Volume 71: Ride the Lightning.
1. Ride the Lightning.
tl;dr: Ford F150 Lightning critical to its future.
While the Technoking of Tesla and, to a slightly lesser extent, GM continues to suck the EV oxygen out of the room, the announcement this week of the electric Ford F150 was always going to be one of the most momentous moments in the young history of electric vehicles. And one of the most important in the ongoing electrification of the car industry.
You see, the F150 is a literal powerhouse of a product line. To understand why, you need to know that when we talk about car sales in the US, we really mean truck sales; five of the top ten cars sold in America are trucks. And within the category of light trucks, the Ford F-series is the literal 800lb gorilla, holding market-share leadership for the past 42 years.
To put the importance of the product line into perspective, Ford sells twice as many F-series trucks as Tesla sells total vehicles globally, and historically the F-series has generated more annual profits yearly than McDonald’s, which means Ford absolutely could not afford to screw this one up.
And, if early indicators are any indication, it seems they did not. Smartly, this product isn’t being sold based on its green credentials but instead on four compelling factors:
It looks like an F150. You don’t get to be no.1 every year by making a product nobody wants to drive. And car companies are finally realizing that people buying electric vehicles don’t want to drive around in something straight out of a bad 1940s science fiction movie. While the Sand Hill Road set will likely love driving around in their Cyber Truck (whenever it actually appears), the people who actually buy trucks are much more likely to buy something that looks like an F150.
The performance figures are staggering. This thing accelerates like a racehorse and pulls like a mule. Far more people will buy it because of the insanity of accelerating a 4,670lb wardrobe from 0-60 in 4.4s than reducing the amount of carbon being spewed into the atmosphere. (I’m also pretty sure there’ll be a brisk aftermarket in “rollin’ coal” fake black smoke)
“It’s a generator on wheels.” Texas is the single biggest market for F150 sales globally, representing around 16% of all vehicles sold. And in Texas in February, a widely reported state-wide power outage left 5.2m people without power and caused outrageous price spikes for those who still had it. So, to release this truck with the statement that it’s a generator on wheels that can power your house for 3 days (10 if you’re judicious) is a really big deal and one guaranteed to capture the imagination. This is exactly the kind of feature you might never actually use but could be the difference-maker between a gas truck and the electric one because it’s a feature the gas truck can’t match.
The price. Ford hasn’t sold enough electric vehicles yet to cap out its federal $7,500 subsidy, so releasing the F150 Lightning at a starting price of under $40,000 before subsidy is a very big deal. This undercuts every other electric truck by tens of thousands of dollars and places the Lightning firmly in the middle of the pack of the F150 model range pricing-wise. This is a smart move on Ford’s part because they’re offering all of the benefits outlined above at a very competitive price-point that won’t scare off F150 loyalists and will likely bring new converts into the fold. Clearly, Ford isn’t taking market-share leadership lightly here.
The future of the EV category is yet to be written, yet Ford looks certain to play a major part in it. The electric Mustang is already eating heavily into Tesla’s market share (Tesla EV share dropped from 81% to 69% at the beginning of the year due solely to the introduction of the Mustang Mach-E), and the F150 Lightning looks like its hitting all the right notes. Add in the sales success of the recently re-introduced Bronco (gas, rather than electric, FYI), and you see a company that’s making a brave strategic shift toward focus pay off (even if I can’t quite figure out the logic of their minimize-the-role-of-Ford-in-the-brand strategy, strategy)
Anyway, while Tesla retains its ridiculous market valuation advantage and Elon Musk continues to taunt the regulatory bear with his blatant crypto market manipulation antics, Ford is a company really worth watching. It’s highly likely that much more quietly, they’re going to do more for the mainstreaming of EV tech into America’s driveways than Tesla ever will.
2. Stock drops while the market doubles? Time to dump and run.
tl;dr: AT&T ditches media businesses after disastrous merger failure.
So, AT&T finally exited its disastrous foray into media. To put this into perspective, AT&T is about as good at buying businesses as I am at buying stock in Gamestop, having taken the $161bn paid for DirecTV and Warner Media and turned it into just $43bn after this week merging the latter with Discovery.
This will go down in business school history as one of the most value-destructive acts of corporate hubris ever. Not only did it lose almost 4X its initial investment in just 5 short years, but it also lost its number two status to T-Mobile in mobile subscriber numbers, had challenges in 5G spectrum auctions (where it’s playing an expensive game of catchup), and then watched as its indebtedness and failure to commit to the core business pushed the stock price down 8%, even while the broader market more than doubled in value. From being one of the bluest of the blue chips to becoming a literal turkey, how could senior management have got this so wrong?
