From gasoline to electric

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Last week the world saw yet another one of Tesla’s creations, the Cybertruck. This electric pickup truck that looks like a prop from a futuristic science-fiction film can accelerate from 0 to 60 mph in 2.9 seconds and boasts a driving range of up to 500 miles. Besides its peculiar design, it’s hardly a surprise for an electric vehicle to surpass some gasoline cars in performance and price nowadays. That wasn’t the case a couple of decades ago. 

In the early 1900s, the first electrically powered cars gained quite a bit of popularity in the United States, especially in urban settings. However, the popularity was short-lived and as gasoline cars became cheaper the electric vehicle market became extinct and remained that way until the 21stcentury. Although there were several attempts to revive the electric cars market, it wasn’t until 2008 that electric vehicles started gaining a new momentum. Tesla Motors, headed by Elon Musk, has made the necessary leap into the EV market and introduced its first model, the Roadster, that was praised for an unprecedented performance and charge range at the time it was released. With a price tag of over $100,000, it has established itself as a luxury car brand and spurred the automaking competition. Over the years the cars have become cheaper, more convenient, and the infrastructure has begun adapting to satisfy consumer demand however, the infrastructure currently poses barriers for entry in some regions. 

Since Tesla unveiled Roadster the EV industry has grown tremendously. Just in the U.S., the number of electric cars on roads has grown from barely a dozen thousand in 2011 to over 1.1 million cars in 2019. The following chart demonstrates a steady increase in electric cars in the U.S. 

The promising growth of the EV industry and attractive car options have extended the market from the U.S. to an entire world. In fact, the sales of electric cars in the U.S. accounted for only 17% of global EV sales in 2018 with the most lucrative market in China. 

Tesla still leads the industry in terms of sales even outselling established luxury gasoline-powered car brands such as BMW in the United States. However, other brands such as General Motors, Nissan, Ford, Volkswagen, and BMW are not lagging behind in expanding their EV fleet. Volkswagen is spending billions of dollars to reshape its factories for electric car production. The company has already revealed its first electric car model, ID. 3 1ST, which will start deliveries in 2020. It will offer free battery charging for a year and the cost of the vehicle will be less than $45,000. Additionally, according to CNN Business, Volkswagen Group, which owns luxury car brands such as Porsche and Lamborghini, will spend $34 billion over the next half a decade to develop an electric or hybrid model of every car currently in production. Given that Volkswagen and other established brands have an advantage over Tesla in terms of revenue, these companies will put up a significant competition to it.

Although the electric vehicle industry is widely discussed, especially given the climatic circumstances and policies all over the world, gasoline cars are far in advance. It is estimated that non-electric passenger vehicles sales in 2018 exceeded 85 million units worldwide while electric vehicles only sold 2 million units. Furthermore, it is projected that electric passenger cars will outnumber gasoline-powered cars only in 2038. As for now, we can expect significant retrofitting of the automotive industry for the next two decades and predominantly more expensive EV models in the near future. 

Sources:

https://www.cnn.com/interactive/2019/08/business/electric-cars-audi-volkswagen-tesla/

https://edition.cnn.com/2019/05/09/business/volkswagen-id-electric-car-reservation/index.html

https://www.britannica.com/topic/Tesla-Motors

https://www.energy.gov/articles/history-electric-car

https://qz.com/1618775/by-2038-sales-of-electric-cars-to-overtake-fossil-fuel-ones/

https://www.eei.org/issuesandpolicy/electrictransportation/Documents/FINAL_EV_Sales_Update_April2019.pdf

https://www.tesla.com/cybertruck

Sneaker Startup Allbirds is Learning Amazon’s Role in The Retail Game

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In the past few years, there has been a brand of sneakers that has taken the country by storm. A sneaker based startup that began with crowdfunding and a $200,000 development grant from a New Zealand wool industry research group has grown into a $1.4 billion-dollar company. This brand of sneakers that is seen being worn by many notable Silicon Valley CEOs is Allbirds. But what this rookie retailer is learning is that just because they broke out in a largely saturated retail market, they are still going to need to face the internet behemoth that is Amazon.

Tim Brown, a former professional soccer player, launched Allbirds in 2016 alongside co-founder Joey Zwillinger. The goal of the company was to create a sneaker that isn’t designed in the same flashy way as Nike or Adidas sneakers but to instead make a sleek shoe that also is produced in a sustainable fashion. Last year, Allbirds introduces a sole made of SweetFoam which is a renewable, sugar-cane based replacement for ethylene-vinyl acetate which is a substance that is made from fossil fuels.

Similar to Warby Parker, an investor of Allbirds, the company was able to break out in an already saturated market. According to MSNBC, the brand has found itself receiving $50 million in funding from T. Rowe Price, $80 million in revenue last year with a total of $77.5 million from outside investors.

