Merry 2022! ATEC has not been posting because we have been busy with new ventures. We anticipate we will be even busier as the year progresses, hence this might be the last post written by us for a while.
But, if there is only one message we will leave, it will be clearly illustrated in the charts and text as follows.
We have plotted the price of Tencent versus BHP in one and Tesla against Exxon in the other. The point we seek to make is similar to what we have posted before, which is that this theme of disruption, is already more than a decade old and mature/maturing.
This is not to say that all technology is about to fade into oblivion. It is, however, to say that much of the easiest phase of its ascent and acceptance is largely over.
Recall the rise of the dot-com bubble back in the pre-2000 era, when hordes of so-called ‘New Economy’ names were left for dead. Yet in the wake of that massacre, rose eventual champions in the form of Amazon, Facebook and even Apple.
But fewer they were, and truly further between. History has a way of repeating itself and we think this time is no different.
One aspect which many often disregard or take lightly, when it comes to ‘sexy’ themes, is the potential for competition and dis-competition.
Take Tesla for example. In its eighteenth year since being founded, the company manages to ship close to one million EVs and is being rewarded with a trillion worth in market capitalisation.
Yet, it is plain to see, that it is precisely this fanatical(?) success of Elon’s that has drawn out the ‘convictions’ of the CEOs of behemoths like Toyota and Volkswagen, who by no means is inferior in their R&D abilities nor marketing prowess.
ATEC understands there are no less than 200 new EV models by various automakers which will be released over the imminent years. Even though driving a Tesla today send a message of stature, it is difficult to think a comparable EV by the likes of BMW or Audi will pale in comparison. What then will be the point of differentiation for Tesla and these various EVs?
Or, take the Chinese titans such as Alibaba or Tencent. Enamoured as we were with their so-called ‘competitive moats’, it was not until Xi stripped them of their unfair advantages (in the form of coercion of small vendors), that we understood that the ‘emperors’, truly wore no clothes. Why else would Tencent be so willing now to divest its interests in JD or Sea?
Sure, this is not a case of new competition, but rather, the crushing of ‘unfair competition’ by Beijing. Are we so sure it will not echo similar for the U.S. titans?
On the flip-side, there is this concerted move towards decarbonisation by practically all governments globally since the onset of Covid. Populist by nature, there is little, to no consideration given to the fact that change (especially big ones) takes time. Given that some 80% of the world’s energy needs still require some form of hydrocarbons, the haste to pursue ‘fashion’ and ‘disruption’ has sown the seeds of its own… well, demise.
For no well-suited CEO of any E&P company (save the mavericks) will dare suggest to the board that his company embark on an exploration spree. It would be instant suicide. Hence, even current fields face accelerating depletion rates.
Going through the literature and numbers, ATEC is rather certain that even if we assumed little to no growth in hydrocarbon demand moving forward, supply will still fall short. We think this scenario applies to many other Commodities.
ATEC recalls as far back as 2004, when the incessant rise of China spawned bullish demand forecasts for all sorts of Commodities, spanning from iron ore to thermal coal to copper and nickel. Sure, capital was aplenty and supply was ramping. Well, for the first time since the ascent of China, it is no longer a net exporter nor a price destroyer of many such Commodities. Nor will Beijing allow these companies to be.
What happens then, when the world continues to build out / reconfigure for its new energy infrastructure?
Good luck out there.