Investment Insights Notes from the Kitchen

Tesla Zooms Ahead

  • Apr 07, 2022
  • Andrew Gillham

(Cover Image Source: SCREEN POST)

Global stocks edged higher in a relatively quiet week to close out their worst quarter since the corresponding period two years ago. Whilst stocks are higher than at the outset of the conflict in Ukraine, the blue-chip S&P 500 and technology focussed Nasdaq fell 4.9% and 9.5% in the first quarter.

European markets are more exposed to the impact of sanctions on Russia and the Euro Stoxx has suffered a 9% drawdown. However, the FTSE 100 has bucked the trend and gained 2.6% year-to-date due to its high exposure to energy and materials stocks.

Understandably, corporate news has been overshadowed by events in Ukraine but Tesla’s earnings release on Friday night caught much attention. Shares in the electric car producer rose more than 4% on Monday after it revealed it had delivered a record 310,048 in the first quarter in the face of a shortage of computer chips, Covid lockdowns in China and logistical challenges which have severely disrupted other manufacturers.

The results announcement caps an impressive 3-week run in which Tesla’s shares have gained almost 50%. In the period, Tesla has opened new factories in Berlin and Austin, Texas which can boost its annual production towards 2 million cars and last week it announced it will ask shareholders to vote on another stock split at its annual general meeting. Tesla shares have more than doubled since its 5-for-1 split in August 2020.

The Elon Musk effect also reached Twitter after it was revealed on Monday in a SEC filing that the world’s richest man is its largest shareholder with a passive 9.2% stake in the social media company. Twitter’s shares immediately jumped more than 25% on the news, although Musk, who has more than 80 million followers on the platform, has yet to comment on his investment.

Brent crude fell back towards $100 a barrel after President Biden ordered the historic release of 180 million barrels of oil from the US Strategic Petroleum Reserve to mitigate supply disruptions. Western leaders, including the UK’s Boris Johnson, had lobbied Opec hard to ramp up production but the Saudi Arabia-led oil cartel held firm. However, the release of 1 million of barrels a day over the next 6 months will only partly offset lost Russian production. The International Energy Agency warned sanctions, and a reluctance to buy Russian crude, could hit output by 3 million barrels per day.

As reports of war crimes in the Kyiv region emerged over the weekend, including accusations of mass killings of civilians in the town of Bucha, oil pared some of its earlier losses. In response to the allegations, the European Union is working on a new package of sanctions on steel, luxury goods and jet fuel. Some EU members, led by Germany, are reluctant to include oil and gas given their dependence on Russian energy.

Inflation continues to accelerate amid soaring energy costs and last week it was reported consumer prices in Germany rose 7.3% from a year earlier in March, the highest since reunification in 1990. Countries where food and energy make up a much more significant proportion of their inflation basket are suffering most. Turkey’s consumer price index soared 61% year-on-year in March as energy and transport costs doubled. President Erdogan has steadfastly resisted hiking interest rates, the traditional medicine for curbing inflation, and a period of hyperinflation is a growing risk.

Sri Lanka is also suffering as depleted foreign currency reserves restricts its ability to import energy. Rolling blackouts and long queues at petrol stations have become the norm in recent weeks, triggering daily protests in the capital Colombo and other cities which at times have turned violent. President Rajapaksa has asked more than 1 million public sector employees to work from home to ease the pressure on fuel.

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.