Tech Newsround – TikTok & Tesla

TikTok: The ball is in China’s court.

• The chances of a ban on TikTok have increased substantially meaning that Beijing will now have to choose between the global expansion of a national champion and national security.
• The bill to force ByteDance to sell TikTok has passed the Senate and will now go to the office of the President who has already said that he will sign it meaning that it is very likely to become law.
• However, ByteDance will have a year to affect the sale which combined with the virtual certainty of a legal challenge from TikTok will mean that it will be quite some time before anything meaningful happens.
• TikTok’s legal challenge is very likely to be based on the 1^st amendment which acts as a protection for free speech, but I suspect that this legal argument will fail.
• This is because I think that the free speech of US citizens is not being infringed but merely being moved from a Chinese-owned town square to a non-Chinese-owned town square.
• Consequently, it is Meta Platforms, Snap, X and YouTube that are likely to benefit should TikTok eventually be blocked.
• However, we are very far from this, and the eventual outcome is really up to the Chinese state.
• On the one hand, it would have to allow the best video recognition algorithm in the world to be exported to non-Chinese owners or face the collapse of the biggest Chinese technology export success story creating further retrenchment in an industry it wants to grow.
• I suspect that at the moment, national security will trump economic power and so if push comes to shove, I suspect that China will refuse to allow ByteDance to sell TikTok and let it collapse.
• This could take some years and there are several possibilities for a compromise and so for the short-term, TikTok is not going anywhere although I would not touch it at any price with this hanging over its head.

Tesla: Unrealistic robotaxi dreams

• Mr Musk soothed investor nerves with the promise of a cheaper vehicle but hanging the future of Tesla on robotaxis is a strategy that is only going to end in pain.
• Tesla reported disappointing results with Q1 24 revenues / Adj-EPS of $21.3bn / $0.45 behind expectations of $22.3bn / $0.52 as well as weakening gross margins which came in at 17.4% down from their all-time high of 29.1% in 2022.
• To be fair, bad results were already baked into the cake as there has been nothing but bad news on EVs for pretty much all of 2024 and the shares have already fallen by just over 40% this year.
• Despite earlier reports of delaying plans for cheaper vehicles, Tesla said that it was preparing to begin production on a $25,000 Tesla but it remains to be seen at what gross margins it can do this.
• This will be the key because outside of the USA, the Chinese car companies have figured out how to make good quality cars at cheap (potentially subsidised) prices and are gaining share everywhere they are on sale.
• This is why Mr Musk stated that the “more affordable” vehicles would require a “revolutionary manufacturing system” otherwise I suspect Tesla will lose money on these vehicles.
• This was well received and caused the shares to rise 13% in after-hours trading but then Mr Musk spoiled it by implying that without robotaxis, Tesla has no value.
• Mr Musk said: “If somebody doesn’t believe Tesla is going to solve autonomy they should not be an investor in the company.”
• This would have been fine except that Mr Musk’s vision for robotaxis denies reality.
• He thinks that Tesla will make 66% gross margins on a robotaxis service because he believes that Tesla’s autonomous driving is so much better than anyone else’s that he will be alone in the market.
• However, the reality is that there are a number of solutions that are at least as good and, in some cases, better meaning that Tesla is never going to have the market to itself.
• This leads to a bloodbath of cutthroat competition meaning that the gross margins are not 66% but something closer to 20% where only the biggest and most efficient survive.
• Tesla still has a market capitalisation of $531bn which in my opinion (and Mr Musk’s it seems) needs a highly profitable robotaxi business to be justified.
• As this is very unlikely, I think that there is still only one way to go from here which is down.
• I have been a seller of Tesla for a long time and see no reason to change that view.