The Cost of Tuition is for What?

by Leave a Comment

Every year the cost of tuition goes higher and higher and yet I have personally never understood why tuition is high as it is (USC). My mama always told me to get the bang out of the buck and always figured that his made the most absolute sense, –so shouldn’t universities, institutions handling millions of dollars, be doing the same? Maybe that’s just the uneducated and confused, yet hopeful and concerned citizen talking in me. But, man wouldn’t that be nice.

Take my school for example. We have a cafeteria, two libraries, five parking lots, 23,653 employees, million dollar club fund raisers, $35 million donation from Dr. Dre –etc.. Now some of those things listed do make a profit and some don’t, but regardless I believe that USC has all the possibility and even responsibility to utilize these things in a way that runs the school as efficiently as possible. Obviously USC has to pay the 23,653 employees so they pay those who work for the school and allow them to feed their families, pay the bills etc.. Or maybe, NOT.

Featherbedding. It’s a word I just learned today. It means having more employees than needed. Without a doubt, this school has killed a lot of birds (). But it’s not just employees –it’s facilities, programs and organizations that are funded by the university. Who gives the university $40,000 each year? Me, damn it. Am I being crass? Well, I’m sorry if I feel that my money should be used more efficiently to provide me with a return more comparable to what the leaders of the institutions are receiving. The leaders are people who I refer to as the teachers, the administration, USG, counselors, –the utmost needed people to protect and serve the ideals of an efficient institution.

The thing here is Jerry, that man Nikias, President of USC, takes home at least a million dollars and that’s where I’d like to be, see? That’s why I’m paying this school (Sallie Mae* actually) and I will not feel apologetic for not willing to pay for services, programs and organizations that I have no interest in and provide no benefit. Would you do that? See the problem here, is USC along with many other schools have become less transparent in connecting tuition (investment) to returns. Tuition now includes payment for school concerts, construction, celebrity appearances etc.. And frankly, I could care less for all of that, but god allows for differences and so I’m sure there are people who love seeing Jason Derulo and Diplo, which is … fine. But tuition, like any other transaction, should only be to pay for the service—the education, and all those who service directly to provide it.

If you’re getting the picture Jerry, what I’m wondering is, why can’t universities do away with all of that and simplify their financial obligations towards a way that makes everyone happy? Happy means lower tuition, more savings –oh, I do pray that’s what Walmart had in mind.

“Tuition is expensive, school is hectic and the future is a blurring. So let’s simplify the picture and look at it one frame at a time.”

– Willis Parker

Sallie Mae* – A formerly government sponsored enterprise that that assists in the furthering of college debt

Tesla: The Car Company of the 21st Century

by Leave a Comment

In a gasoline or diesel powered internal combustion engine, a piston is pushed through a cylinder by way of an explosive combustion of fuel. The piston’s force turns a crankshaft that then turns the wheels via a drive shaft, which gets you to where you want to go. We don’t care where the gasoline comes from, as long as the vehicle stops, starts and reverses. And we could care even less about the detrimental impacts traditional gas-powered vehicles have on the environment. The innovation of Tesla Motors (NASDAQ: TSLA) shines a bright light on the failures of other electric vehicle manufacturers. And though Tesla continues to grow at an exponential rate, what could be the dark forces that keep it from becoming the car company of the 21st century?

Screen Shot 2014-05-05 at 11.51.04 AM

Elon Musk, the CEO and Chief Product Architect of Tesla Motors, not only believes that electric cars are the future, but also that in 30 years, the majority of the cars made in the United States will be plug-in electric vehicles.  He argues that Tesla will be instrumental in forcing automakers to care about the impact they have on the environment. In addition, his commitment to creating vehicles powered by electricity and partnering and funding renewable energy sources will reduce industrialized and developing nations’ dependence on oil from foreign nations and the potential volatile oil prices that come with the dependence.

And he might be on to something. The Tesla Model S, the second installation in the Tesla product line, was the top selling vehicle in North America among comparably priced cars ($59,000 base). Tesla expects to deliver more than 35,000 Model S vehicles in 2014, a 55 percent increase from the year previous. In addition, Tesla plans to ramp up production and produce 1,000 cars per week, an increase from 600 cars per week.

Though Tesla produces and sells fewer vehicles than Toyota, General Motors or Honda, it continues to expand its reach globally.  Tesla, most recently, expanded its operations to China, the world’s biggest car market, which surpassed the United States in 2010. Tesla projects to sell at least 5,000 cars in China by the end of 2014.

