Stocks finished the day little-changed ahead of Friday’s big April jobs report, the biggest economic news of the week.
First, the scoreboard:
- Dow: 17,642, -8, (-0.05%)
- S&P 500: 2,048, -2, (-0.1%)
- Nasdaq: 4,713, -12, (-0.3%)
- WTI crude oil: $44.30, +1.2%
In what’s been a busy week for the US economy, Thursday was a bit quieter with only the latest weekly report on initial jobless claims crossing the wires at 8:30 a.m. ET.
Claims totaled 274,000 last week, the most in five weeks though overall initial claims remain near historic lows. This does, however, give us our 61st straight week of claims not topping 300,000 in a given week, which remains the longest streak since 1973 and on a population-adjusted basis is effectively the lowest level for claims on record.
The big economic news, however, was looking ahead to tomorrow morning’s April jobs report, which is expected to show US payrolls grew by more than 200,000 yet again while the unemployment rate should fall to 4.9%.
We wrote about Tesla on Wednesday as there were some bearish comments out of Jim Chanos earlier in the day and reports that executives were leaving and then earnings.
In the company’s letter to shareholders, Tesla said it wants to be producing Model 3’s at a rate of 500,000 per year by 2018, with Musk saying on the company’s conference call this is the biggest strategic change the company is making. Which, yeah, I’d imagine pulling forward production guidance by two years on a new hotly-anticipated product that brings you from the realm of luxury to mass-market consumers is a challenge.
But on the conference call, Musk said it can be done because the Model 3 is the simplest car that Tesla has produced yet. And while the company also has a penchant for missing production deadlines, previous experience cannot inform the future.
It’s always tempting for people to reason by analogy instead of first principles. And that would be the mistake of assuming that anything to do with the X production has bearing on Model 3. They are very different programs with completely different approaches. So I would not try to extrapolate from that any more than it would have made sense to extrapolate from the Roadster that when we were making 600 cars a year to 20,000 cars a year with the Model S.
So in the Roadster case we went from making 600 cars a year in 2010 where Lotus made the body and chassis, we made the powertrain and we did final assembly. It was a far simpler car than the Model S. We tell people we’re going to do 20,000, get to around 20,000 cars a year with the Model S despite it being a vastly more complicated car and a car where we made the whole car and not just the powertrain.
If you were to extrapolate from the Roadster experience, you would be completely wrong about the Model S outcome, and many people were. That’s why I would say X is not relevant. As far as the increased capital raise, well, obviously if you double your plan volume, you can’t expect the capital to stay the same. I think our capital efficiency will actually improve on a per-car basis, but obviously it can’t stay the same.
So basically: trust me, it’s going to be fine.
Elsewhere in its letter to shareholders Tesla said it now expects to tap capital markets for cash within the next year, something the company said it would not do as recently as the fourth quarter of 2015.
Pulling Model 3 production forward by such a huge amount doesn’t make this need to raise money a total shock. And I think a certain kind of sceptic will see Tesla’s decision to pre-announce the Model 3, collect pre-orders, gauge demand (there’s a lot), then pull production forward and say, “Sorry guys, I know we said no capital raising but we’re going to raise capital because we’ve got this car coming online,” as one big pre-planned way to trick the market.
Which seems like a lot of work!
But it’s a take. If you want it.
Tesla shares fell 5% on Thursday.
Bob Bryan went to the Sohn Conference yesterday.
And the positive views? Hedged.
Now, hearing bearish views on the global economy from folks like Stan Druckenmiller and Jeff Gundlach won’t come as a total surprise to those who follow the space. Gundlach is, after all, a bond guy.
But the bearish case that really caught my eye was PointState’s Zach Schreiber outlining why all the economic changes he sees dreamed up in Saudi Arabia are simply not going to work. The kingdom wants to shift its economy away from oil and into services. A big ask, surely.
Saudi Arabia will also tap the markets for cash by floating a chunk of its state-run oil company Saudi Aramco, all while keeping the riyal stable against the dollar, and, in Schreiber’s view, likely needing to keep its defence budget robust if not growing.
A challenge. Or as Schreiber said Wednesday, “Saudi Arabia is economically unsustainable.”
We’d note that two years ago, Schreiber made a bold call that the price of crude oil was headed lower.
That worked out: he has our attention.