Tesla, Apple and the new China syndrome: Morning Brief

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Tuesday, January 4, 2021

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Tesla’s biggest growth engine may become its Achilles heel

On Monday, during a session that by all rights should have been dominated by Apple (AAPL) becoming the first company ever to hit $3 trillion market capitalization, Tesla (TSLA) did what it normally does — which is steal the spotlight.

As the iPhone maker set its intraday high-water mark, buzz surrounding the electric vehicle maker’s blockbuster fourth quarter deliveries hit a crescendo — with the stock seeing its best day in nearly a year. Effusive praise from Wall Street included the estimable Dan Ives, who called it a “trophy case quarter,” and predicted Tesla could see a $2 trillion market cap in less than two years, Yahoo Finance’s Ines Ferre reported.

The market’s rapturous response to Tesla’s big Q4 coinciding with Apple’s big milestone is an irony best captured by Ross Gerber, CEO of Gerber Kawasaki Wealth & Investment Management.

The investor was more complementary of Tesla’s software capabilities than its car manufacturing, something that came under scrutiny last week after it issued a massive recall of nearly half a million vehicles. It also underscored how two of the biggest names in technology remain intertwined years after Apple reportedly approached Tesla about a potential merger, which Elon Musk summarily denied.

“Tesla is a better AI technology company than a car company, as we’ve all learned over the last 10 years,” Gerber told Yahoo Finance Live last week, adding that the EV maker “will be the most consequential company in the history of business” within the next decade.

“They build cars, but they’re basically building an iPhone on wheels. And so the entire infrastructure that they’ve been building around service, for example, has been a big challenge for them. They’ve innovated some amazing things like mobile service.”

In fact, very little has materially slowed Tesla’s ascent — not even Elon Musk’s tax-related stock sale that temporarily put downward pressure on the shares.

In a note to clients on Monday, Garrett Nelson, senior equity analyst at CFRA Research, boosted Tesla’s stock to a Buy from a Hold and hiked the 12-month price target to $1,250/share.

He pointed out that Tesla’s 2021 gains underperformed competitors like Lucid’s (LCID) 280% boom and Ford’s (F) 136% surge, but “ the completion of new factories in Texas and Germany sets the stage for further growth in 2022 and beyond.”

The EV maker is increasingly popular in Europe, with Electrek reporting Norwegians have adopted its cars at a breathtaking pace. But China’s vast market is where Tesla’s present and future lie — as does a potential stumbling block for its ambitions.

In a report published on Monday, The Wall Street Journal underscored how the company’s opening of a new showroom in Xinjiang, a region at the center of genocide allegations against the Chinese government, militates against Musk’s image as an iconoclastic rule breaker who frequently tangles with U.S. elected officials on Twitter.

The Xinjiang quandary is one Tesla also shares with a growing number of corporate American powerhouses like Nike (NKE), Walmart (WMT), Intel (INTC) — and yes, Apple. The Morning Brief has previously covered the multitude of ways in which Beijing’s domestic woes, and its unique brand of geopolitical hardball, have ensnared the Sino-American bilateral relationship in a thicket of recriminations and tensions.

While China is a huge part of Tesla’s success, it also has the potential to inflict reputational damage on its brand as international furor toward Beijing grows more acute.

It also exposes the growing contradiction of American companies forced into a game of “go along to get along” with the Chinese government, even as they take increasingly polarizing social stances at home — while paying virtually no political penalty for doing so.

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

What to watch today

Economy

10:00 a.m. ET: ISM Manufacturing, December (60.0 expected, 61.1) prior month)

10:00 a.m. ET: ISM Prices Paid, December (79.3 expected, 82.4 prior month)

10:00 a.m. ET: ISM New Orders, December (60.4 expected, 61.5 prior month)

10:00 a.m. ET: JOLTS job openings, November (11.1 million expected, 11.033 million prior month)

WARDS Total Vehicle Sales, December (13.1 million expected, 12.86 million prior month)

Earnings

MillerKnoll (MLKN) is expected to report earnings of $0.56 per share on revenue of $1.043 billion

Politics

Dr. Anthony Fauci and other members of the White House COVID-19 Response Team will brief President Biden at 2:00 p.m. ET today on the latest developments related to Omicron. Biden could also offer some remarks to the press at the beginning of the meeting.