By creating a network of solar-powered Supercharging Stations across the United States and Europe, Tesla solves a fundamental problem many consumers have when thinking about purchasing a Tesla or any other electric vehicle ­­– range anxiety. Range anxiety describes a suspicion that an electric vehicle will run out of charge before reaching its destination.

x

In the United States, Tesla owners can now take cross-country trips with the help of strategically placed charging stations. They can also drive up and down each coast. In Europe, Tesla owners can find six charging stations in Norway, four in Germany, two in the Netherlands and one each in Austria and Switzerland.

Not only are investors developing projections based on Tesla’s global growth in 2014, but many also see Tesla forcing prominent automotive manufacturers to commit or recommit to producing electric vehicles. Tesla is building at least one $5 billion “Gigafactory” that can produce more than 500,000 vehicle battery packs per year. Once operational, the Gigafactories will double the world’s output of batteries for electric automobiles.

With the help of the Gigafactory, Tesla plans to build a car that sells under $30,000 and target automobile buyers at the mass-market entry level. But the Gigafactories are innovative productions themselves. Spanning more than 1,000 acres, the factories will be powered by onsite wind and solar energy plants and could cost tens of millions of dollars, according to Ben Kallo, senior equity analyst with Robert W. Baird.

But many believe without the factories, Tesla won’t be able to meet demand, especially if Tesla sales continue to grow in China and Europe. With plans to have at least 500,000 electric cars on the road by 2020, a delay in investing in its infrastructure would stagnate Tesla’s growth. However, to finance the $5 billion project, Tesla might have a trick up its sleeve.

The primary difference between Tesla and other automobile manufacturers is that Tesla wants to sell cars itself, not through dealerships. Some states continue to be hostile to allowing Tesla to disrupt the system. To force the hand of state legislators, Tesla could choose to build a Gigafactory in a state like Texas (something all states would love to have) in order to gain leverage with a conservative legislature.

“The political issue around whether Tesla should have a direct sales model as opposed to selling through dealers is almost as big of an issue as the battery plant, and I don’t think the two are totally separable, “ said Charles Hill, professor of management at the University of Washington’s Foster School of Business.

Screen Shot 2014-05-05 at 11.53.58 AM

The Criticisms 

The success of Tesla is both rooted in its product and customer service, but also the influx of positive messaging it has received from news media across the country. Recently, when we see other auto manufactures covered in major outlets, it’s primarily due to a failure on the manufacturers part.

When Tesla is discussed in a negative way, the conversation focuses on one key component: How environmentally friendly are electric vehicles if we’re replacing one polluter (petroleum) with another (coal)?

According to Tesla, its cars cut in half the carbon dioxide emissions of its petroleum-burning rivals, despite the fact that more than half the electricity grid is powered by coal. But to quantify the environmental impact of Tesla, you’ll have to understand the composition of your state’s electric grid. According to Slate, if you drive a Tesla Model S in West Virginia — where the power mix is 96 percent coal — you’ll emit about 27 pounds of carbon dioxide during a regular 40-mile driving day, which is similar to the amount of carbon dioxide you would emit in a gasoline-powered Honda Accord. However, if your charging your Tesla in California, where natural gas supplies more than half the electricity, your per-mile emissions would be a fraction of that amount.

Several studies continue to cast doubt on the overall environmental benefits of electric cars. But when we look to the future of the national energy mix and the movement toward the reduction of coal and the increase of natural gas, electric cars will only get cleaner. And to argue that electric vehicles might not be as clean as we thought they were because of various nations’ reliance on coal is a rather faulty argument, one that, many argue, seems driven by the automotive industry and big oil.

To propel the environmental benefits, Tesla has partnered with SolarCity (where Musk is the Chairman) to help homeowners enjoy the benefits of clean, more affordable energy without having to pay a large down payment. Instead of purchasing solar panels, SolarCity allows consumers to pay for the power they use – just like a utility bill.

Why Others have Failed

Tesla is one of the most modern cars of our generation. It has the lowest drag coefficient (0.24) of any other vehicle in market allowing it to cut through wind and use less energy. A 17-inch LED display mounts on the front dash, giving drivers an opportunity to navigate using Google Maps and even browse websites. And it’s a commitment to being a technology company creating innovative products, rather than a stagnate automobile manufacturer, that differentiates Tesla.

