Tesla, EV industry get first recession stress test. Will it be a bust?

Pedestrians walk past the Tesla Motors official authorized car dealer store in Hong Kong.

Sopa Images | Lightrocket | Getty Images

Is the first electric-vehicle recession here, or coming soon?

As electric-car stocks plummeted in late 2022, the rout evoked comparisons to the dot-com stock bust two decades ago. Like the internet industry then, the EV industry boasts companies, notably Tesla,  that look like long-term winners, but it is also made up of young companies that may not have the cash to ride out a downturn, as well as in-between players like Lucid Group, Fisker and Rivian Automotive, that have done their best to prepare, and whose fate may depend on how bad things get.

With the economy at an inflection point between receding inflation fears and broad expectation of a recession beginning in 2023, the market doesn’t know what to make of moves like Tesla’s big price cuts, first in China and then on Jan. 13, in the U.S. and Europe. Analysts like Guggenheim Securities’ Ronald Jesikow said it could push Tesla’s profit margins 25% lower than Wall Street consensus and drain profits from all of Tesla’s competitors. But optimists like Wedbush analyst Dan Ives think it’s the right, aggressive move to jumpstart the EV transition amid macro uncertainty.

“Many dot-coms didn’t make it,” Ives said. “There’s no stress test for a severe recession for an industry that’s in its infancy.” 

What happens next — whether battered EV stocks rebound, whether young companies that need more funding will be able to get it, and whether the sector becomes the jobs engine Washington was counting on when it passed the Inflation Reduction Act last summer, laden with tax credits for EVs — depends on the economy first, and the markets second.

The “first EV recession” theme comes with a big if – that there is a recession in the first place, either here or in China, where Tesla sales dropped 44 percent in December from November levels as the government there continued struggling to contain Covid-19. 

In the U.S., most economists and CEOs think a recession is likely this year, though the market gains of the last week may reflect the beginnings of a change in the investor outlook, with more believing in the “soft landing” narrative for the economy. One holdout, Moody’s Analytics chief economist Mark Zandi, forecasts a months-long “slowcession” where growth doesn’t quite turn negative. Either scenario would likely hurt car sales in general, which were the worst in a decade in the U.S. last year, but where some auto executives are now slightly more confident about a rebound, though the EV outlook among the automakers has become more cautious in the short-term. But either scenario may be too pessimistic if the economy responds positively to now-slowing inflation.

The outlook from China, home to more than half of the world’s EV sales, according to Clean Technica, is at least as murky. Manufacturing moved into negative-growth territory late in the year and housing prices are falling, but the International Monetary Fund says China will avoid a recession and grow its economy by 3.8% this year. That would be half of 2021’s clip and slightly below China’s pace last summer, when the nation began to cope with new Covid-related shutdowns. China is now pushing to reopen its economy amid the pandemic. 

Tesla’s 2023 world is like Amazon and eBay’s 2000

A recession, if it happens, doesn’t necessarily mean EV sales will fall. Most models saw big sales gains last year in both the U.S. and Asia. It’s more a question of whether EV companies will grow fast enough to keep adding jobs, and for companies beyond Tesla to turn profitable when investors expect them to — or before they run out of cash they raised to fund startup losses.

That sets up a dynamic a lot like the one that confronted dot-com companies like Amazon and eBay as 2000 blended into 2001: A web-stock selloff was well-underway then, just as EV companies like Tesla, Fisker and Lucid fell sharply last year — 65 percent for Tesla, 54 percent for Fisker and 82 percent for Lucid. Then as now, weaker players like today’s EV makers Lordstown Motors, Faraday Future and Canoo were scrambling to avoid running out of cash as an economic slowdown loomed, either by cutting costs or raising more money from investors.

“We look at a combination of balance sheet stability and ability to raise more capital,” said Greg Bissuk, CEO of AXS Investments in New York, which runs an exchange-traded fund that uses swaps to deliver the opposite of Tesla’s daily return — in essence, usually a near-term bet that the shares will drop. “We think it will be rocky,” he said, specifically referring to the middle-tier EV makers.

But at the same time, revenue at dot-com companies kept rising fast, and the businesses that were  destined to survive began to turn profitable between 2001 and 2003. Today, EV sales in China are rising, even as Covid continues to hamper its economy, and EVs posted a 52% sales gain in the U.S. At year-end, EVs had 6% of the U.S. light-vehicle market, compared to 1 percent of U.S. retail sales being online in late 2000.

Slower growth isn’t no growth

For EV makers, the likely impact of a recession is slower growth, but not the negative growth the overall economy experiences in a downturn, as new technology keeps gaining market share. 

The best-positioned EV maker is still Tesla, said CFRA Research analyst Garrett Nelson. With the company still expected to have generated about $4 billion in late-2022 cash flow when it reports fourth-quarter earnings Jan. 25, and having had about $21 billion at the end of the third quarter, it’s not in danger of a cash burn, Ives said.

“We think the stock rebounds quickly this year,” Nelson said, calling Tesla his top pick among all auto makers, and noting that CFRA economists don’t expect a recession. It trades at 24 times this year’s profit estimates, which in turn only call for 25% profit growth, numbers that are modest for a growth company with room to keep expanding fast.

