The world without Uber or Mercedes?
China stock market has gone through an earthquake
in June and July. The Shanghai Composite
Index started the year of 2015 at 3237 points after going up 53% in 2014. The
China bull market was in its 5th gear in March and rally 54% in three
months and reached 5166 points on 12th June. Now looking back, the turbo charged bull was
fueled by gearing inside and outside the system. Inside the system means margin financing
provided by Securities houses at a regulated level, say, loan to market value
ratio of 30-60%. Outside the system
means borrowing money through P2P platform or financing company with loan to
value ratio at 75%. When an investor
only has GBP 100 to own GBP 400 worth of stocks in a market that has gone up
more than double in 12 months, the “STOP” sign was written on the ground. But just like most drunk drivers, investors
believe they can all drive like Lewis Hamilton until it is too late to
brake. The Shanghai Composite Index
dropped off a cliff from the peak in June to 3,687 points on 3rd July
as hundreds of thousands of investors stumbled over each other in the midst of
margin call and cutting losses. What
should have been a normal correction in an overheated stock market turned into
a liquidity crunch as at one point, 50% of all listed companies in China were
suspended from trading. This became a national
crisis and the Chinese government stepped in to intervene. Poured hundreds of billions of yuans to
support the stock market. The market
rebounded back to 4,000 points level and closed at 4,071 points as of 24th
July. There are some noises from the
International Monetary Fund about China should respect a free market. Well, maybe the IMF should remember the
Russian economy collapsed in 2014 and Russian Ruble went down 50% in value.
Change of topic to something
closer. Everyone can sense there is a
revolution happening in the transport industry.
The expansion of Uber, the launch of the beautiful Tesla electric car
and the Google driverless cars are the key ingredients. Imagine most of us
taking Uber driverless electric cars.
Who is going to lose out?
Mercedes, BMW, Audi, Volkswagen.
The fact that German brands dominate the passenger-vehicle industry, may
have also made them the future Nokia, Ericsson and Blackberry. Addison Lee is a car
company operating in a few cities to provide an alternative service to cabs. Uber is
absorbing the taxi markets in many more cities than Addison Lee and even in
remote villages where taxi does not reach. Uber connects passengers and drivers whether
the driver has a taxi driver license or not.
Uber is positioning itself as a personal logistics service at your
fingertip. Pick up flowers, laundry,
parents, kids, husbands from a pub in Shoreditch. Uber does not own any car and it is helping
you not to own a car. While Uber has not
mentioned any timing about listing itself in the stock exchange, it is already
valued at USD 50 billion after raising USD 1.2 billion in June. Fidelity, Blackrock, Goldman Sachs, Qatar Investment
Authority, Google, Baidu are some of the big names in Uber’s shareholder
list. Travis Kalanick founded Uber with
USD 200,000 in August 2009.
Google has been testing driverless
cars in California and Texas. They have
done over 1 million miles already. The
Google designed prototype is like an old mini cooper zooming down the street. Google is a USD 427 billion company at 28
times Price to Earnings Ratio. It has 55%
market share of search ad revenue globally.
That is estimated to be USD 44.5 billion. Perhaps one day, one can google a restaurant,
a single click will send you a driverless car organized by Uber and give you a
ride to the restaurant.
Tesla is USD 34 billion market capitalization
and does not make a profit yet. Tesla’s
2010 IPO price was USD 17. On 24th
July, Tesla closed at USD 265.41. Tesla
has done well with its sedan model launch and is going to launch a SUV model. If the investors start to view Tesla as a car
maker rather than a revolutionist, Tesla would need to sell a lot of cars and
show good profit. Volkswagen is EUR 90
billion market capitalization at 8.2 times Price to Earnings Ratio.
What will happen to German economy if
global demand on passenger vehicle growth slows down? China is the biggest car market and it is
expected passenger-vehicle sales in 2015 to reach 21.3 million vehicles,
growing 8%. With the stock market crisis
in June, the future might not be as bright.
Also, competition is fierce with Japanese, Korean and local car makers
all fighting for market share. Volkswagen
Group’s China sales fell nearly 17% year on year to 250,000 vehicles in June. Germany may have managed to keep Greece
within Euro zone but there is a price tag.
Its auto, engineering and manufacturing industries are facing game
changing moments due to new technology. European
stock markets have had 3 good years already.
Time to keep an eye on the ground for the “STOP” sign.
