Tesla, Used Car Inflation, New Bund Yield Highs

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Tesla, Used Car Inflation, New Bund Yield Highs

Three “Data” topics today:

#1: Given Tesla’s strong earnings report last night, we got to wondering how sustainable its competitive advantage in electric vehicles is here in the US. As more competition comes online, how big is Tesla’s “brand moat” in the space?

This chart tracks US Google search volumes for “model 3” (blue), “model y” (red), “model s” (yellow), “chevy bolt” (blue) and “electric car” (purple) from January 2020 to the present. Aggregate the 3 Tesla models’ searches and they far outnumber “electric car” queries. The Model 3, on its own, is the subject of as many or more Google searches as “electric car”. The Chevy Bolt (green line), despite selling well this year, is a very distant fourth in terms of popular interest.

Takeaway: one can argue about “Tesla the stock”, but “Tesla the company” has built a very strong EV brand here in the States. Moreover, consumer interest continues to be both high and still growing. Impressive, to say the least, when considering the marketing dollars a company like GM puts into supporting its vehicles.

#2: The latest Manheim Used Vehicle Index report had a few items worth mentioning:

  • US used vehicle prices have hit a dramatic new high, up 8.3 percent for the first 15 days of October versus September. That makes the year-over-year comparison +37 percent versus +27 percent in September 2021 versus September 2020 and +19 percent in August 2021 versus the same month in 2020.
  • Worth noting: the Consumer Price Index’s used vehicle index tracks all used car prices, not just the 1–3-year-old product that goes through Manheim’s auction system. That is why it always shows a lower comp than Manheim’s data, even though they do move together.
  • Separately, Manheim reported that “auto loan performance continues to deteriorate”. Plus-60-day delinquencies rose for the 4th month in a row in September. Plus-90-day delinquencies, at 1.28 pct, have been rising over the last 5 months. Severely delinquent subprime vehicle loans in September came in at 4.8 pct, the highest in 6 months.

Takeaway: used vehicle inflation has been a noticeable driver of overall CPI inflation for months now and based on the Manheim data that trend is set to continue. Last month, for example, used vehicle prices lifted headline CPI from +4.6 percent to the reported figure of +5.4 pct. This month’s accelerating Manheim Index comps support the idea that October’s CPI print could be even more dramatically affected by this admittedly tiny (3.4 pct) portion of the index.

#3: German 10-year bund yields hit a +2-year “high” today, if that’s the right word for what is still a negative 0.091 percent yield. The last time they were at similar levels was June 2019. This caught our eye for a few reasons:

  • First, as we mentioned last night, the German population is increasingly focused on/worried about inflation, as measured by Google searches for the term in that country.
  • Second, no other major sovereign debt is seeing new 2021 highs in terms of yields. US 10-years remain below their March highs (1.69 pct now, 1.75 pct then). So do Japanese 10-year JGBs (0.09 pct now, 0.16 then).
  • Lastly, other European sovereign debt is following the bund’s lead. UK 10-year gilts made a new high today (1.21 pct) and French 10-years are close (0.25 pct now, 0.29 pct high in May). Only Italian 10-years remain somewhat off their 2021 highs (0.95 pct now, 1.12 pct in May).

Takeaway: with Eurozone inflation at 3.4 percent, the highest it has been since 2008, less-negative bund yields make perfect sense. What’s harder to ascertain is how the European Central Bank will change its bond buying program after its emergency facilities expire early next year or whether it will consider raising interest rates. If all that sounds familiar, it is because the Fed has the same issues. As dicey as all this sounds (and it is …), it does support our positive view of Financials.

Sources:

Manheim Used Vehicle Value Index: https://publish.manheim.com/en/services/consulting/used-vehicle-value-index.html