Tesla shares will bounce back despite poor delivery numbers, says shareholder Gary Black

After the price cut, Nelson said the company will see narrower profit margin but will sell more cars.

“It should widen the company’s competitive advantage and make many more Tesla vehicles eligible for the $7,500 federal EV tax credit,” Nelson said.

The just-enacted price cut pulled the most-popular Model Y vehicles under the price maximum for tax-credit eligibility in the 2022 Inflation Reduction Act.

Tesla has its own issues, with sales growth having slowed late in the year. Fourth-quarter units were up 32%, down sharply from earlier in the year, missing Wall Street estimates for a second straight quarter. CEO Elon Musk’s antics as the new lead owner of Twitter raise concerns about how closely Musk is watching the store, and how quickly he may respond if Tesla’s decline accelerates, Ives said.

“The biggest [issue] is Twitter,” Nelson said. 

On the plus side, this year’s earnings estimates assume no contribution from the Cybertruck, which Tesla is again promising to launch late this year, after being delayed since 2021. And Goldman Sachs analyst Mark Delaney wrote Jan. 2 that vehicle deliveries should reaccelerate by midyear, helped by lower cost structures at Tesla’s newer factories and a pickup in Chinese sales.  

“Now is a time for leadership from Musk to lead Tesla through this period of softer demand in a darker macro, and not the time to be hands off, which is the perception of the Street,” Ives said. “This is a fork-in-the-road year for Tesla, where it will either lay the groundwork for its next chapter of growth or continue its slide.”

Cash burn and the rest of the EV market

In the middle, Lucid, Rivian and Fisker make up a range of higher-risk possibilities that may well turn out fine in the end. But Tesla’s price cutting may cause them problems: Fisker’s stock dropped almost 10% on its rival’s announcement, since Tesla’s move puts the Model Y’s price closer to that of the Fisker Ocean, whose middle tier is around $50,000.

Of the three, Rivian has the most cash on hand, with short-term investments at $13.3 billion as of the end of the third quarter. Fisker had $829 million, and Lucid had $3.85 billion.

Each company is still burning cash, posing the question of whether they have enough to survive a downturn. Fisker lost about $480 million in cash flow in the 12 months ending in September, and invested another $220 million, meaning its cash would last between one and two years if its losses and investment didn’t slow.

“Our commitment to a lean business model has given us a solid balance sheet, which we have supported with disciplined management of our cash,” CEO Henrik Fisker said in a statement to CNBC. “We are in good shape to manage future economic challenges and to act on opportunities.”

Lucid spent over $2 billion in the first nine months of 2022 on operating cash flow losses and capital investment, and says its cash will cover its plans “at least into the fourth quarter of 2023,” according to its third-quarter earnings call. Lucid’s recent production and delivery numbers did beat expectations, albeit expectations that had already been lowered.

Rivian’s stockpile is more than two years’ worth of recent cash-flow losses and investment. 

All three companies, which declined or didn’t respond to on-the-record interview requests, can also extend their cash runway by raising more capital and, indeed, at least two of them have already begun to do so. Lucid raised another $1.515 billion in December, mostly from Saudi Arabia’s Public Investment Fund, while Fisker has filed to raise $2 billion from an ongoing shelf registration at the Securities and Exchange Commission and has so far raised $116 million.

EV maker Lucid to accelerate plans with its Saudi Arabia factory

All three should also give financial guidance for 2023 during earnings season, including updates on their capital spending, and on whether cash-flow losses will narrow as they begin to ship more vehicles.

Fisker began shipping its initial model, the Fisker Ocean, only in mid-November, and plans to ship a less-expensive SUV called the Fisker PEAR next year. Rivian, hampered by parts shortages due to Covid-driven supply chain issues, missed its 2022 production target of 25,000 vehicles by less than 700. It hasn’t yet said how many cars it will ship this year. Rivian also paused a partnership with Mercedes in November, ending for now a plan to co-develop commercial vehicles. Rivian said it would concentrate on its consumer business and other commercial ventures, primarily a deal to sell delivery vans to Amazon, that offer better risk-adjusted returns. That move will help avoid pressure on the startup’s capital base.

Business plans for the future, little current business

Lower on the food chain are companies like Faraday Future Intelligent Electric, Canoo and Lordstown Motors, which went public via mergers with Special Purpose Acquisition Companies, or SPACs, and have lost most of their equity value since. 

Lordstown in November announced a fresh investment by Foxconn, the contract manufacturer that will own 19.9% of Lordstown after the deal, including preferred stock, to help scale up production of its initial pickup truck and bolster the $204 million in cash on its balance sheet. Foxconn has agreed to make Fisker vehicles in Lordstown’s Ohio factory, which Foxconn bought in May, for launch in 2024. It issued a going-concern warning in 2021, before raising money from Foxconn.

“The new capital from Foxconn doesn’t change our focus” on cost containment, Lordstown CFO Adam Kroll said, arguing that the Foxconn deal will slash Lordstown’s capital needs. “We continue to execute a playbook of prudence and discipline.”

