Day: June 13, 2022

Tesla Looks to Reinforce Its Battery Supply Chain: Why That Matters

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

digitised image of electrical vehicle being charged

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Supply chains are already stressed for automakers across the world. Given demand for electric vehicles (EVs) is expected to grow by leaps and bounds, that is likely to get worse, with EV batteries widely believed to become the bottleneck. 

Tesla (NASDAQ: TSLA) has been leading the sector in all areas so far, and it plans to continue that role if a raw material supply crunch develops. Tesla builds its own cells at its Gigafactories, recently introducing its 4680 battery in cooperation with Panasonic. But this week it seems to have taken another step to ensure its battery supply with plans to source from an EV competitor. 

A lesser-known leader

While Tesla led the world with sales of more than 900,000 electric cars last year, China-based BYD sold over 600,000 electric vehicles of its own, including both plug-in hybrid and battery electric. Now it seems Tesla will be using BYD as a battery supplier, too. The tie-up would link two EV leaders that combined to sell more than one-third of all battery electric vehicles worldwide last year. 

Bar graph showing global battery electric vehicle sales from 2016 to 2021.

 

Tesla and BYD are the world’s leaders in battery-electric and plug-in hybrid vehicle sales.

Aiming to continue domination

Many observers think it will be hard for Tesla to remain the world’s dominant EV seller with automotive giants General Motors, Ford, Volkswagen, and Toyota quickly ramping up EV production. The crowded field will be fighting to keep its battery supply chains full. Rivian Automotive CEO R.J. Scaringe recently said in his annual letter to shareholders that over the next decade, global battery production capacity will need to increase by 20 times to supply the expected demand. 

Tesla plans to stay ahead of the competition by adding BYD as a supplier for lithium-iron-phosphate (LFP) batteries, according to a Reuters report. Tesla disclosed that LFP made up nearly half of batteries used in its vehicles produced in the first quarter. They are potentially a safer and cheaper rival to nickel-and-cobalt-based lithium-ion batteries. 

BYD launched its LFP Blade battery two years ago. Battery sales only made up 7.3% of total revenue for BYD in 2021, but now Tesla may become a customer and help that figure grow. 

Buffett-backed supplier

Tesla had already begun forging relationships with South Korea’s LG Energy Solutions and China’s Contemporary Amperex Technology (CATL) for its LFP battery needs. BYD isn’t nearly as big a player in the EV market as those other Asian companies. But that may soon change due to a relationship with Tesla. 

Infographic showing the biggest Asian EV battery makers in 2021.

 

BYD may become a bigger player with a customer in Tesla.

The report quoted Lian Yubo, BYD’s executive vice president, as saying in an interview this week, “We are now good friends with Elon Musk because we are preparing to supply batteries to Tesla very soon.” If that pans out, Musk won’t be the only famous billionaire to be attracted to BYD. Warren Buffett’s Berkshire Hathaway has been a longtime investor in the Chinese EV company, and it held a 7.7% stake worth nearly $7.7 billion as of Dec. 31, 2021.

While a relationship between the two automotive leaders may be a positive for both companies, Tesla could become the big winner. The company now has four global manufacturing plants. An adequate battery supply could be the critical factor to be able to maximize production from those facilities to supply growing demand. The takeaway for investors is that Tesla seems to have things in place to continue dominating even as fierce competition enters the market. It makes the company’s estimate of 50% annual production growth over multiple years more viable.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Tesla Looks to Reinforce Its Battery Supply Chain: Why That Matters appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks *Returns as of January 12th 2022

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Howard Smith has positions in BYD and Berkshire Hathaway (B shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway (B shares), Tesla, and Volkswagen AG. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.



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Brokers predict these 2 ASX dividend shares will pay yields above 10%

excited young female in business attire and wearing glasses is holding up $100 notes in both hands.

excited young female in business attire and wearing glasses is holding up $100 notes in both hands.

Some ASX dividend shares are expected to pay very large payouts in the next couple of years.

The ASX share market has returned an average of around 10% per annum over the long-term. That return has been made up of a return of dividends and capital growth.

What if some ASX shares were able to deliver a (grossed-up) dividend yield of at least 10%? Dividends are not guaranteed and can be cut. However, it could be useful if a business were able to pay large dividends and also deliver capital growth. Of course, capital growth isn’t guaranteed either. A major risk of the ASX share market is an investment not working out.

However, experts believe the below businesses are both good value and could pay large dividends.

Australian Finance Group Ltd (ASX: AFG)

Macquarie is one broker that currently rates Australian Finance Group as a buy.

This ASX dividend share is one of the largest mortgage broking businesses in Australia. It claims to write around 10% of residential mortgages.

The Australian Finance Group share price ended last week down 6.5% at $1.72.

