The ‘Tesla-Financial Complex’ | Financial Time


This is an audio transcript of the FT press briefing podcast episode: The “Tesla Financial Complex”

Joanna s kao
Hello from the Financial Times. Today is Monday December 6th, and this is your FT News Briefing.

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The corporate drama at Toshiba has a new development and European auto suppliers warn they will take a huge hit from a rapid transition to electric vehicles. And our global finance correspondent, Robin Wigglesworth, will tell us about the “Tesla Financial Complex” and what it means for the market.

Robin wigglesworth
Tesla can grow 20-30% over the course of the month, which is simply unprecedented for a company of this size.

Joanna s kao
I’m Joanna Kao, replacing Marc Filippino, and here is the news you need to start your day.

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Toshiba, if you recall, proposed last month to split into three separate companies. It was the industrial giant’s latest effort to rebuild its market value and deal with pressure from activist investors. Now, a group of shareholders have told the FT they will vote against the proposal. The group together owns more than 30 percent of Toshiba’s shares, and accuses the company of not fully pursuing negotiations with private equity buyers. He also says he will step up pressure on the board to restart talks about a full buyout of the company. Some shareholders are even considering more immediate tactics, including an emergency vote to purge the board.

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The European Union plans to ban cars with combustion engines by 2035. This means that in less than 15 years, automakers will not be able to sell vehicles powered by fossil fuels. But today, a group of EU auto suppliers warned that the policy could lead to hundreds of thousands of job losses. This is our correspondent in Frankfurt, Joe Miller.

Joe miller
Well, this is one of the first real full-scale anguish of the OEM industry in Europe for a long time, or at least for a few years, they’ve basically been scrambling for the pole position of these companies and automobile manufacturers in terms of their commitments in the energy transition towards clean technologies, in particular electric cars. But as we near the end of this transition and the EU sets this very, very tough deadline, essentially by de facto banning combustion-engine cars by 2035, we are starting to hear some voices in the industry. say: wait a minute, this is going far, way too fast for us.

Joanna s kao
Joe, what are others in the industry saying about this? Will the transition to emissions-free cars be as disruptive as auto suppliers claim?

Joe miller
It’s actually quite difficult to get a clear read on this. It depends on who you ask in the supply chain. It is not certain that there are so many companies that will close their doors completely because of this transition. Essentially, these are just those who are only really involved in making certain parts that only exist in combustion engines. And there are very few companies like it. Most businesses are a bit more diverse. And so it’s clear when you look at, say, the powertrain industry that there are a lot of companies that will come out of it a little bit bruised, but mostly unscathed. And then there are others a little further in the supply chain who are already feeling the pinch and who have thought for a long time that there would be a more gradual transition. But what really happened is that, firstly, there has been a lot more interest in electric cars in Europe than the automakers in the supply chain had anticipated, in part in part. because of very generous grants in places like Germany. And the second thing that has happened is that the big automakers, especially Volkswagen, which is Europe’s biggest automaker, have pretty much ruled out all other technology. They basically said that the costs of buying electric vehicles are high enough. We cannot split our research and development budget between electricity and e-fuels and hydrogen. We are going all the way. And so the market started to make a very, very clear choice that electric cars are the way to go. And that leaves a lot, a lot of suppliers that had hedged their bets a little bit and they suddenly realized, wow, we have this almost immediate deadline in terms of the car. And we know there’s only one technology that’s going to survive and it’s going to really hurt us.

Joanna s kao
Joe Miller is the FT’s correspondent in Frankfurt.

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Tesla has become one of the most valuable companies in the world. This year, its market capitalization exceeded $ 1 billion. But the influence of the company in the financial markets is perhaps more important than its size. This is in part due to its huge network of investment vehicles and a huge derivatives market. It’s something our global financial correspondent Robin Wigglesworth calls the “Tesla Financial Complex”. He joined us to discuss further. Robin, can I ask about the Tesla options market only? What is his size?