Companies like Faraday, Canoo and Lordstown that need to raise more capital could find the path blocked by a more-skeptical capital market than the one that financed them during the special-purpose acquisition company boom, CFRA’s Nelson said. Weaker players include Electro Mechanica, which has proposed a solo EV but hasn’t shipped it in scale yet, British commercial-vehicle maker Arrival, and Green Power Motor, a Canadian electric bus maker, he said. He even includes Fisker, Lucid and Rivian among those at risk from tighter markets.

“They had a business plan but no business, and they got absurd amounts of capital,” Nelson said. “In our opinion, you’ll see many additional bankruptcies, but the market will return to balance. But it’s hard to imagine we’ve seen the bottom.” 

But Nelson does believe the electric car boom is for real — indeed, he says Tesla is the year’s best bet in the overall auto industry. A note of skepticism: After the dot-com boom and bust, Amazon.com began rising off its lows in 2002, rising tenfold by 2008, but didn’t leave its 1999 highs behind for good until 2010. EBay recovered faster but couldn’t sustain its momentum. 

Ives said the Inflation Reduction Act, which offers tax credits of  $7,500 for electric cars costing less than $55,000 and SUVs or pickups selling for $80,000 or less, may throw the industry a lifeline as companies arrange to do enough domestic manufacturing to qualify all of their vehicles. Arrival, citing IRA credits of up to $40,000 for buyers of commercial vehicles, said in November that it is refocusing its London-based company on the U.S. market.

“The pressure in 2023 is less about EVs than the overall macro environment,” Ives said.  “The IRA is not a small point.”

That’s not lost even on Bassuk, who emphasizes that his fund is about helping exploit short-term weakness in the market’s view of EVs. Long-term, he says, EVs are coming, recession or not.

“Those with the capital to get through 2023, we’d bet the farm on,” he said.

CNBC is now accepting nominations for the 2023 Disruptor 50 list – our 11th annual look at the most innovative venture-backed companies. Learn more about eligibility and how to submit an application by Friday, Feb. 17.

A battle between Disney and activist Peltz brews. Here’s how the situation may unfold

A masked family walks past Cinderella Castle in the Magic Kingdom, at Walt Disney World in Lake Buena Vista, Fla.

Orlando Sentinel | Tribune News Service | Getty Images

Activist investor Nelson Peltz plans to mount a proxy fight for a seat on Disney’s board.

Disney offered Peltz, founding partner of Trian Fund Management, a role as a board observer and asked him to sign a standstill agreement, which Peltz declined. Here are our thoughts on the situation.

Offer of a board observer position

Sometimes a board observer position can be beneficial, particularly for investors who do not have a lot of board experience and are less likely to be a regular contributor to board discussions. But offering Peltz a position as a board observer is like saying to Whitney Houston, “You can join the band, but you are not allowed to sing.” There is no way that Disney thought for a second that Peltz would accept this offer, and there is no way he should have accepted it.

Why is this happening?

Trian’s claims

Nelson Peltz as a director

All this criticism of proxy fight tactics and strategy aside, and regardless of how we torture the data of Peltz’s record as a director, of course he should be on the board of Disney. He is a large shareholder with a strong track record of creating value through operational, strategic and capital allocation decisions. No, Peltz is not going to be the most valuable director when it comes to deciding who should star in the next blockbuster Disney movie or which rides should be built at the entertainment parks – the board relies on management for those insights. But he will be the most prepared and valuable board member when it comes to doing the financial analysis on the various strategic and capital allocation opportunities available to Disney and advising the board on which decisions would be best for shareholders. Peltz also has proven to be a valuable director in helping management teams cut operating costs and improve margins, something Disney could use. And if his past is any indication, at the end of his term he will probably be good friends with Bob Iger.

Chance of winning

What it’s like to deliver for Amazon in new Rivian electric vans

For the 275,000 Amazon drivers dropping off 10 million packages a day around the world, the job can be a grind. But a lot has changed since drivers in 2021 told CNBC about unrealistic workloads, peeing in bottles, dog bites and error-prone routing software.

Among the biggest developments is the arrival of a brand-new electric van from Rivian.

Amazon was a big and early investor in the electric vehicle company, which went public in late 2021 with a plan to build trucks and SUVs for consumers and delivery vans for businesses. Since July, Amazon has rolled out more than 1,000 new Rivian vans, which are now making deliveries in more than 100 U.S. cities, including Baltimore, Chicago, Las Vegas, Nashville, New York City and Austin, Texas.

The partnership began in 2019, when Amazon founder and ex-CEO Jeff Bezos announced Amazon had purchased 100,000 electric vans from Rivian as one step toward his company’s ambitious promise of reaching net-zero carbon emissions by 2040.

″[We] will have prototypes on the road next year, but 100,000 deployed by 2024,” Bezos said at the National Press Club in Washington, D.C., in September 2019. Amazon has since revised the timeline, saying it expects all 100,000 Rivian vans on the road by 2030.

Rivian has faced several challenges in recent months. It cut back 2022 production amid supply chain and assembly line issues. Its stock price dropped so sharply last year that Amazon recorded a combined $11.5 billion markdown on its holdings in the first two quarters.

CNBC talked to drivers to see what’s changed with the driving experience. We also went to Amazon’s Delivering the Future event in Boston in November for a look at the technology designed to maximize safety and efficiency for delivery personnel.