The company has been extremely successful at creating ad campaigns that resonate with younger generations and have used social media for their benefit. The company decided to have a direct to consumer model with e-commerce. This essentially means that they decided to not use Amazon as a distributor of their shoes. Nike, the largest sneaker company, has decided recently to pull their shoes off of Amazon for similar reasons. But when you are as powerful as Amazon, you don’t just let this type of business go unsettled.

Since Amazon acts as the gatekeeper for consumer data across almost all retail industries, they are able to track consumer trends and use it to their advantage. Once the company saw the high search results for Allbirds on their platform they decided to design a similar-looking show called the “206 Collective”. The Amazon version of the shoe is also slashed in price to $45 for a pair compared to the $95 Allbirds.

Allbirds CEO, Joey Zwillinger, came forward to CNN on this and doesn’t have an issue with the competition but rather how Amazon is making their knockoff version “If we share that openly with everyone, it’s fantastic for the planet,” he said. “It’s also good for business, it drives cost down … So sharing this is altruistic but also quite pragmatic.”.

A spokesperson from Amazon responded by saying “206 Collective’s wool blend sneakers do not infringe on Allbirds’ design. This aesthetic isn’t limited to Allbirds, and similar products are also offered by several other brands.”

Going forward the company plans to try and stay on the path and hopes that if competitors are going to copy their design, they should copy their model of production as well.

Loneliness and Cyclical Binge-Drinking

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Where does it end?

According to a 2018 study by Cigna, loneliness is an epidemic in the United States. Approximately half of the 20,000 U.S. adults surveyed report feeling lonely or left out. Generation Z is found to be the loneliest generation. As always, I will explore the economic impacts of the new habits, needs, and preferences that Generation Z brings to the markets. 

Alcohol is extremely present in social situations, especially for Generation Z. About 4 out of 5 college students consume alcohol, and 50% of those consumers participate in binge drinking culture (Alcohol Rehab Guide). 

Alcohol in moderation is relaxing and provides a boost of dopamine, and acts as a “social lubricant” (Drug Rehab). Many people imbibe to destress or to ease social anxiety. However with the easy access to alcohol, and the binge drinking culture embedded in America, especially within college campuses, the consumption of alcohol can leave people feeling more disconnected than before. According to the Addiction Center, “binge drinking can be particularly damaging to college students struggling with loneliness and depression. Excessive drinking will only worsen these feelings and can lead to cyclical drinking behavior” (Addiction Center). 

While there are immediate health and safety consequences to excessive drinking, there are also long term effects that impact communities–and would most likely have a negative economic impact at large. While college introduces many people to alcohol in an unhealthy manner, they are then set up to be stuck in cyclical drinking that seeps into life past a college party culture. “A 2017 study found Americans are drinking more alcohol now than ever—more than 70 percent of all adults—and as a result, more people qualify for alcohol-use disorder.” (Newsweek). Walking the line of the “almost-alcoholic zone”, leads to “alcohol-related problems with their health, their relationships, and social lives and even their work, but don’t connect the dots between these problems and their drinking” (Newsweek). The effects of binge-drinking touch nearly every aspect of life, and it poses a threat to society at large. 

With all of this knowledge at hand, I strongly believe that alcohol companies have a civic duty to capitalize on responsible drinking, without sacrificing their financial motives. The alcohol industry is continuing to grow. As of 2019, the U.S. Spirits Market is valued at $29 billion, and in 2026 it is projected to reach $38 billion (Market Watch). People will not stop spending money on alcohol, but there is a way where consumers and companies can meet in the middle for quality, experience, and moderation. To combat loneliness, young people need a space where they can connect face-to-face to form meaningful relationships, according to Douglas Nemecek, MD, Chief Medical Officer for Behavioral Health at Cigna (Addiction Center)


According to a 2019 market report, “the past year has seen the continued growth of craft beer and craft spirits, an increased number of microbreweries, and a rise in experiential drinking (Beverage Daily). By the end of 2018, brewpubs, taprooms, and game-based bars saw a surge in popularity according to the same source. Consumers are more drawn to experiential locations than not. These bars with more allure than just alcohol provide a multi-sensory experience that allows consumers to slow down and connect over alcohol in a non-traditional way. According to a Nielsen report, these experiential bars allow for consumers to not just engage with the culture of the alcohol, but “a golden opportunity to engage with drinkers in a memorable, meaningful, and interactive way” (Beverage Daily). While these pubs and breweries are increasing in popularity and significance for America’s drinking culture, I believe that other alcohol companies will follow suit with heightening customer engagement and connection with one another in new ways.

LVMH Just Bought Itself a Little Blue Box

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It’s almost impossible to feel anything but joy when seeing the robin’s-egg blue of a Tiffany & Co box. The Jewelry giant first solidified itself in my mind (and all of popular culture) as a young girl watching the film, Breakfast at Tiffany’s. Nowadays, the social media marketing nerd in me fangirls at the sight of Tiffany’s gloriously well-designed Instagram.