Far too often, electric vehicles either looked 20 years old or like they belonged in an episode of “The Jetsons.” And they might be great for the environment, but they’re often slow and impractical and consumers weren’t lining up to buy them. What’s so different about the Tesla Model S is that it’s disrupted the business model of electrical vehicles flipping the equation entirely. The Model S is one of the fastest cars on the road, increasingly practical with the development of Supercharging Stations and what’s most interesting, Tesla continues to struggle to keep up with demand.

The electric powered Coda was on sale for about a year before the company filed for bankruptcy. Experts questioned the build quality and consumers didn’t like the styling. Even with its lousy performance and hand-me down platform, Codas sold for nearly $40,000.

x

But it’s not just Coda that’s failed. Electric automobile maker Fisker Automotive, which received $529 million in federal loans also struggled. It’s cars were beautifully designed rivaling the Model S, but terrible customer reviews, including one of the worst ever from Consumer Reports, a few fires and a recall later, Co-Founder Henrik Fisker decided to resign. By the end of 2013, Fisker Automotive had blown through its federal funding and $1.2 billion in private equity.

The now Chinese-owned Fisker plans to re-launch a supercar in 2015. But electric carmakers have often struggled with financing and profitability. It’s often difficult to develop new technology and achieve economies of scale. While companies like GM and Nissan can benefit from their massive production capacity, other similar automobile manufacturers continue to fail. In late 2012, Toyota decided its sub-compact iQ plug-in wasn’t a great idea and stopped production. Before Tesla’s late 2013 growth, it also had its fair share of hiccups reporting a fourth quarter loss in 2012. So what then differentiates Tesla in a market where big and small manufacturers continue to struggle or quit?

Is Tesla Here to Stay? 

Elon Musk’s goal is to design things that will have a positive impact on the world. But it’s not 1912 anymore and as Coda and Fisker Automotive show us, it’s hard to build a car company in 2014. The last successful car company startup was Jeep, which started building cars in 1941. Tesla’s success, however, is rooted in its proprietary technology, a technology big car companies don’t quite understand and a technology that Tesla wants to begin to sell.

In April 2014, Mercedes-Benz debuted its B-Class Electric Drive using a battery created by Tesla. Selling its technology to competing manufacturers is an intricate way to develop a new revenue stream. But Mercedes-Benz’s U.S. CEO Steve Cannon publicly questioned the long-term viability of Tesla when large auto manufacturers jump onto the electric car game. But many have jumped on the bandwagon before, and many continue to fail. If major automakers had the desire and political independence (from big oil) to pursue electric vehicles, don’t you think they would’ve already?

Tesla will be the car company of the 21st century and continue its competitive advantage, by building cars that have real environmental impact, enticing consumers to invest in renewable energy, and disrupting the traditional distribution model by selling to consumers directly. If Tesla can begin to partner with other large automobile manufacturers, diversify its revenue streams and continue to grow and make profits, its impact on our transportation paradigm will be profound.

“Tesla wants to make millions of cars, and we have to make millions of cars to make a difference,” Musk said. “And to make millions of cars, we have to be profitable with each car along the way.”

Sources: Business Journal, Forbes, Marketplace, Slate, Tesla Motors, SolarCity, Energy Innovations, PBS

China’s Twitter–Weibo Launched IPO

by Leave a Comment

Sina Weibo, China’s version of Twitter, debuted on the Nasdaq exchange on April 17 with a 19.1 percent jump, the eighth-best debut for a U.S. listed tech stock this year.

Weibo shares rose from the subscription price of $17 to as high as $24.28. The company sought to raise $380 million by selling 20 million shares for as much as $19 each. But underwriters could only find demand for 16.8 million shares at $17, generating $287 million for the company.

Weibo, launched in August 2009, is China’s largest social media platform with 144 million active monthly users.

Though it remains unprofitable, losing $38 million last year and another $47 million in the first quarter of this year, its revenues jumped to nearly $68 million for the three months.

The Shanghai-based Weibo was missioned with a fundamental challenge: progressing from a microblogging phenomenon in China to an important member of the international social media industry.

As Weibo celebrates Wall Streets’ s welcoming waters for it, it’s always at conflicts with censors at home, putting in doubt whether the firm known as the “Twitter of China” may eventually be dismantled by government interference.

A series of detentions of influential online commentators may have hurt Weibo’s user numbers. A study released in this January by Britain’s Telegraph newspaper and East China Normal University in Shanghai showed that the number of Weibo posts have fallen 70 percent since its peak in 2012, after the government required users’ real names before posting content.

