Motley Fool Hidden Gems Investing - EVs Get Supercharged

Episode Date: June 21, 2023

Rivian, Ford, and General Motors are all on-board to make cars that can use Tesla’s charging standard. But this collaboration won’t slow down the competition in electric vehicles any time soon.  (00:12) Asit Sharma and Dylan Lewis discuss: - Why Rivian, Ford, and General Motors are signing on to make cars work with Tesla’s North American Charging Standard (NACS). - What’s behind Tesla’s 140% jump in shares so far in 2023 - Hyuandai’s $28B 10-year commitment to EVs and the Chinese government’s new $72B tax break program. NOTE: In the discussion, we accidentally refer to the combined charging standard as “CSS” instead of “CCS” (12:30) Ricky Mulvey caught up David Johnston, a vice president of asset protection and retail operations for the National Retail Federation to take a look inside retail crime syndicates and what's being done to stop them.   Companies discussed: TSLA, F, GM, LOW, TGT, HD, CVS Host: Dylan Lewis Guests: Asit Sharma, David Johnston, Ricky Mulvey Producer: Ricky Mulvey Engineers: Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. If you build it, the EV makers will come. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined over the airwaves by Motley Fool analyst Asit Sharma. Asit, thanks for joining me. Dylan, thank you for having me. Today, we are talking EVs. This week, Rivian agreed to adopt the North American charging standard, something we may refer to as NACs a couple of times in this episode, joining Ford and General Motors in making their EVs able to use Tesla's supercharging network. Asit,

for folks that are not super familiar with the supercharging network and its development, can you give a little bit of a history lesson? Absolutely, Dylan. The supercharging network is a concept that Tesla had early on when it first came to the public markets. It began in 2012 when Tesla rolled out, I think, six charging stations, and they envisioned a network of thousands. And I went back to some old conference calls back in 2011, 2012, and Elon Musk predicted that one day this charging network would be global, it would span the United States, many other continents. And that has largely panned out. The supercharging network has now about 45,000 charging stalls in all, distributed across 5,000 stations globally. Now, this thing

that you called NACS, the North American Charging Standard, which I promise we'll refer to as NACS from here on out, is interesting. And the easiest way to wrap your head around it is just to visualize a charging connector. Tesla's proprietary original charging connector was renamed NACS, or NACs, it's synonymous with a standard. Basically, if you use a charging connector that has these specs, you're on the NACs standard. This is a competing standard to something called CSS or combined charging system. Both are being prototyped most here in the U.S. We've seen just in the past few weeks a flood of announcements of some big companies, as you mentioned Ford, GM, and Rivian going over to this NAC standard. In other words, being

able to use Tesla's charging system on the Tesla supercharging network. What's interesting is, we've seen those announcements from major automakers. We've also seen other charging infrastructure adopt NACs as well, namely, ChargePoint, which has the largest charging network in the U.S. Asit, before we get into what all of this means for the individual companies and automakers. High level, I feel like this has to be a massive win for EV adoption. I think so, too, Dylan. We've had some charging entities like ABB, Blink Charging, smaller in size than ChargePoint, also sign up for this standard. Eventually, I think we'll see a confluence of the two big charging

standards that are out there, so NACs and CSS, which I mentioned before. Some people see these as competing technologies, and in a way, they are. But there's also a global consortium that addresses standards, and they have launched a committee to study how the two can work together. Here in the U.S., I think it can only propel more users into the network as one of the primary objections to buying an electric vehicle from the beginning of this industry gets removed. I won't be able to charge my vehicle on a long road trip. So, this has to be good for adoption. Yeah. I think it's just a common-sense solution to where this industry is heading. We wouldn't really want to be in a spot where

you were beholden to a branded charging network because you had a certain kind of car and couldn't necessarily use ones, even though they were closer, because they were from other manufacturers. Totally. It's common sense for the big auto manufacturers as well. They want to pour their billions of dollars into efficient development of batteries, into the manufacturing plants that will help, at least here in the U.S., big automakers compete with some global giants like Volkswagen, like Toyota, like BYD in China. So, you'd rather spend your dollars on the actual vehicle production build-out versus having to do your competing charging network.