Well, first, let’s take a look at the intent. If we give management the benefit of the doubt that this was about more than just lording it up at the Oscars every year (and I’m not completely sure that it wasn’t), the idea was that vertical integration of the media business with their telecom delivery would provide the benefits of a flywheel effect in the same way that Amazon has benefitted from Prime Video or Apple the App Store. They felt they could leverage market scale in owning the pipes to accelerate the distribution of valuable content to increase overall profitability growth in a way that would supercharge the stock price—a bet on distribution and content synergies that never happened.
Instead, they found themselves with three very large capital-shaped problems. And as any schoolkid will tell you, 3 doesn’t go into 1.
AT&T had to borrow heavily to ingest DirecTV and then WarnerMedia, which left it fighting two capital-intensive competitive battles with only enough capital for one while at the same time trying to manage a shareholder base that continued to demand yearly dividends. In the core business, the shift to 5G is an expensive investment proposition. As a result of its indebtedness, AT&T has struggled to buy spectrum and rollout necessary infrastructure upgrades, leaving it in an increasingly distant third place behind Verizon and T-Mobile in the race to a next-generation 5G infrastructure. (A situation the marketing department neatly tried to resolve by simply re-labeling 4G as 5Ge, which led to their wrists being ever-so-lightly-slapped for deceptive advertising)
Competing in media has proven equally expensive. This time, with multi-billion dollar investments required for both content production and for the marketing war to scale a streaming platform, while at the same time watching traditional sources of revenue such as cable fees and TV advertising decline. Add a few additional outliers like the pandemic-induced closures of movie theaters, and well, you can see just how perilous AT&Ts position was beginning to look: High debt load and a sub-optimal investment capacity for two businesses fighting in very different yet equally capital intensive markets, and a shareholder profile unwilling to give up its dividend expectation in return for investing in the business.
So, what next? Well, it looks like AT&T is getting back to its monopolistic knitting and focusing its energies and capital on catching up in the infrastructure race to 5G and likely attempting to reverse subscriber losses and return to no.2 in the market-share wars. From one of the worst strategic decisions in history to one of the smartest get-out-of-jail cards, this is likely to free up their moribund share price over time since 5G is guaranteed to be a great business to be in if you’re one of only three companies that can deliver it.
The new Discovery WarnerMedia, or whatever it’ll be called, will be a different kind of fish, and its success is very far from being guaranteed. Unlike the market concentration benefits AT&T has to draw on in telecoms, media is a business that is very much still rushing toward scale. The new business is going to have to find a way to invest billions in content to keep up with Netflix and Disney, milk as much revenue as possible from the traditional cable bundle and advertising while it can, and at the same time invest heavily in direct-to-consumer subscriber growth for the future, which will almost certainly require huge advertising investments, significant price cuts, and an overall hit to EBITDA that shareholders may very well not be willing to swallow. All told, this will be a tough needle to thread, which is highly likely the reason AT&T decided to dump and run.
3. CEO of office rental company claims offices matter. Twitter laughs.
tl;dr: Quelle surprise. Self-serving corporate claims.
These days corporations and their armies of former journalist gamekeepers turned poachers have become quite sophisticated at making self-serving corporate claims without us noticing that’s what they’re doing. Some, like the big VCs, even like to create excitement and hype about new technologies way before they’ve even invested in businesses leveraging them. Getting ahead of the market and sowing the seeds for their own future success.
This means that when we do notice someone being self-serving, it probably means that far from being sophisticated, they just plain screwed up.
Take, as exhibit A, the CEO of by now infamous WeWork making the ludicrously self-serving claim that you can spot your most engaged workers by how badly they want to return to the office. That’s right, the most engaged want to be back immediately, while the disengaged are happy to keep trundling along in the purgatory of working from home. Aside from being completely nonsensical, I’d also suggest this data point is pretty fundamentally contradicted by looking at the housing market and how many people have decided to move away from the geographical commuting zone of their job in the past 12 months. (As an aside, it’s all well and good to tell people to prepare to come back to the office in June, but what happens when a bunch of your people no longer live anywhere near the office?)
Anyway, all of this is kind of fine, I guess. I mean, it’s probably no more of an ill-informed thesis than 99.9% of everything that’s ever been written on Medium, except for
He’s the CEO of an office rental company.
There’s literally zero evidence to support his case.
By saying this, he comes across as completely and utterly tone-deaf to the point of having to apologize, which is a stupid position to put yourself in.
Because one of the big potential winners, as we come out the other side of the pandemic is WeWork, so why would you so obviously mess that opportunity up with such a silly PR move?
Far from the hubris-ridden Neumann years where they pretended they were a tech firm, now there really is a case to be made for flexible workspaces where people can both work and socially congregate and where corporations don’t have to commit to long term leases they might not want or need, and where they can spread satellite offices out across the country (see my aside, above, which would have made for a much more interesting center-point for him to build a self-serving corporate commentary around).
Anyway, this could have been so much more sophisticated and not had Twitter laughing at how stupid he was being, but instead…massive fail Mr. WeWork. Sorry.