.

Disclosure: Authors of this Snacks own shares of Uber and Amazon

ID: 1305807

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