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Carvana’s Bet on Debt Restructuring
Wed Jul 19 2023Description
Goldman Sachs quarterly profit declined due to write-downs in consumer banking and real estate. Lack of IPO activity affected investment banking results. Carvana's stock surged after reporting earnings and restructuring debt. China's car market sees dominance of local brands and growth in electric vehicles. China's approach to electric vehicles and semiconductor industry faces challenges and cooperation with Taiwan. Overall, the episode covers the financial performance of Goldman Sachs, IPO trends, Carvana's stock, China's car market, electric vehicles, and the semiconductor industry.
Insights
Goldman Sachs faces challenges in consumer banking and investment banking
Goldman Sachs' quarterly profit decline was driven by write-downs in their consumer banking segment and real estate portfolio. The lack of IPO activity also impacted their investment banking results.
Carvana experiences significant stock growth
Carvana's stock has surged by 700% this year and increased by 30% after reporting earnings. The company also restructured its debt and plans to raise capital through share sales.
China's car market sees dominance of local brands and growth in electric vehicles
Local brands have captured more than half of the market for new car sales in China. Additionally, a quarter of overall new car sales in China are electric vehicles. BYD is the top electric car manufacturer in China.
China's approach to electric vehicles and semiconductor industry faces challenges
China has a shotgun style approach to electric vehicles, with over 50 new car companies emerging in the past decade. However, China's semiconductor industry lags behind Western companies, primarily in Taiwan and South Korea. Embargoes and limitations have hindered China's ability to catch up in the semiconductor industry.
Chapters
- Goldman Sachs Quarterly Profit
- Kava's IPO and Carvana's Stock
- China's Car Market and Electric Vehicles
- China's Approach to Electric Vehicles and Semiconductor Industry
Goldman Sachs Quarterly Profit
00:05 - 07:31
- Goldman Sachs quarterly profit was $1.2 billion, down 60% from a year ago.
- The earnings miss was due to a massive write-down of their consumer banking segment and a write-down of their real estate portfolio.
- This write-off is likely the beginning of a trend in commercial real estate.
- Goldman's loan book may also experience more pain due to commercial real estate exposure.
- Goldman struggled in the consumer segment because they got into it late and couldn't compete with other players in terms of service and know-how.
- The game of borrowing money at low rates and lending it out for higher rates has changed, impacting Goldman's profitability.
- Goldman is getting out of the commercial banking business instead of doubling down on competition.
- The lack of IPO activity has affected Goldman's investment banking results, as there have been few new businesses going public recently.
- Overall, the lack of activity in investment banking makes it difficult for any bank to generate significant revenue.
Kava's IPO and Carvana's Stock
07:09 - 14:28
- Kava's IPO may not be a significant indicator for the market
- Artificial intelligence companies have been less prevalent in IPOs recently
- Carvana's stock is up 700% this year and 30% after reporting earnings
- Carvana restructured its debt, replacing unsecured notes with payment in kind debt instruments
- The company plans to sell up to a billion dollars in shares to raise capital
- Carvana's short interest was around 20% on June 30th
- Carvana has been loss-making since its founding and operates in a tough market
- Investors are taking more risks as the market has gone up
China's Car Market and Electric Vehicles
14:08 - 22:29
- Local brands captured more than half of the market for new car sales in China.
- A quarter of the overall sales of new cars in China are electric vehicles.
- BYD is the top electric car manufacturer in China.
- China started at the same place as other countries in terms of pursuing electric vehicles.
- China has a different footing in how they interact with the government compared to Western car makers.
- Foreign car makers had to create joint partnerships to enter the Chinese market, but China did not adopt those cars.
- China is developing its manufacturing base and not relying on Western companies for specific technology related to manufacturing.
- Tesla is among the top 10 most popular electric car makers in China due to their credibility and technology advancement.
- Between 2016 and today, over 50 new car companies have emerged in China's electric vehicle industry.
China's Approach to Electric Vehicles and Semiconductor Industry
22:00 - 27:35
- China has a shotgun style approach to electric vehicles, with over 50 new car companies sprouting up in the past decade.
- The strategy is working for electric vehicles because China wasn't playing catch up and had a big program called Made in China 2025 to encourage localized products.
- China's semiconductor industry is behind Western companies primarily in Taiwan and South Korea.
- Embargoes and limitations have hindered China's ability to catch up in the semiconductor industry.
- Taiwan Semiconductor has a technological lead of about 24 months over other participants.
- There is cooperation and technology sharing between Taiwan and China despite political tensions.
- Taiwan Semiconductor is crucial for companies like Nvidia, while Nvidia's market value is based on promising but uncertain prospects.
- The potential conflict between Taiwan and China affects the valuation of Taiwan Semiconductor.