@tiffanyandco social media
Tiffany & Co Union Army Sword

But long before the film appearances and the social media mastery, Tiffany’s made a name for itself as an iconic American brand, beginning in the mid 1800’s. Charles Lewis Tiffany and John B. Young created a fine goods company that would go on to supply the Union army with swords in the American Civil War and redesign the Great Seal of the United States. Later, Tiffany’s would create the trophy for the first ever super bowl and the 1978 NBA championship trophy. Needless to say, Tiffany & Co created an extremely patriotic luxury brand and embedded itself into our nation’s history. It’s no wonder that LVMH, the French fashion house, means to acquire it.

For a while now, Tiffany sales have been declining. The most recent earnings report published in August saw more parentheses than not, with worldwide sales down 3% overall. Along with the earnings, the stock price has also been significantly lower (35%) on average when compared to 2018. Factors such as a weakening American market and dwindling levels of foreign tourist expenditures have left the jewelry legend in a bit of a bind. 

But have no fear, the sensation that is LVMH has come to save our American icon. On November 25th, LVMH published a statement on their website announcing that it will acquire Tiffany & Co for $135 per share, the transaction boasting an equity value of $16.2 billion. When talks of this acquisition began back in October, Tiffany’s stock dramatically rose by 30%.

Tiffany & Co’s stock surge

Investors trust LVMH to turn Tiffany & Co around due to their steadily rising watches and jewelry profits and their individual success with Bulgari. The French conglomerate acquired Bulgari in 2011, and their revenue has doubled since. Genius billionaire owner of LVMH, Bernard Arnault, plans to place a concentrated focus on Tiffany’s higher-end diamond collections over the more affordable silver pieces. He also wishes to support Tiffany’s existing strategies of appealing to millenials and launching new products. Tiffany’s will easily achieve these goals, now backed with LVMH’s $52 billion in annual revenue. 

Another benefit to this acquisition is that Tiffany’s will no longer be plagued with the responsibility of disclosing everything to investors. LVMH does not publish its individual brands’ profits, only the total numbers for each category (Wine & Spirits, Fashion & Leather Goods, Watches & Jewelry, etc.). This will allow Tiffany to spend on marketing and growth without worrying about investor pressures. Truly, this deal will benefit both parties, with Tiffany’s near-assured success and LVMH’s desirable growth into the American and jewelry markets. Both of their stocks are up since the acquisition announcement earlier today, boding well for these companies moving forward.

Even though I’m a major fan, I have never received a little blue box of my own. I urge everyone to tell their families (I know I will) to get on the Tiffany train now, while prices are somewhat reasonable. Because with the owner of Louis Vuitton getting his hands on it, there’s no telling where the brand will climb and how luxurious it will become.

Saudi Aramco IPO

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Last year, Aramco became the world’s most profitable company. It made $111.1 billion in net income. To put this into perspective, Apple made $59.53 billion, Amazon $10.07 billion, Alphabet Inc. (Google) $30.73 billion. Aramco made more than all of the aforementioned combined.

            Aramco is a state-owned enterprise. Though, it is privately managed. Saudi Crown Prince Mohammed Bin Salman (MBS) announced that the company would go public. This offering is just a small step in his Vision 2030 plan. An economic and cultural diversification plan that has already made results both economically and culturally.

            MBS had a goal of the company’s valuation being as high as $2 trillion. No company has ever planned to go public at such a high value before. The company since then has been re-evaluated after a roadshow in the Gulf region. It is expected to be valued at $1.6-$1.7 trillion. 

            The plan for the company now is to go public on the local market by December 4 with the aim to go international. Aramco is set to sell 1.5 percent, 3 billion, of its total shares (the rest belonging to the government of Saudi Arabia) at $8-$8.52. Additionally, the company announced a “bonus share” option in which shareholders will receive additional shares if they hold the stock for a certain period. The company is expected and expects itself to surpass Alibaba’s historic IPO of $25 billion.

            There is a caveat. Things do not look as promising this year. Profits until the end of September are down 18 percent year-over-year, $68 billion. This is largely due to volatile oil prices. 

            The reason investors seem interested in a company such as Aramco is the growing cashflows the company is able to generate in terms of dividends. Currently, the company plans to pay a dividend yield of 4.5 percent based on a $75 billion payout. The devaluation is a benefit to investors, too. A lower valuation means a higher dividend yield, which is what investors are seeking in a company that would be vastly controlled by the Saudi government.

            Aramco originally set to go public last year in 2018 selling 5 percent of total shares to the public. The IPO plan was halted because it did not meet MBS’ evaluation of the company at the time. The public relations crisis that ensued when Washington Post columnist, Jamal Khashoggi, was murdered made foreign investors pull back. Also, it was delayed slightly this year as a result of the attacks it suffered by Houthi rebels in September.

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