Robin wigglesworth
It’s mammoth. Its options are only part of what I call the “Tesla Financial Complex,” but it’s the biggest part. So these are derivatives that give people upside or downside exposure to the stock. Trade values ​​have averaged $ 241 billion per day in recent weeks. This means Tesla is bigger than Amazon and the rest of the S&P combined. And some days it’s been four or five times that much considering the size of the market and the price fluctuations.

Joanna s kao
It’s incredible. I mean, it has to affect the rest of the market. What does this mean for other stocks and what does it mean for investors who do not own any Tesla shares?

Robin wigglesworth
Well, the options are kind of fun beasts, aren’t they? These are derivatives and they can clearly have an impact on individual stocks. In theory, you know the price of a Tesla option should, it’s derived from the price of Tesla’s stock. But with that kind of trading volume, you know, the tail starts wagging the dog. And because Tesla is such a big part of the US stock market now, it’s also bleeding into the larger market, because if you lose or win a lot of money on Tesla options, it will affect everything else. It also means that Tesla is particularly volatile for a company in this stock, so some companies, like Apple, could earn five or six percent a month and it will be a good month. But Tesla can grow 20-30% over the course of the month, which is simply unprecedented for a company of this size. So that means every fund manager who could have a big weighting towards Tesla, could be a big fan of Tesla, they are going to crush the competition this month. And anyone who doesn’t like Tesla very much or maybe is a little underweight, you know, has Tesla stocks, but there aren’t many that are going to underperform. So that just means that what a lot of fund managers across America are doing, how well they are doing in a given month or year, sort of depends on what kind of stake they have in Tesla. Nothing else.

Joanna s kao
So what does this mean for the long term market? With that kind of influence, could it capsize the entire market?

Robin wigglesworth
I’ve seen people argue that Tesla could be systemic. So if Tesla drops a lot, it’s going to disproportionately hurt the stock market, a lot of people are going to lose money. And if Tesla goes up a lot, they’ll drag the stock market with it more in the same way. But I don’t think it’s systemic to the extent that it will cause a crisis. With the caveat that there are always things we don’t see, it’s the hidden links and I’m still worried about the other picture I’m missing? What large investment fund, for example, could have heavy exposure to Tesla? And if Tesla goes down the drain, then that’s fine with it. And it reverberates. So I don’t think we need to worry too much about this. It’s more of a curiosity at this point, but it’s a pretty incredible curiosity.

Joanna s kao
Robin, do you think Elon Musk had this in mind, or did it all happen by chance?

Robin wigglesworth
I mean, there are some people who are kind of conspiratorial and think it’s largely intentional. I think he certainly found some of that. But whether that is his intention to create the “Tesla Financial Complex” I’m a little skeptical. This is a company and personality that was especially suited to the age of social media and collided with a once-in-a-century pandemic that led to an economic recovery, a boom. stock market and a once-in-a-century retail boom. And, most importantly, a movement of retail trading around derivatives called options. And when all of those factors came together Tesla turned into a trillion dollar company or what even fans would say, I think, is a pretty shaky revenue base.

Joanna s kao
This is Robin Wigglesworth, our global financial correspondent.

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Before leaving, Singapore learns about the challenges of being a cryptocurrency hub. Financial regulators in the Southeast Asian city-state have suspended local operations of a major digital currency exchange called Bitget. The exchange had been promoting something called Army Coin. It is an encrypted room named after BTS Army, it is the famous devoted fan base of the boy band BTS.

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The coin claims to provide lifelong financial support to members of the BTS group, although anyone can buy and sell it. The problem? Group agents said the group had nothing to do with it. The agent threatened legal action. Another potential issue, the owner and creator of Army Coin is unknown. However, what is known is that trading in this coin is very volatile. The FT discovered that its value could fluctuate between $ 1,000 and nearly $ 80,000 in a matter of minutes.

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You can read more about all of these stories at FT.com. This has been your daily FT News briefing. Make sure to come back tomorrow for the latest business news.

This transcript was generated automatically. If by any chance there is an error, please send the details for correction to: [email protected]. We will do our best to make the change as soon as possible.

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