For now, most Amazon drivers are still in about 110,000 gas-powered vans — primarily Ford Transits, Mercedes-Benz Sprinters and Ram ProMasters. Amazon wouldn’t share how it determines which of its 3,500 third-party delivery firms, or delivery service partners (DSPs), are receiving Rivian vans first. 

The e-commerce giant has been using DSPs to deliver its packages since 2018, allowing the company to reduce its reliance on UPS and the U.S. Postal Service for the so-called last mile, the most expensive portion of the delivery journey. The DSP, which works exclusively with Amazon, employs the drivers and is responsible for the liabilities of the road, vehicle maintenance, and the costs of hiring, benefits and overtime pay.

Amazon leases the vans to DSP owners at a discount. The company covers the fuel for gas-powered vans and installs charging stations for electric vehicles.

The company says DSP owners have generated $26 billion in revenue and now operate in 15 countries, including Saudi Arabia, India, Brazil, Canada, and all over Europe. 

What drivers think

Baltimore DSP owner Julieta Dennis shows off a Rivian electric van at Amazon’s Delivering the Future event in Boston, Maryland, on November 10, 2022.

Erin Black

Brandi Monroe has been delivering for Kangaroo Direct for two years. She pointed to features on a Rivian van that are upgrades over what she’s driven in the past. There’s a large non-slip step at the back, a hand cart for helping with heavy packages and extra space for standing and walking in the cargo area.

“We have two shelves on both sides to allow for more space,” Monroe said, adding that she’d prefer to drive a Rivian for every shift. “And then the lights at the top: very innovative to help us see the packages and address a lot easier, especially at nighttime.”

There’s even a heated steering wheel.

Former driver B.J. Natividad, who goes by Avionyx on YouTube, says his non-electric van could get very cramped.

“I remember one time I had 23 or 24 bags and over 40 oversize packages and I had to be able to figure out how to stuff that all in there within the 15 minutes that they give us to load up in the morning,” said Natividad, who now works for USPS.

The Rivian vans have at least 100 more cubic feet than the Sprinter and up to double the cargo space of the Ford Transit vans Natividad drove in Las Vegas. Rivian vans are still small enough that they don’t require a special license to drive, though Amazon provides its own training for drivers.

One driver in Seattle, who asked to remain unnamed, was especially excited about the new Rivian vans. He offered an extensive tour of the new driving experience on his YouTube channel called Friday Adventure Club.

He said one of his favorite features is a light bar “that goes all the way around the back.” He also likes that the windshield is “absolutely massive,” the wide doors allow for easy entry and exit, and the cargo door automatically opens when the van is parked. There are two rows of shelves that fold up and down in the cargo area.

There’s also new technology, such as an embedded tablet with the driving route and a 360-degree view that shows all sides of the van.

Mai Le, Amazon’s vice president of Last Mile, oversaw the testing of the center console and Rivian’s integrated software.

“We did a lot of deliveries as a test,” Le said. “As a woman, I want to make sure that the seats are comfortable for me and that my legs can reach the pedals, I can see over the steering wheel.”

She demonstrated some of the benefits of the new technology.

“When we start to notice that you’re slowing down, that means that we can tell you’re getting near to your destination,” she said. “The map begins to zoom in, so you begin to find where’s your delivery location, which building and where parking could be.”

The new vans have keyless entry. They automatically lock when the driver is 15 feet away and unlock as the driver approaches. 

Workers load packages into Amazon Rivian Electric trucks at an Amazon facility in Poway, California, November 16, 2022.

Sandy Huffaker | Reuters

Cameras and safety

Above all else, Amazon says the changes were designed to make the delivery job safer.

A ProPublica report found Amazon’s contract drivers were involved in more than 60 serious crashes from 2015 to 2019, at least 10 of which were fatal. Amazon put cameras and sensors all over the Rivian vans, which enable warnings and lane assist technology that autocorrects if the vehicle veers out of the lane.

Dennis mentioned the importance of automatic braking and the steering wheel that starts “just kind of shaking when you get too close to something.”

“There’s just so many features that would really, really help cut back on some of those incidental accidents,” she said.

Amazon vans have driver-facing cameras inside, which can catch unsafe driving practices as they happen.

“The in-vehicle safety technology we have watches for poor safety behaviors like distracted driving, seat belts not being fastened, running stop signs, traffic lights,” said Beryl Tomay, who helps run the technology side of delivery as vice president of Last Mile for Amazon.

“We’ve seen over the past year a reduction of 80% to 95% in these events when we’ve warned drivers real time,” she said. “But the really game-changing results that we’ve seen have been almost a 50% reduction in accidents.”

As a DSP owner, Dennis gets alerts if her drivers exhibit patterns of unsafe behavior. 

“If something with a seat belt or just something flags, then our team will contact the driver and make sure that that’s coached on and taken care of and figured out, like what actually happened,” Dennis said.

That level of constant surveillance may be unsettling for some drivers. Dennis said that issues haven’t come up among her staffers. And Amazon stresses it’s focused on driver privacy.

“We’ve taken great care from a privacy perspective,” Tomay said. “There’s no sound ever being recorded. There’s no camera recording if the driver’s not driving and there’s a privacy mode.”

Amazon says the cabin-facing camera automatically switches off when the ignition is off, and privacy mode means it also turns off if the vehicle is stationary for more than 30 seconds.

