🚘 The car industry needs chips


February 9, 2021

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Following in the footsteps of other publicly traded corporations (MicroStrategy, Square), Tesla put Bitcoin on its balance sheet.

According to securities filings, the EV maker purchased $1.5B of the crypto asset and may accept it as payment in the future. BTC hit a new high ($44k+) on the news and — somehow — the internet didn’t melt.

The Big Idea
car gif

WFH has caused a massive chip shortage. And it’s costing car companies billions.

If it’s not nice to kick someone while they’re down, then COVID has been quite the car bully.

After US auto sales ended 2020 down 15%, the industry is now grappling with a global semiconductor shortage — the result of millions working, schooling, and entertaining themselves from home.

So manufacturers are slashing outputs…

… and making the assembly line industry look more like a dotted line as brands announce pauses in production:

  • GM, Toyota, Honda, Volkswagen, Fiat Chrysler, Nissan, and Mazda, all announced Q1 production cuts
  • Ford is reducing F-150 production shifts and is expected to drop output by 20% in Q1

Auto companies book revenue immediately after cars are shipped from the factory, so production cuts are less than ideal.

As a result, Ford’s bottom line is expected to trim $1-$2.5B while output across the industry could drop by nearly 1m vehicles this year.

The semiconductor industry is trying to keep up

As cars have modernized, they’ve become increasingly dependent on computing power and electronic tech (think: 17-inch touch screens, Wi-Fi, collision avoidance).

New cars can use 100+ semiconductors and, in 2019, auto manufacturers made up ~10% of the $429B semiconductor market.

Problem is, COVID means everything from PCs to iPhones to data centers to Xboxes (Xboxen?) became essential, leading to chip backlogs 40+ weeks.

But the situation should improve over time

Abroad, Volkswagen is pressuring leaders in Berlin and Brussels to improve local chip production to reduce European manufacturers’ reliance on Asia.

In America, Senators from auto hubs Michigan, Ohio, Tennessee, Wisconsin, Illinois, Indiana, and South Carolina urged the White House to help draw up a solution.

Down the road, companies are planning shifts to all-electric offerings. We’re not experts, but we’ll take a wild guess and say electric vehicles will need semiconductors.

An EV-only future would be cool, so let’s just figure out the chip problem first.

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Snippets
  • Apple Car confusion: Hyundai and Apple’s talks to develop an autonomous vehicle broke down, just weeks after it looked like a deal was imminent.
  • SoftBank’s making bank: In a presentation featuring a goose laying golden eggs to Tchaikovsky’s “March of the Toy Soldiers,” Masayoshi Son announced his $100B Vision Fund returned ~$11B of net profit in Q3 last year.
  • China shuts down the club: Thousands of Clubhouse users in China lost access to the app early Monday evening, which was not unexpected given China’s strict digital enforcement.
  • Very profit… much coin: Dogecoin — the digital cryptocurrency that started in 2013 as a joke — rallied to a market cap of over $10.5B on the backs of Elon Musk, Snoop Dog, and Gene Simmons’ tweets.
  • TikTok vs. FB: The short video app will roll out ecommerce features that allows users to link off to products in exchange for an affiliate fee… putting it in direct competition with Zucky McInstagram.
  • All grown up: Some of Amazon’s most successful 3rd-party sellers have been able to go public. Anker (electronics) is valued at $10B while Mohawk Group (home-products seller) is valued at $870m+.
  • Twitter to charge? Bloomberg reports that Twitter is considering subscription options including charging for Tweetdeck, tipping (for extra content), and “pro” features like customizable bios and — please please please — undo send.
  • The Weeknd spent $7m (on top of the NFL’s ~$13m budget) to make the Super Bowl halftime show exactly as he wanted. The result: He had 8 of the top 10 trending Spotify songs within 12 hours of the game.
  • Moving fast: The buzzy 5-second Reddit ad that aired during the Super Bowl came together in a few days as the social network wanted to ride the GameStop wave.
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Private Stonks
Carta

Carta is trying to build Nasdaq for private markets. It’s now worth $6.9B.

Some of the best startups have the simplest ideas.

Carta is one of them: Founded in 2012, the startup creates software for other startups to manage their equity cap tables that keep tracks of investors (and what % of the company they own).

Recent trading of Carta’s private stock values it at $6.9B, up from $3B less than a year ago, per The Information.

18k+ customers use the software…

… and Carta projects revenue over the next 12 months to be $150m, up 2x from the year before.

By centralizing employee and shareholder information in one place, Carta is in prime position to build out a “Nasdaq-type stock exchange” for private markets (AKA secondary markets).

In doing so, it’s competing with some big fish in the space, including Morgan Stanley (Shareworks) and the actual Nasdaq (Nasdaq Private Market).

Carta’s offering is called CartaX

And the startup’s $6.9B valuation comes from recent trading of its own shares on the private market exchange. In a blog post, Carta’s founder and CEO Henry Ward explains what he learned from the deal:

  • Better prices: Private shares are typically sold in tender offers, which are noncompetitive. CartaX allows more buyers to participate, which bids up employee equity.
  • Liquidity for employees: As startups stay private longer, CartaX is a way to let employees cash out a portion of their equity along the way, rather than hoping for a big payout.
  • Saves time: Instead of time-consuming fundraising, startup CEOs and CFOs can quickly tap liquidity from institutional investors and high net-worth individuals on the platform.

CartaX — which takes a 2% cut from each trade — creates a true alternative to public markets.

Simple idea. Huge opportunity.

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Car stat of the day
Share of vehicles sold in US

People have stopped buying sedans. According to Bloomberg, only 20% of new vehicles sold in 2020 were sedans. The other 80% were light trucks — including SUVs, pickups, and minivans (which I’ll never buy).

While Bloomberg didn’t give reasons for the shift, investor Tadd Wilson had some theories:

  • Fuel-efficiency gains and lower gas prices make light trucks a more accessible vehicle size
  • Safety arms race… as more people drive bigger cars, it becomes risky not to own one
  • People need space… including families, outdoor hobbyists, and soccer dads/moms

TRENDS

App ideas for a billion downloads…

In last week’s Trends newsletter, we dug into one of the biggest opportunities of the coming decade:

Faith-based apps.

Over 80% of Americans identify as religious, and relatively simple apps have amassed huge user bases as religious services have increasingly gone remote.

VC funding in the space has more than tripled since 2015, and investors have referred to the current boom in religious tech as “a land grab” happening right before our eyes.

Now, here’s the good part –

There are still countless opportunities out there to build simple, useful faith-based apps. 

And to get you started, our Trends team of analysts put together some of the best opportunities we could identify in our latest deep dive.

When you read through, you’ll learn:

  • How something as simple as a Bible story coloring book app can grow to nearly one million users
  • How “SaaS for churches” could quickly become the next $10B industry
  • VR/AR solutions that could redefine the church experience for billions of people
  • And much more.

If you’re not already a member of Trends, sign up today for a $1 trial to get access to the full newsletter.

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