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European stocks trade higher in early trade on Monday, but there is not a lot of direction in the markets this morning. We’re in a holding pattern for the moment. Wall Street closed higher on Friday to end a very choppy week basically flat. European stocks have also put a rally that has been in play since November largely on pause. As discussed last week, the macro picture is largely understood, whilst the rally in bond yields has also paused. Vaccinations in the US and UK are positive, a startling rise in infections in India is a negative, but markets are largely looking through the bad with ample monetary and fiscal support. The confidence in the macro outlook could change, but PMIs last week didn’t suggest things were about to. Plans for higher US capital tax gains may not pass the Senate but could beget a spate of selling if lawmakers back it. Earnings this week should be important with a number of the largest growth and momentum names on the calendar. A Fed meeting this week should pass off without too much fanfare as policymakers lean on the economic rebound to do the heavy lifting. The dollar is keeping a little softer with the euro hitting its strongest since the start of March. Yields are keeping quiet too, helping gold maintain a bullish bias despite easing off a two-month high struck last week.

Sweeten the deal: shares in Tate & Lyle surged more than 6% as the company confirmed it is looking to sell its industrial sweetener business. In a statement this morning the company said it looking to sell a controlling stake in its ‘Primary Products’ business, which it says would deliver ‘enhanced shareholder value’.

Tesla (TSLA) is due to release first-quarter 2021 results today after the closing bell, kicking off a mammoth week for the big tech/growth/momentum earnings. Consensus estimates indicate earnings per share (EPS) of $0.79 on revenues of $9.92 billion. Earlier this month Tesla reported record Q1 sales, delivering 184,800 vehicles, more than double the 88,400 reported last year and about 10k ahead of expectations. The addition of Bitcoin to the Tesla balance sheet this year was portentous. The stock is down ~15% since the SEC filing on Feb 8th, but has recovered about 30% since hitting a low around $560 at the start of March to trade at $729 at Friday’s close.

A fatal crash in Texas has thrust the safety of the company’s Autopilot system into focus, although it is understood no one was at the wheel at the time. Autopilot is not meant to be left to control the vehicle exclusively, however there are concerns that people are liable to misunderstand the functionality of the system. Meanwhile it appears that the autopilot function was not engaged at the time of the crash. CEO Elon Musk tweeted on Monday: “Data logs recovered so far show Autopilot was not enabled & this car did not purchase FSD. Moreover, standard Autopilot would require lane lines to turn on, which this street did not have.”

Tesla has been forced to make a grovelling apology after a backlash from the state-run Chinese media following customer complaints. This is important – China is a key market for Tesla and other automakers who are seeking to tap the growing EV market in the world’s second-largest economy. Tesla has made a big investment in local production, which seems to be paying off. Tesla reported sales of $6.7bn in China last year, making it the second biggest for the firm after the US, whilst the Model 3 sedan was China’s best-selling electric vehicle in 2020. Meanwhile the Model Y is also proving popular, with production for the domestic market rising to 34,635 units in March, almost double the level in February.

The competition is getting fiercer for Tesla, and it remains the case that the chief bear thesis on the stock is that current valuations imply a massive market share gain from the traditional OEMs. Given the pace of progress they are making on the EV front, it seems hard to justify the Tesla multiple even allowing for ongoing sales growth and margin improvements.

Last week’s Shanghai auto show displayed the range of competition from local Chinese rivals such as Xpeng, Nio and Geely. Mercedes recently said it will launch a range of new electric vehicles, including a battery-powered version of its S-Class saloon, in the next 18 months. Other rivals like BMW, VW and Audi have also seen their electric vehicles met with approval. For Tesla, things are only going to get tougher.

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