Safety concerns extend beyond the vehicle itself. For example, an Amazon driver in Missouri was found dead in a front yard in October, allegedly after a dog attack.

Amazon says new technology can help. Drivers can choose to manually notify customers ahead of a delivery, giving them time to restrain pets. Another feature that’s coming, according to Le, will allow drivers to mark delivery locations that have pets.

Natividad said he had multiple close calls with dogs charging at him during deliveries.

“You customers out there, please restrain your dogs when you know a package is coming,” he said. “Please keep them inside. Don’t leave them just outside.”

Optimizing routes

Providing drivers with more efficient and better detailed routes could improve safety, too. Drivers in 2021 told us about losing time because Amazon’s routing software made a mistake, like not recognizing a closed road or gated community. In response, they sometimes tried to save time in other ways.

“People are running through stop signs, running through yellow lights,” said Adrienne Williams, a former DSP driver. “Everybody I knew was buckling their seat belt behind their backs because the time it took just to buckle your seat belt, unbuckle your seat belt every time was enough time to get you behind schedule.”

Amazon listened. The company has been adding a huge amount of detail to driver maps, using information from 16 third-party map vendors as well as machine learning models informed by satellite driver feedback and other sources.

One example is a new in-vehicle data collection system called Fleet Edge, which is currently in a few thousand vans. Fleet Edge collects real-time data from a street view camera and GPS device during a driver’s route.

“Due to Fleet Edge, we’ve added over 120,000 new street signs to Amazon’s mapping system,” Tomay said. “The accuracy of GPS locations has increased by over two and a half times in our test areas, improving navigation safety by announcing upcoming turns sooner.”

Tomay said the maps also added points of interest like coffee shops and restrooms, so in about 95% of metro areas, “drivers can find a spot to take a break within five minutes of a stop.”

In 2021, Amazon apologized for dismissing claims that drivers were urinating in bottles as a result of demanding delivery schedules. Natividad said he occasionally found urine-filled bottles in his vans before his shift in the mornings.

“As soon as I open the van, I’m looking around, I see a bottle of urine. I’m like, ‘Oh, I’m not touching this,'” he said.

Pay for Amazon drivers is up to the discretion of each individual DSP, although Amazon says it regularly audits DSP rates to make sure they’re competitive. Indeed.com puts average Amazon driver pay at nearly $19 an hour, 16% higher than the national average.

Natividad started delivering for Amazon in 2021 when his gigs as a fulltime disc jockey dried up because of the pandemic. He liked the job at the time, generally delivering at least 200 packages along the same route. However, during the holiday season that year, he once had more than 400 packages and 200 stops in a single shift.

“Towards the end of my day, they sent out two rescues to me to help out to make sure everything’s done before 10 hours,” he said.

Amazon is working to optimize its routes. But it’s an unwieldy operation. The company says it’s generated 225,000 unique routes per day during peak season.

Tomay said the company looks at the density of packages, the complexity of delivery locations “and any other considerations like weather and traffic from past history to put a route together that we think is ideal.”

There’s no one-size-fits-all solution.

“Given that we’re in over 20 countries and every geography looks different, it’s not just about delivery vehicles or vans anymore,” Tomay said. “We have rickshaws in India. We have walkers in Manhattan.”

In Las Vegas, Amazon held a roundtable last year for DSP owners and drivers. Natividad says he spoke for 20 minutes at the event about the need for Amazon to improve its routing algorithms.

“I think they should do that probably once a month, with all the DSP supervision and a few of the drivers, and not the same drivers every time. That way different feedback is given. And like seriously listen to them,” Natividad said. “Because they’re not the ones out there seeing and experiencing what we go through.” 

Natividad didn’t get to try out the routing technology in the Rivian vans before he left to deliver for USPS in July. He’s excited that the postal service is following in Amazon’s footsteps with 66,000 electric vans coming by 2028.

Amazon, meanwhile, is diversifying its electric fleet beyond Rivian. The company has ordered thousands of electric Ram vans from Stellantis and also has some on the way from Mercedes-Benz.

Carmakers upgrade lineups to meet demand for high-end options

Premium car sales up 36% the last five years

‘Every new car is a luxury purchase’

Part of the problem is that more Americans want expensive SUVs and pickups with all the options, he added, which can cost as much as 40% more than the base price.

Over the last decade, luxury shoppers have proved again and again their willingness to spend more on high-end cars and the financing to go along with them.

Even the smallest upgrades have been met with soaring demand, Drury said, citing the extreme enthusiasm over the Honda Odyssey’s built-in vacuum option when it was first introduced in 2014.

Various packages, or trim levels, offer a range of features meant to appeal to different buyers, such as improved safety features, bigger engines or high-end finishes like leather seats and a better stereo.

Now everyone wants high-tech touch screens, ambient lighting, 360-degree cameras and heated and cooled seats, Drury said, which cost even more. “Less and less people want something basic.”

With the lucrative luxury segment in high demand, carmakers are upgrading their lineups and scaling back on less expensive cars.

“Base models, while enticing in theory, rarely hit the street,” Drury said. “Every new car is a luxury purchase at this point.”