So, I think there's some common sense at play there in these business models. You talked about how this is really the latest in what has been a long development of the network for Tesla. This is a business that I think basically every analyst has a different opinion on. Even people that are on the same side of the bull agreement or the bear agreement may disagree on the individual components of this business. But how do you think about the value of the charging network and what these developments mean for the company itself? Is this something that factors into the thesis for you? Is it material? I think it does, Dylan. And it may

not be hugely material today, but it becomes material down the line. We don't know how much money Tesla makes off of its supercharging network, but I've seen estimates that it's under $1 billion. Some analysts think this could be worth $1 billion to $3 billion of annual revenue for Tesla in the future. Now, that in itself may not seem that material. But when you combine it with other revenue streams that Tesla has, from energy generation and storage, you start to see how good this company is at its vision of having multiple revenue streams that are related to the technology and manufacturing that it consistently improves upon, but not core or central. I think it's something that can be persuasive to the bottom

line if you start looking out past five or 10 years in combination with other revenue streams they have. One thing I've noticed and thought about with this story is, with Elon Musk and some of the different businesses that he is at the helm of, we have seen over time him realize the strategic benefit of having the government as a customer, or having the government as an ally as you're trying to build some things out. With SpaceX, certainly. This seems like another example of him helping out the government maybe a little bit, helping out the infrastructure and development of something, knowing that it probably benefits him and his company long-term.

Yeah, I think Tesla and Elon Musk in particular are great at being able to both criticize the government, but also utilize whatever incentives are offered. I think we see this come into play with Tesla's ability to make its platform more open. It actually opens them up to more government money for the supercharging network, the more open their standards. We saw this with the battery credits that the U.S. recently revamped. Tesla went and back-engineered some of their supply chain for their batteries. Now, they qualify for the full breadth of credits that the U.S. government is offering. They're very savvy about that. They talk a good game in trying to, I think, bullhorn not just the U.S. governments

but industry players as well into positions that they want. But then, Tesla always comes back to an economic proposition and hones in on what makes sense for them and their bottom line. I have to ask, just because anyone looking at the stock price and the chart of Tesla over the last six months or year is seeing something pretty incredible. Shares are up 140% year-to-date, up 65% since early May when a lot of this NAX news began materializing. Is that the catalyst that you're seeing here, Asit, or is there something else that's put the stock on this incredible run? It's part of it, Dylan, in my opinion. I think what happens is that Elon Musk has this increasing tendency to draw investors'

attention away from Tesla, the manufacturer, into an orbit of Musk, the slightly unreliable narrator and wacky entrepreneur. And focus keeps coming back to things that Tesla does really well. This whole development around NACs, the fact that this supercharging network can be a viable revenue stream for Tesla, as so many other automakers pour billions into this industry, coupled with other things that institutional investors and retail investors notice about its production processes. I'll give you one example. When Toyota just announced its big plans for the next 10 years, one of the things they said was, they're going to start using gigacasting. They're going to start using this automation of assembly line

that Tesla itself pioneered. Things like this keep reminding investors of how good a manufacturer Tesla is, why it has these huge operating margins and automotive manufacturing margins that it can then decrease to compete on price. When you see that, and a stock price that has taken a beating because of perception, and what we had before 2023, which was a really soft market for tech and industrial stocks, you get a pushback into the asset because investors start looking at that long-term picture again and saying, wow, Tesla's got many ways to make money, and they're pretty good at bringing many cents to that bottom line for every dollar of sales. While we're talking EVs, I do want

to touch on a couple of other stories and developments in the space. Asit, you mentioned the Toyota news. We've also seen that the Chinese government announced $72 billion in tax breaks for electric vehicles, looking to boost adoption and give a jolt to slowing auto growth in the country. We've also seen automaker Hyundai announce this week that it will be putting $28 billion into EVs over the next decade. They said that sales are outpacing forecasts and that they are increasing sales targets for some of those out-year estimates. Again, looking at all of this, it seems like generally good news for EVs. I also see this it and say, it seems like competition continues to heat up in this space.

