September 22, 2020

Market recap

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Top Story

Today is Tesla’s Battery Day

What to Expect

Today is Tesla’s (TSLA) highly anticipated “battery day.” The company already leads the industry with many aspects of its electric vehicle battery technology, but investors are excited about even more technological advancements that could be revealed today. Elon Musk, Tesla’s CEO, recently created additional buzz about the event, tweeting, “Many exciting things will be unveiled on Battery Day 9/22.”

Tesla enthusiasts are hoping to hear about cheaper, longer-lasting batteries. Tesla will likely also discuss its plans to ramp up production capabilities and may talk about the stationary power arm of its business.

Tesla May Unveil Cheaper Batteries

The cost of batteries is a big topic of discussion in the EV sphere. In the past, electric vehicles have been much more costly than their gasoline-powered counterparts, but this is changing. The cost of batteries has dropped by about 75% over the past decade.

Currently, EV battery cells generate energy at a cost of about $100 per kilowatt hour. However, some expect that Tesla could unveil a battery able to generate energy at $75 per kilowatt hour. This would be a significant win for the company and its shareholders because it would allow Tesla to expand and reach more customers with cheaper products.

For what it's worth, Musk also noted that Tesla will continue to rely on other suppliers. In an after-hours tweet yesterday he said, "We intend to increase, not reduce battery cell purchases from Panasonic, LG & CATL (possibly other partners too). However, even with our cell suppliers going at maximum speed, we still foresee significant shortages in 2022 & beyond unless we also take action ourselves." In the thread, Musk added that "This affects long-term production, especially Semi, Cybertruck & Roadster, but what we announce will not reach serious high-volume production until 2022." Investors are hoping for more color on those eleventh-hour tweets today.

Battery Longevity and Production Capacity

Though many investors will have an eye on the cost of Tesla’s batteries, some are hoping the company will unveil improvements to the batteries themselves. Many are discussing the possibility of Tesla launching a “million-mile battery,” which, as its name suggests, would be able to last for one million miles. This would mean batteries would outlast their car bodies, which could create opportunities to recycle batteries and lower costs.

Investors are also eager to see if Tesla will release information about its plans to increase production capacity. The company is currently able to make between 600,000 and 700,000 cars per year, but in order to keep up with projected growth targets, it will need to ramp up its capabilities.

These are just some of the points Tesla may touch on at today’s event. The EV maker’s shares have climbed over 400% year-to-date and many will be eager to see how today’s announcements impact the company’s stock.

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Nikola’s Founder Steps Down

Trevor Milton’s Departure From Nikola

It’s been a busy start to the week for the EV industry. Investors are buzzing about Tesla’s battery day (TSLA), but electric truck maker Nikola (NKLA) is also in the spotlight. The company announced yesterday that Trevor Milton, its founder, is voluntarily stepping down as Executive Chairman and board member. Milton is being replaced by Stephen Girsky, a former General Motors (GM) Vice Chairman who helped with Nikola’s stock listing and with the partnership between the EV truck maker and GM.

The announcement about Milton’s decision comes about two weeks after Hindenburg Research, a short-selling firm, published accusations against Nikola saying the company misled investors. Hindenburg’s report said that Nikola made false claims about its technology in order to expand and partner with other carmakers, including GM. Nikola denied the accusations and the Securities and Exchange Commission is currently investigating the report’s claims.

The Impact on Shares of Nikola and General Motors

On the news about Milton’s departure, Nikola’s stock plunged as much as 37% in premarket trading yesterday. GM, which took an 11% equity in Nikola several weeks ago, also saw its shares fall 4.73% yesterday.

Nikola made a successful public debut at the beginning of the summer following a reverse merger with a SPAC. Trever Milton owns 35% of the company and saw his net worth reach $9 billion just days after the listing. Since yesterday’s stock tumble, he is now worth about $4 billion.