The price target is $2.94 – that implies a potential rise of around 70%.

There is a lot of market focus on rising interest rates at the moment, but Macquarie thinks that Australian Finance Group could be a winner as borrowers try to find a better loan by refinancing.

The company says that brokers are systematically important to all lenders, including those with branch networks, as they provide competition and choice. The overall broker market share of mortgages continues to grow – it was 67% in the first quarter of FY22, up from 50% in FY16.

The company is looking to grow its market share and grow margins through expanding into lending and across non-residential asset classes. Management note that the future development of an asset financing lending product will further accelerate growth.

Macquarie thinks that the ASX dividend share is going to pay a grossed-up dividend yield of 12.6% in FY22 and 12.8% in FY23.

New Hope Corporation Limited (ASX: NHC)

New Hope is one of the largest coal miners in Australia, with its projects including New Acland and Bengalla.

The business is currently benefiting from the elevated price of coal amid strong energy prices after the Russian invasion of Ukraine.

In the quarter for the three months to April 2022, the business generated $358.6 million of underlying earnings before interest, tax, depreciation and amortisation (EBITDA) and it made $281.8 million of cash generation.

However, rainfall and COVID-19 has affected the production in recent months.

Credit Suisse currently rates the business as a buy, with a price target of $4.90. With the New Hope share price closing out last week at $3.84, that implies a possible rise of close to 30%. The broker thinks that New Hope could pay a grossed-up dividend yield of 27% in FY22 and 34% in FY23.

The post Brokers predict these 2 ASX dividend shares will pay yields above 10% appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks
*Returns as of January 12th 2022

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Amazon Just Split Its Stock: Here’s What Comes Next

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amazon boxes stacked up on a front doorstep

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Like many high-growth technology stocks, Amazon.com (NASDAQ: AMZN) has sold off hard in 2022, but it bounced back a bit prior to its recent stock split. Investors without access to fractional share purchases have had the chance to buy Amazon shares at a lower price for a week now, so it’s time for shareholders old and new to refocus on the company’s fundamentals.

While Amazon Web Services is booming, Amazon’s retail business is struggling. Free cash flow has gone negative, but management has also begun repurchasing stock. Amid all these cross-winds, here are the main issues investors should monitor for the rest of the year.

“Still have work ahead of us” in the retail business

The big reason Amazon sold off so much this year is the retail business. After it aggressively built out capacity during COVID-19, demand has slowed as things reopened. Since the capacity build operates with a lag, Amazon has actually overbuilt in the near term.

Complicating matters, Amazon’s head of worldwide retail, David Clark, just announced he would be leaving the company. That adds another layer of uncertainty to the mix, and it’s also an open question as to whether Clark left on his own, or if he was forced out due to recent problems. Of note: Clark just became CEO of logistics start-up Flexport. In the blog post announcing Clark’s retirement, CEO Andy Jassy admitted: “We still have more work in front of us to get to where we ultimately want to be in our Consumer business.”

Amazon noted too much capacity, too much hiring, and high fuel prices as contributing about a $6 billion headwind last quarter, with each component accounting for about $2 billion each. $4 billion of these added costs should stick around this quarter, as the company will need to grow more to fill its capacity, and fuel prices have remained high.

Things to watch in the second half: Productivity, capacity, shipping

First, I’d expect to see progress on the labor front this earnings report. Amazon has the ability to slow or freeze hiring, so investors should assess profitability and the company’s headcount, which it discloses. This was the most “fixable” of Amazon’s problems. 

For the over-capacity, investors may not see any improvement until the second half. That’s because Amazon needs to grow into its capacity, and Prime Day moved from the second quarter last year to the third quarter this year. So, revenue may not grow sufficiently to fill its capacity until Prime Day and then the holiday buying season. Look out for management’s forward guidance and commentary on this front on its next earnings call.

In the meantime, the Wall Street Journal recently reported Amazon is looking to sub-lease space to other tenants in the distribution centers and warehouses. Amazon is reportedly looking to sublet about 10 million square feet of space, with the potential to do more. That 10 million square feet would account for about 2% of Amazon’s total owned and leased square footage at the end of 2021.

Finally, investors should keep an eye on shipping costs. Last quarter, worldwide shipping costs were up 14% even though paid units shipped were flat at 0%. Typically, Amazon has higher shipping costs than paid units, as it monetizes its units in various ways, such as Prime subscriptions and advertising; therefore, investors should see if the spread between costs and units sold widens or narrows. Unfortunately, with fuel prices on the rise, shipping costs could remain high.

Is AWS margin expansion for real?

