Ups and Downs; Electric Vehicle Batteries; Houston, We Have Lyft-off!

Ups and downs

At Nexus, part of our investment philosophy is to maintain a steadfast focus on the long term. However, tuning out the near-term market noise is not easy, particularly when markets are as volatile as they have been recently. We find it instructive to look back at market history to put the recent volatility in context. As an example of downside volatility, last year saw the worst December performance since 1931, with the S&P 500 dropping 9.2%. But the subsequent upside swing was equally impressive: the S&P delivered its best January performance since 1987, rising 7.9%. Despite these remarkable ups-and-downs, we try to keep in mind that short-term volatility is a normal characteristic of markets. And although the short-term volatility may capture all the attention, our view remains that successful investing requires a long-term perspective. (Raymond James Weekly Market Guide, January 3, 2019.)

Houston, we have Lyft-off!

Ride-share firm Lyft is in the news as it prepares for its initial public offering (IPO). The company’s service is popular with its customers, as demonstrated by its rapid revenue growth. Revenue doubled last year to US$2.2 billion. However, profitability has not yet arrived, with the company posting a loss of $911 million last year. This has not stopped pre-IPO investors from assigning an impressive valuation of $15.1 billion in the most recent round of funding. Investors who buy shares in the public debut will be betting that Lyft is able to translate its revenue growth into profit. But that’s not a sure thing, as Lyft will undoubtedly face stiff competition from Uber, the larger of the two companies, which was most recently valued at $76 billion. Uber will likely file its own IPO in April, in what is anticipated to be the biggest public offering of 2019. (“Lyft Leading Wave of Startups That Will Make Debuts With Giant Losses”, The Wall Street Journal, March 25, 2019.)

Electric vehicle batteries

One consequence of the rise of Lyft and Uber is that there will likely be more electric vehicles on the road in future. Both companies anticipate that electric vehicles will be an important and growing part of their vehicle fleets over time. These electric vehicles will require batteries, and lots of them. Herein lies the opportunity for the world’s battery innovators who have been hard at work building better batteries at lower cost. According to a recent survey of battery prices, the price of an average battery pack fell 85% between 2010 and 2018. While lower prices will spur greater adoption and demand, these transitions take time. New, “solid-state” batteries are likely to revolutionize electric vehicles but, according to the authors of the survey at Bloomberg New Energy Finance, “We don’t expect solid-state batteries to make a meaningful contribution to the global EV [electric vehicle] market until the late 2020s at the earliest.” …Who said technology changes quickly? (“A Behind the Scenes Take on Lithium-ion Battery Prices”, Bloomberg New Energy Finance, March 5, 2019.)