“Who do you blame: The consumer that’s buying up these options, the dealers that are ordering these cars or automakers manufacturing fewer base models?” he said.

As more people are priced out of the new car market, automakers may start testing out cheaper alternatives, he said, although if there is a lot of consumer interest, it could drive up the price for those models, as well.

For now, the best way to get a base model vehicle is to order it directly through a dealer, Drury advised.

“There could be a perfectly good substitute at about half the cost,” he said.

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More classified documents found at Biden’s Delaware home, White House counsel says

U.S. President Joe Biden listens during a meeting with Japan’s Prime Minister Fumio Kishida in the Oval Office at the White House in Washington, U.S., January 13, 2023. 

Jonathan Ernst | Reuters

Additional classified government documents were found at President Joe Biden’s Delaware home this week, the White House confirmed Saturday.

In a statement, Richard Sauber, special counsel to the President, said that a total of six pages of documents with classification markings were discovered at Biden’s Wilmington residence. The White House previously said that only one page was found there.

The first document was identified on Wednesday by Biden’s personal lawyer and turned over, and the additional five documents were discovered later that week, Sauber said.

“The DOJ officials with me immediately took possession of them,” he said in the statement.

Sauber said the President’s lawyers have acted “immediately and voluntarily” to provide the documents to the Department of Justice.

Biden’s attorney Bob Bauer said in a statement Saturday that the President’s personal attorneys are working to balance public transparency and the limitations necessary to “protect the investigation’s integrity.”

Bauer said the attorneys do not have security clearances, which means they are not aware of the exact number of documents or their content. He said that when an attorney discovered a document with classified markings, they stopped, notified the government, and did not review it.

“Adhering to this process means that any disclosure regarding documents cannot be conclusive until the government has conducted its inquiry, including taking possession of any documents and reviewing any surrounding material for further review and context,” Bauer said.

The disclosure of that latest discovery comes days after Sauber confirmed media reports that attorneys for the president found an initial batch of classified documents from the Biden administration on Nov. 2 in an office that Biden had used as a private citizen at a Washington think tank.

That was nearly three months after FBI agents raided the Florida residence of former President Donald Trump and seized more than 100 classified government documents and hundreds of more records that federal prosecutors say belong to the U.S. government.

Trump is the focus of a criminal probe by the DOJ for his removal of the records from the White House in January 2021.

Sauber disclosed Thursday that a second batch of documents had been found in Biden’s Delaware home. He issued a statement detailing how and where the second batch of documents was found and said a “small number” of records with classified markings were found in the garage. 

By law, government records must be given to the National Archives when a president or officials in their administration leave office.

Soon after the second discovery, Biden talked about the documents with reporters.

“As I said earlier this week, and by the way, my Corvette is in a locked garage, so it’s not like they’re sitting out on the street,” Biden said, referring to the documents.

“People know I take classified documents and classified materials seriously,” Biden said. “I also said we’re cooperating, fully cooperated with the Justice Department’s review.”

Oil CEO Sultan Al Jaber is ideal person to lead COP 28

ABU DHABI — If the world gets lucky, this could be the year fossil fuel producers and climate activists bury their hatchets and join hands to reduce emissions and ensure our planet’s future.

If that sounds hopelessly Utopian, take that up with the leaders of this resource-rich, renewables-generating Middle Eastern monarchy. The United Arab Emirates is determined to inject specificity, urgency, and pragmatism into a process that often has lacked all three: the 28th convening of the United Nations Climate Change Conference, known as COP 28, which the UAE will host from November 30 to December 12. 

To kick off 2023, the oil and gas and climate communities gathered this weekend for the Atlantic Council Global Energy Forum, launching the annual Abu Dhabi Sustainability Week. After decades of mutual mistrust, there is a growing recognition they can’t live without each other.

Thank Russian President Vladimir Putin’s criminal war in Ukraine, and his ongoing weaponization of energy, for injecting a new dose of hard-headed reality into climate conversations. It’s seldom been so clear that energy security and cleaner energy are indivisible. The guiding principle is “the energy sustainability trilemma,” defined as the need to balance energy reliability, affordability, and sustainability.

What’s contributing to this new pragmatism is a recognition by much of the climate community that the energy transition to renewables can’t be achieved without fossil fuels, so they must be made cleaner. They have come to accept that natural gas, in particular liquified natural gas (LNG), with half the emissions footprint of coal, provides a powerful bridging fuel. 

Once derided by green activists, nuclear power is also winning over new fans—particularly when it comes to the small, modular plants where there are fewer concerns over safety and weapons proliferation. 

For their part, almost all major oil and gas producers, who once viewed climate activists with disdain, now embrace the reality of climate science and are investing billions of dollars in renewables and efforts to make their fossil fuels cleaner.

“Every serious hydrocarbon producer knows the future, in a world of declining use of fossil fuels, is to be low cost, low risk and low carbon,” said David Goldwyn, the former State Department special envoy for energy. “The only way to ensure we do this is to have industry at the table.”

Nowhere is this shift among climate activists more evident than in Germany, where Vice Chancellor Robert Habeck, the Green Party leader, is serving as the pragmatist-in-chief. 

Habeck, who serves as Federal Minister for Economic Affairs and Climate Action, has been the driving force behind extending the life of the country’s three nuclear plants through April and in launching Germany’s first LNG import terminal in December, with as many as five more to follow.