Turning to Amazon Web Services, last quarter, there was a big step-up in AWS operating margins, which rose from 29.8% to 35.3% quarter-to-quarter. This was largely due to an extension of the useful life of its servers. Investors should also monitor whether AWS is able to maintain these higher margins, or if there is some mean-reversion.

If the new higher operating margin proves to be the new baseline, that could help Amazon’s stock as a whole. That’s because AWS is probably the most valuable part of Amazon, as its most profitable business. AWS made $67 billion in revenue over the past 12 months while growing in the mid-30% range. It seems set to grow for years, perhaps into the multiple hundreds of billions, so a 5% expansion in its eventual operating margin could mean big things for Amazon’s intrinsic value.

It all comes down to profits

Amazon has long gotten a pass from investors in terms of showing current profits for much of its corporate life, but since 2018, Amazon’s profits have taken off. Investors may now be expecting more consistent profitability year in and year out, especially as interest rates have risen. Thus, after the pandemic boom, they haven’t taken very kindly to recent year-over-year declines in operating profit, even as revenue has grown.

The main question across all of these factors is: Will Amazon be able to control costs in an inflationary environment? And where will its operating margins ultimately end up? 

Amazon is a large and complex business, so all the aforementioned factors will need to be examined to get the full picture heading into the second half.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Billy Duberstein has positions in Amazon. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Amazon Just Split Its Stock: Here’s What Comes Next appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks *Returns as of January 12th 2022

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.



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Is The Stock Market Going to Crash Again?

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

share market bear invest crash

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

With the recent inflation news driving another massive stock sell-off, investors are once again getting nervous about the future. After all, high inflation means that the Federal Reserve is expected to continue to be forced into raising interest rates , which makes bonds a relatively more attractive investment. Higher interest rates also make it more expensive to borrow, which makes it tougher for businesses to invest in expansion, thus putting demand and growth at risk.

Within that context, it’s pretty easy to make a case for why the stock market could crash again. On top of that, history shows that the market does crash from time to time. As a result, the answer to the question of whether the stock market will crash again is a simple one: Yes, it almost certainly will. The real question to ask, though, is when will it crash?

Are we there yet?

Despite that fear, the reality is that the S&P 500 is already down about 20% from its recent highs. That’s a substantial drop already, and it does offer a sliver of hope that maybe the toughest part of the current market cycle could be behind us.

Still, it’s important to remember that the market attempts to price stocks based on their future value-generating abilities, not based on what their past price movements were. A big reason stocks sold off so heavily when the recent inflation numbers were announced is that those inflation numbers were worse than expected. 

When the market faces substantial negative surprises, it tends to price assets lower to reflect the higher perceived risk and/or lower perceived future returns. As a result, a big part of whether the market will crash again soon depends on how many more negative surprises we have ahead of us.

What can you do about it?

With so much uncertainty facing the market and the near-term future, it can be tempting to get paralyzed into doing absolutely nothing at all. While staying the course is usually a great strategy when it comes to taking part in any recovery that follows a crash, you have to have the right financial foundation in place to really do that.

As a result, now is a superb time to check on that financial foundation of yours and do what you can to get it shored up. That way, when the market does crash again — whenever that may be — you’ll be in a better spot to take advantage of it. the On the flip side, if the market doesn’t crash again within your investing career, having a solid financial foundation in place will still give you great peace of mind even in more typical market volatility.

Key to your financial foundation is to be in control of your debts. About the only reasonable debts to have when you’re investing are ones where all three of the following are true:

  • The interest rate is low — interest-free or low single digits.
  • The payment is low enough that it doesn’t keep you from covering your basic costs.
  • The debt serves a useful purpose for your future.

If your debt doesn’t meet all three of those criteria, making it a priority to either pay off those debts or get them to where they do fit the bill can work wonders for your financial future.

Once your debt is in control, make sure you have a decent — but not oversized — emergency fund in a savings account, CDs, or other very liquid and secure vehicle. Three to six months of your living expenses is a reasonable target. Too much more than that, and you’ll risk losing too much ground to inflation. Too much less, and you’ll risk not having a large enough buffer to cover those ugly surprises that life throws your way.

With your financial foundation in place, it becomes much easier to focus on your future and the longer-term opportunities that stocks can provide. Indeed, if you get that foundation securely enough in place, it can even turn your perspective of market crashes to one where you appreciate the buying opportunities they can provide.

Get started now

The market’s recent declines make it painfully clear that another crash is very possible. The sooner you get your financial foundation in place, the sooner you will get to a point where you can start seeing a market crash as a potential buying opportunity rather than just a reason to panic. So start putting your plans in place now, and make today the day you begin building the foundation that can help you emerge from the next market crash in a much better spot.

Chuck Saletta has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is The Stock Market Going to Crash Again? appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks *Returns as of January 12th 2022

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.



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