Chinese government stipulated a series of policies – requiring real names on social media in early 2012 and introducing new laws prohibiting “rumor-mongering” last September – after the Facebook- and Twitter-fueled Arab Spring protests swept through the Middle East.

However, the opportunity for Weibo remains tremendous with China’s more than 600 million Internet users. But people argued that the harsh online censorship in China could hurt Weibo’s healthy growth, especially as it competes against Wechat— the mobile messaging app launched by rival Tencent Holdings Ltd that has became increasingly  popular in part because it is private by nature.

The China Internet Network Information Center, a state-run agency tracking Internet statistics, said in its annual report released in January that while growth in Weibo dropped 9 per cent in 2013, mobile messaging services witnessed explosive growth, with apps such as WeChat adding more than 78 million new users.

 

 

The Indian Election and its Economy

by Leave a Comment

On May 16, the world’s largest democracy is expected to announce its election results. The ongoing Indian election, which began on April 7, will see more than a 100 million newly eligible voters go to the polls to make an Indian electoral population of 814.5 million. The country’s elections have long been seen as an exercise in political opportunism, voting by personality over party platform and marred by false promises of handouts and subsidies. But this election year, the subcontinent’s 16th since independence, is shaping out to be dramatically different. Faced with slowing GDP growth, dysfunctionally inefficient bureaucracy, and the fading of India’s ‘economic miracle,’ the candidates’ economic posturing is more relevant than ever. To Indians and foreign investors alike, the results of the election and the ensuing government coalition’s make up is sure to usher in a new chapter in India’s economic story.

Rahul Gandhi is the youthful icon of the ruling Indian National Congress party

Despite its massive size, the Indian candidature is not as complex as one might expect. Since India’s 1947 independence from British rule, the centre-left Indian National Congress (INC) has dominated the political landscape. Fronting the ruling Congress Party this election is Rahul Gandhi, the promising and youthful graft of one of India’s most distinguished families – which itself includes three former Prime Ministers. On the other side is one of the year’s most talked-about political figures: Nahendra Modi. The self-made leader of the Bharatiya Janata Party (BJP) is known for his 12-year success story in the North-Western state of Gujarat. Since Modi took office as Chief Minister in 2002, the state’s GDP growth rate has been almost double that of its national counterpart (See Figure I). It’s no wonder then that despite Modi’s controversial past (he has been broadly associated with the death of 1000 people, many of whom were minority muslims, in a 2002 riot), much of the Indian electorate is tapping him as their next leader.

Chief Minister Modi of Gujarat and the BJP party are said to be leading the vote

Figure I

Since its 2004 election, the ruling Congress party has developed a rotten reputation for its economic management. Throughout the 2000s the party had reason to be proud, enjoying the effects of the INC’s major economic reforms enacted during the 1990s that paved the way for India’s growth spurt. Riding high on economic success, many in India and abroad were prepared to look the other way. But as the country’s economic miracle has all-but ground to a halt, the party’s shortcomings have been pulled into focus. Critics of the ruling INC have abundantly pointed to the party’s political infighting, corruption, and inability to overcome congressional gridlock as a major cause of India’s inaccessible business climate and, by extension, its economic lag. Indeed, India ranks 199th on the Heritage Foundation’s Index of Economic Freedom and an equally high 132nd on the World Bank’s ‘Doing Business’ list. Similarly staggering, businesses both foreign and domestic must obtain as many as 70 certifications to operate in India.

Unsurprisingly, Modi and the BJP’s realignment from a vehicle of Hindu nationalist agenda to a pro-business, growth-oriented, hardline driver of economic freedom has resounded amongst businesses and investors alike. Indeed, in contrast to Manmohan Singh’s manner of rule, which has been mostly weak and sluggish, Modi’s is decisive, fast-paced, and transparent. Indeed, as Edward Luce points out writing for the Financial Times, “files rarely gather dust in Gujarat. Investments get swiftly approved. Projects are executed on time. And bribes are rare. Gujarat continues to outpace most of India in terms of its investment flows and per capita income growth.”