“I am ultimately responsible for the security of the German energy system,” Habeck told Financial Times’ reporter Guy Chazan in a sweeping profile of the German politician. “So, the buck stops with me. … I became minister to make tough decisions, not to be Germany’s most popular politician.”

Some climate activists were aghast this Thursday when the UAE named Sultan Al Jaber, the CEO of the Abu Dhabi National Oil Company (ADNOC), as president of this year’s COP 28. 

“This appointment goes beyond putting the fox in charge of the henhouse,” said Teresa Anderson of ActionAid, a development charity. “Like last year’s summit, we’re increasingly seeing fossil fuel interests taking control of the process and shaping it to meet their own needs.”

What that overlooks is that Al Jaber’s rich background in both renewables and fossil fuels make him an ideal choice at a time when efforts to address climate change have been far too slow, lacking the inclusivity to produce more transformative results.  

Al Jaber is CEO of the world’s 14th largest oil producer, but he at the same time was the founding CEO of Masdar, one of the world’s largest renewables investors, where he remains chairman. He also represents a country that despite its resource riches has become a major nuclear power producer, was the first Middle East country to join the Paris Climate Agreement and was the first Middle East country to set out a roadmap to net zero emissions by 2050.  

Over the past 15 years, the UAE has invested $40 billion in renewable energy and clean tech globally. In November it signed a partnership with the United States to invest an additional $100 billion in clean energy. Some 70% of the UAE economy is generated outside the oil and gas sector, making it an exception among major producing countries in its diversification.

Sheikh Mohamed bin Zayed al Nahyan, president of the United Arab Emirates, has explained his country’s approach this way: “There will be a time, 50 years from now, when we load the last barrel of oil aboard the ship. The question is… are we going to feel sad? If our investment today is right, I think—dear brothers and sisters—we will celebrate that moment.”

Al Jaber, speaking to the Atlantic Council Global Energy Forum on Saturday, captured his ambition to drive faster and more transformative results at COP 28.

“We are way off track,” said Al Jaber.

“The world is playing catchup when it comes to the key Paris goal of holding global temperatures down to 1.5 degrees,” he said. “And the hard reality is that in order to achieve this goal, global emissions must fall 43% by 2030. To add to that challenge, we must decrease emissions at a time of continued economic uncertainty, heightened geopolitical tensions and increasing pressure on energy.” 

He called for “transformational progress… through game-changing partnerships, solutions and outcomes.” He said the world must triple renewable energy generation from eight terawatt hours to 23, and more than double low-carbon hydrogen production to 180 million tons for industrial sectors, which have the hardest carbon footprint to abate. 

“We will work with the energy industry on accelerating the decarbonization, reducing methane, and expanding hydrogen,” said Al Jaber. “Let’s keep our focus on holding back emissions, not progress.”

If that sounds Utopian, let’s have more of it.   

 Frederick Kempe is the President and Chief Executive Officer of the Atlantic Council.

Odds of winning the $404 million jackpot

With the Mega Millions lottery jackpot surpassing $1 billion last week, it can be easy to overlook the Powerball jackpot growing to $404 million ahead of Saturday’s draw.

The Powerball jackpot is nowhere near its all-time U.S. jackpot record of $2.04 billion set last November, but nearly half a billion dollars isn’t chump change, either.

However, that’s easier said than done. The odds of winning the Powerball jackpot by matching all numbers with the five white balls and red Powerball drawn are 1 in 292,201,338, according to the lottery.

While the odds are stacked heavily against ticket holders, you’re more likely to win lesser prizes ranging from $1 million to $4:

  • $1 million prize: Match five white balls (1 in 11,688,054)
  • $50,000 prize: Match four white balls and the Powerball (1 in 913,129)
  • $100 prize: Match four white balls (1 in 36,525)
  • $100 prize: Match three white balls and the Powerball (1 in 14,494)
  • $7 prize: Match three white balls (1 in 580)
  • $7 prize: Match two white balls and the Powerball (1 in 701)
  • $4 prize: Match one white ball and the Powerball (1 in 92)
  • $4 prize: Match the Powerball only (1 in 38)

However, if you spend an extra dollar on a $2 ticket for the lottery’s Power Play multiplier, you could increase all these prize amounts by 2, 3, 4, 5 or 10 times. The Power Play prize multiplier is randomly selected before each drawing.

There are some exceptions to consider, though: The $1 million multiplier prize amount is capped at $2 million and the 10 times multiplier is only in play when the advertised jackpot annuity is $150 million or less.    

The next draw is Saturday at 10:59 p.m. ET. If there’s a winner the jackpot will reset to $20 million, otherwise the jackpot funds will rollover to the next draw, which is Monday at 10:59 p.m. ET.

If you do end up winning big, here are three steps to consider before claiming the prize.

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Take profits on Starbucks after its huge run, and check out these 3 other stocks

A Starbucks store is seen inside the Tom Bradley terminal at LAX airport in Los Angeles, California.

Lucy Nicholson | Reuters

In Friday’s “Morning Meeting,” we dug into our inbox and found an excellent question raised by a member of the Investing Club.