A Partnership With an Outside Battery Provider

Nikola also raised eyebrows after it partnered with Romeo Systems, a company that will provide battery technology for prototypes of its Nikola Tre semi-truck. This is the company’s first semi truck model, and it plans to begin selling the vehicle by 2021. Nikola previously said it created its own battery technology, so the new partnership is facing scrutiny.

The recent string of events have put Nikola in a difficult position. The company’s leadership will have to work to regain investor trust.

MEMX, the New Exchange on the Block

MEMX Executes its First Trade

Yesterday morning, a new exchange called Members Exchange, or MEMX, executed its first trade. MEMX is backed by electronic trading firms, Wall Street banks, and other investors. To start out, the exchange will facilitate trades of seven stocks including Alphabet Inc. (GOOG), and ExxonMobil (XOM). Its first trade yesterday was of Consolidated Edison (ED) shares.

MEMX is based in New Jersey and has raised over $135 million from investors. It is expected that the new exchange will provide stiff competition for already existing exchanges.

Competing Against Established Exchanges

Just three exchange groups handle almost 60% of US equities trading volume. These groups are Nasdaq, Cboe Global Market (CBOE), and NYSE, which is owned by Intercontinental Exchange (ICE). These stock exchanges make money on transaction fees, listing fees, market data fees, and more.

MEMX was formed in response to banks and trading firms feeling frustrated by major exchanges raising prices for their services. MEMX plans to offer lower prices than the dominant exchanges, and will give away its data for free initially.

Other New Stock Exchanges

Often, new exchanges struggle because traders want to go where there are already other people to trade with. However, because MEMX has a significant store of cash, it plans to pay out more in rebates than it collects in transaction fees—at least to start out. This means that MEMX will lose money initially as it goes through the process of building its base.

In addition to MEMX, several other new exchanges are launching this month. The Long-Term Stock Exchange went live on September 17, and an exchange called MIAX Pearl, created by Miami International Holdings, will roll out on September 25. Investors will be eager to see how MEMX and these other new players impact the exchange landscape.

Not-So-Breaking News

  • Microsoft’s (MSFT) Xbox team announced that it will acquire ZeniMax Media, the parent company of Bethesda, for $7.5 billion in cash. This purchase will give Xbox a wider array of in-house game development studios just ahead of the company’s upcoming release of new gaming hardware in November. Microsoft’s largest ever video game purchase also comes just weeks after Oracle (ORCL) outbid Microsoft in the race to acquire TikTok’s US operations.
  • Illumina Inc. (ILMN) will buy Grail Inc, a cancer test startup, for $7.1 billion in cash and stock. Grail, which is backed by Jeff Bezos and Bill Gates, is working to create a blood test to catch early-stage cancer.
  • Earlier this month, French luxury goods company, LVMH (LVMHF) said it wanted to cancel a deal to buy US jewelry company, Tiffany & Co. (TIF). EU antitrust regulators are now deciding whether or not to allow LVMH to back out of the acquisition. They will have a verdict by October 26.
  • Quibi, the short-form video platform, is weighing various strategic options, including the possibility of a sale or merger with a special purpose acquisition company. Quibi rolled out on April 6 when much of the US and the world was locked down due to COVID-19. Its content was aimed at people looking for entertainment during short chunks of time, like commutes. Quibi has struggled to break into the highly competitive streaming sphere, and is assessing a variety of options as it moves forward.
  • Amazon (AMZN) Prime’s video services in the UK, France, Germany, and Austria will now include Noggin, a learning subscription for preschool students created by ViacomCBS’ (VIAC) Nick Jr. Noggin’s offerings include Dora the Explorer, PAW Patrol, and other shows for young children.
  • Although no two investors are exactly alike, there are a few patterns of investing across a few types of investor profiles. Use this quiz to see where you fit in.

Financial Planner Tip of the Day

"When you’re ready to settle on your first stock to buy, you’re really talking about buying a piece of a company. You become a part-owner and might have certain rights, such as voting on a board of directors or other corporate matters."

Brian Walsh, CFP® at SoFi

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