No. of Recommendations: 7
The auto industry is in the too hard pile for me esp with all the BYD adverts we have on TV over here in the UK ATM and a new dealership opening nearby, advert features what looks like an amazing vehicle for 10k less than an equivalent Audi / Volkswagen and 700 mile range! Which must be best in class.
On top of that we have Teslas everywhere and far less Volkswagens. (We have an Audi and Volkswagen in our household and love the product)
I like Nestle with stable cash flows, valuation and the fact they are looking at costs, organic growth and buybacks as a three pronged strategy. It's like comparing apples and oranges IMO.
I don't know, I think both are under some existential threat. Perhaps Volkswagen more so than Nestlé, I will grant that. But 3x earnings instead of 20x earnings is already pricing in a catastrophic decline, and while I think EVs will be a challenge, I think the transition is going to be much slower than many people believe. For one thing, a lot of EV purchases are because of very generous incentives that are unsustainable. I just bought an EV in Canada because I get a quarter of the price paid for by the federal and provincial governments where I live, and because I then get cheaper operating costs every year thereafter. But with EVs now at about 18% market share in Quebec, the provincial government has announced that the subsidies will be phased out over the next 2 years. In Ontario, the percentage of new vehicle sales that are EVs is 5%, and that is with the federal subsidy still in place. Imagine what it would be if there were no subsidy, which I think is inevitable in the next few years. But the fact of life is that governments can not indefinitely provide this kind of massive financial support for a big ticket item that so many people buy. And that's without considering the fact that our road system is entirely financed by gasoline taxes that EV owners do not contribute to. This is another policy that is not sustainable as the percentage of EV owners goes up - eventually, EV owners are going to have to finance road upkeep some other way, which will remove some more of their economic competitiveness.
So I think the transition, which has been fairly quick so far with massive subsidies, is going to slow down a lot - the economics of buying an EV with no government subsidies still doesn't make much sense for most drivers.
OK, but eventually, yes, EVs will win the day. I just think VW will find a way of making EVs, maybe in China, that are competitive with BYD's products, in places like Europe where BYD is allowed to compete. I also owned an Audi hybrid, which was a great car, and I now own a Mazda EV, and my daughter has a Mitstubishi hybrid. Gasoline car makers can also make good EVs, and I think we're seeing that now as Tesla's market share comes down, taken up by the traditional carmakers.
I recently purchased OXY @ 50, I don't normally invest in oil either but I did a lot of research to try and unpick why Buffett would like it at $60+ and it makes a lot of sense to me. Eg average oil prices going forward, amazing assets and fantastic management /capital allocation.
I just bought some more, too, actually the WT warrants that move in lockstep with the shares, just to get a little leverage. They're at about 14 times earnings, or 11.5x future expected earnings, and that's before pricing in a possible war in Iran.
But to own Nestlé at 21x earnings, you have to think they are a really safe bet to improve earnings, and I just don't see why I should believe that. DG has a better price (14x earnings), but I like you can't convince myself that they are really going to be able to counter the threat from cheaper, more efficient retailers like Walmart and Amazon. The fact that their recent bad performances are being blamed on their target customer feeling pinched is to me a very alarming development - I thought they were anti-fragile, and would benefit from tough economic conditions, as people move down from higher-end retailers to dollar stores. If they are hurting now, maybe they will always be hurting?
People don't really need dollar stores, or processed food, but they will always need oil and cars, so I want to own an efficient producer of oil and cars at a cheap price. If there really is a big economic slowdown, both VW and OXY will go down further, so I want to be ready to buy more, but a small position in both makes sense to me already.
dtb