Starbucks – like Halliburton – has had a nice run lately. The Club trimmed some Halliburton on Thursday. Why not trim Starbucks too? I have a double-digit percent gain on shares accumulated over the past five months. It seems like I should take some off the table. I would appreciate your perspective on what I see as a similar situation, but two different stocks.


U.S. uninsured rate fell during Covid pandemic, Medicaid, Obamacare coverage grew

The number of people in the U.S. without health insurance declined during the Covid-19 pandemic even as millions of people lost coverage through their employers due to layoffs.

The uninsured rate in the U.S. for people under age 65 dropped from 11% in 2019 to 10.5% in 2021, according to a report released Friday by the Health and Human Services Department.

By the first quarter of 2022, the uninsured rate dropped to an all-time low of 8%, according to the report. It then rose slightly to 8.6% in the second quarter of 2022, HHS said.

The uninsured rate dropped despite a huge spike in unemployment in early 2020 that resulted in an estimated 1.6 million to 3.3 million people losing coverage through their employers, according to HHS.

But pandemic health policies created a safety net for people who lost private coverage and made it easier for them to find insurance.

Congress basically barred states from kicking people off Medicaid during the public health emergency, in exchange for increased funding for the states. Medicaid enrollment swelled by more than 20 million from February 2020 through September 2022 as a consequence.

But these Medicaid protections are coming to an end soon. Millions of people are expected to lose coverage they gained through the program. Federal spending legislation passed by Congress in December allows states to start kicking people off Medicaid in April if they no longer meet eligibility requirements.

HHS has estimated that up to 15 million people could lose Medicaid as pandemic-era protections are wound down and the program returns to normal operations. Many of these people are expected to transition to Obamacare marketplace coverage.

Enrollment in Obamacare through the marketplaces has also increased during the pandemic due to a special enrollment period in 2021, expanded tax credits and more funding for outreach to those who are eligible, according to HHS.

Nearly 16 million people have signed up during the current enrollment period, a 13% increase over last year. Three million of them are getting covered through the marketplace for the first time. The current open enrollment period ends Sunday.

The HHS estimates for the uninsured from 2019 through 2021 are based on data from the American Community Survey, which collects information from 3.5 million households in the U.S. The 2022 estimates come from the National Health Interview Survey, which uses a much smaller sample of more than 17,000 people.

Matt Yglesias got confused about basis points. Here’s what to know

Internet writers, especially ones who publish frequently, are going to make mistakes. It’s part of the job.

So it didn’t surprise me this week when a bunch of smart financial people on social media pointed out that a post on political columnist Matt Yglesias’s Substack, Slow Boring, contained some fuzzy math relating to bonds. Bonds are complicated!

Yglesias also included an inaccurate description of basis points.

“A ‘basis point’ is just a percentage point. It has the exact same meaning and takes up the same number of words and I have no idea why finance guys like to say ‘basis point’ instead. Sometimes they shorten it to ‘bips’ because too many people have gotten wise to the basis points,” read a footnote in the original post.

A basis point is not a percentage point. It is 1/100th of a percentage point. And unlike the complex math behind bond returns, understanding how percentages work is essential to knowing what’s going on with markets and your portfolio.

And look, Yglesias is right that a lot of this jargon can get confusing — sometimes seemingly intentionally so. Here’s what you actually need to know about percentages if you’re not a “finance guy.”

Percent change tells you how your investments are performing

When it comes down to it, everyone wants to know the same thing about their investments: Are they up or down, and by how much? The gain or loss in a particular investment is almost always expressed by a percentage. If you bought a stock for $10 yesterday and today it costs $12, you’re up 20%.

How’d we get there?

  • Subtract your initial value from the current value (12-10=2).
  • Divide that by the initial value (2/10=0.2).
  • Multiply by 100, and voila — 20%.

Knowing how this works is essential to understanding how your investments perform. It makes intuitive sense, for instance, that if your investment loses 10% and then gains 10% you’re back where you started.

However, that’s not how the numbers would actually play out. A 10% decline from $100 is $90. A 10% gain from there puts you at $99.

Make the numbers bigger and you’ll see how important it is to protect your portfolio from major downdrafts. A 50% loss requires a 100% return to break even.

Percentage points let you compare percentages

Percent change allows you to express the difference between two values, but what if the two things you want to compare are percentages? This happens all the time in finance. You may want to compare the performance of a fund to its benchmark index. Or maybe you want to express how the yield on a bond has changed.

This is where percentage points come in. So far this year, the S&P 500 index has returned about 4% and an index of foreign stocks from developed countries has returned about 7%.

Using the formula from before, we could say that foreign stocks have been 75% better — a calculation that would be correct but not very descriptive. Instead, you’d say that the foreign benchmark beat the S&P by 3 percentage points.

You could also say 300 basis points, but basis points really come in handy if you’re dealing with smaller numbers. The Fed recently voted to boost the overnight borrowing rate by half a percentage point to a range between 4.25% and 4.5%. In financial news you might have seen “0.5 percentage point” or the rounder “50 basis points.”

For trickier little numbers, you can see why the finance guys like “bips” (basis points is often abbreviated to bps). It’s easier to vocalize “78 basis points” than “zero point seven eight percentage points.” But as long as you know the difference, say it however you want.

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