Modi and his fellow policymakers hope to employ the Chief Minister’s economic model for success, which has been hailed and praised in Gujarat, to revitalise the Indian economy and attract more foreign direct investment. Internally, Modi hopes to restructure the government by reducing its current entanglement in business and cracking down on corruption. But seeing as a even the soundest BJP win these elections will result in a coalition government that must reach agreement in both the lower and upper houses of parliament, Modi is sure to face stiff opposition. On an external and national basis, Modi’s manifesto is one of urban development and infrastructural improvement. Echoing a showpiece project taking place in Gujarat, Modi hopes to transform rural villages into ‘smart cities’ that reduce the strain on current cities and drive up employment and economic growth. Modi’s mix of public spending to incentivise private investment is something that has so far been unachievable under India’s current government.

Nevertheless, for Indian’s both at home and abroad Modi’s economic freedom platform holds a lot of promise. Though the details of its execution remain scarce, there appears to be significant confidence in the marketplace. Compared to the gloomy economic mood just a few months ago caused by high inflation, stagnant GDP growth at less than 5% and major capital outflows, the Indian economic climate has calmed. An increasing number of India’s intellectuals, economists, and elites have thrown their support behind Modi and the BJP. Bloomberg’s Businessweek recently linked market optimism to an economic phenomenon named the “Modi bounce.” Finally, some of India’s more positive economic outlook may stem from the actions of the Federal Reserve Bank of India’s newly appointed central banker, Raghuram Rajan. Rajan has received much acclaim for the RBI’s successful regaining of investor confidence and  recovery from last year’s financial instability caused by capital flight.

Raghuram Rajan, the current Governor of the Reserve Bank of India

What Modi and BJP will accomplish remains very much to be seen. While the tune of the party’s agenda is clear, its finer notes remain unclear. But despite the ambiguity, Modi and BJP’s platform brings forth  a decisive and confident action that has been unheard of India as of recent, leaving the markets and most Indian investors optimistic. From a non-economic standpoint however, both Modi and the BJP have questionable origins that certainly give voters pause. But whatever the final verdict, you can be sure that Modi’s India will represent something drastically different.

The Fight To Bring Down College Tuition

by Leave a Comment

As the expense of college increases, with a seemingly less significant return on investment, students and parents have started to question if it’s really worth it.

 

After a huge surge in tuition prices over the last 30 years, higher education costs are slowing very slightly (Quartz)

After a huge surge in tuition prices over the last 30 years, higher education costs are slowing very slightly (Quartz)

Graduates still earn more than those with only a high-school diploma. Former college students aged 25-32 who are working full-time still earn about $17,500 more than their counterparts without degrees, according to the Economist. But still, 42% of graduates are in jobs that require less than a four-year degree, and 41% of graduates from the nation’s top universities could not find jobs in their field. These are shaky outcomes for an investment that will set students back as much as $60,000 a year.

In some ways, the college bubble is similar to the housing bubble, which came crashing down in 2007. Poor risk assessment played a role in both situations. Homebuyers were able to obtain a loan that they had no way to repay. And students’ parents are co-signers for their loans, which makes it hard to determine the ability of the actual borrower to repay the debt. Also, both big houses and a college education exist as part of the American Dream to the national collective: everyone has a right to a home, and an education is an investment one cannot afford to pass up.

Companies such as Upstart, Pave and Lumni have developed a plan to reduce student debt: they are giving future scholars the option to sell “stock” in themselves rather than obtaining a traditional loan. Two congressmen, Marco Rubio (R-FL) and Tom Petri (R-WI) have introduced legislation that could make this process more legitimate by setting out its terms, according to Slate Magazine. Their Investing in Student Success Act defines the maximum length a contract can last (30 years) and puts a limit on the future income a student can owe (15 percent). The debt is paid off each month in proportion to students’ earnings, so the amount they owe for a particular month depends on their salary at the time. Their ‘worth’ as an investment package depends on factors such as standardized test scores, job prospects and credit history. But although this method was designed to breach the inequality gap, the students that look like the best investments are usually the ones who grew up with more opportunities. To take this into consideration may result in another conflict about affirmative action, which would mirror the debate going on in colleges today.

Alan Collinge founded nonprofit StudentJustice.org after struggling with his own loans.

Alan Collinge founded nonprofit StudentJustice.org after struggling with his own loans.

Although this method addresses a way to avoid future debt, new graduates are already facing loans that they don’t have a way to repay. To help this group, the nonprofit organization Student Loan Justice is pushing to have the bankruptcy law changed to put restrictions on how and for how long lenders can chase debtors. Currently, student loans are more difficult to expunge in bankruptcy proceedings than credit card debt. Since it was founded in 2005, the nonprofit has gained a large social media presence with chapters in all 50 states up on Facebook.