Yeah, crazy competition is coming in the next 10 years. I don't use that number arbitrarily. That's a number commonly cited by Ford, GM, Hyundai, Toyota. They have these massive 10-year plans. Hyundai itself is going to spend something like $28 billion in the next 10 years in its electrification efforts. They call it the Hyundai Motorway Roadmap. You get the picture of all these tens of billions of dollars pouring in, and then you have the Chinese government, which has a couple of problems on its hands that it wants to solve. One is a really sagging economy. Domestic consumption is one way for them to pull China out of its doldrums. They want to incentivize those car sales. They also want to incentivize

those electric vehicle sales for the manufacturers themselves. Part of China's long-term strategy to be this dominant global force is to be the dominant player in the EV market. It's got to make sure its domestic manufacturers are very healthy, and they're going to help them compete in global markets. We've already seen Ford's CEO cite the Chinese as the No. 1 threat because of their coming ability to export cheap electric vehicles that are very reliable. take all these dynamics together, and it seems that there are many tailwinds to the industry, whereas just a year ago, Dylan, it looked like things were slowing down, people were questioning Tesla's viability, the global economy was in such a slump. Fast forward

just a short amount of time, and again, it's looking like EVs are having their moment. But it's a 10-year moment. The difference a year can make. Asit, thanks so much for talking through it with me. always fun to talk with you, Dylan. Organized retail crime is a growing problem for retailers. So, what are they doing about it? Ricky Mulvey caught up with David Johnston, a Vice President of Asset Protection and Retail Operations for the National Retail Federation, to take a look inside retail crime syndicates and what's being done to stop them. I want to get granular on those operations. How are these operations set up? Can you take

us inside what's going on at these organized retail crime syndicates? Sure. We'll start from the very beginning, where they will go and either hire and direct or utilize individuals who are shoplifting, we call them boosters, to go into the retail marketplace and steal merchandise. Oftentimes, these individuals are directed as to where to go, what merchandise to take, and even informed on security policies and procedures of individual retailers. Once those goods are stolen, they're brought to what we call a fence or a fencing operation where it's that next level where that individual goes and sometimes, depending on the coordination and the organization, sometimes those fencing operations can go and take the

merchandise and put them on sale on online marketplaces and just convert them quickly from being stolen to sold back into the consumer marketplace. But then there are those fencing operations that may be a little bit more sophisticated. They could be large-scale warehouses. There have been investigations where they've included what we call cleaners, who are individuals that work in these operations who remove security tags or description of where these retail items came from, and even unfortunately have altered product or expiration dates, making it a safety issue for the product. And then continuing to work that way up, You have diverters who will take those goods and move them through the market channels, you know, possibly selling them back to even legitimate retail wholesalers that make their way to local retailers or local mom and pop shops or even, you know, illicit businesses.

So that's how that merchandise moves. And these activities can take place, again, at a retail location, they could take place at the supply chain, or they can even take place online through online fraud, which is something a little separate, and maybe we get into that down the road. But behind all of this is a criminal mastermind. And this is where we've seen local, regional and even transnational groups involved in large scale organized crime, which could also include human trafficking, where they they use these individuals coming over the border and to pay their coyote fees. they ask them to boost merchandise. We also see gun trafficking and drug trafficking where they use the proceeds from the retail goods and reselling stolen goods to help with those other crimes. So it could be a large scale network. It could be a small scale network, but it is coordinated. It is networked. It is structured. It's a business onto itself. One thing you said is that they're altering expiration dates. And I often associate retail crime with jewelry, clothing, electronics, but this is also a problem for food and grocery?

It is. Any product, and this is where we've seen over the years, products even changing. I've been at this for over three decades. And like you had just mentioned, when I was apprehending shoplifters in the 80s and 90s, it was the high value merchandise and the jewelry and the dresses and things of that nature. And it's morphed into, you know, everything from power tools to over-the-counter medicines and healthcare, baby formula, tie detergent, et cetera, et cetera. And when we start to talk about food and we talk about medicines, some of those items require certain handling and definitely have expiration dates on it. And our retail industry has seen through investigations where expiration dates have been changed on items like baby formula

or medicines haven't been stored properly and even food items altered where a good example is baby formula. They may go and add flour to it to help expand the quantity that they have. So, you know, there's a component. This is not just a property crime. We have seen elements of product tampering, food safety, food security, and even violence, an uptick in violence that is greatly impacted by organized retail crime. Yeah, I appreciate you mentioning that because one thing I've heard is this is a problem for investors, this is a problem for the store, but it has direct consequences on anyone who buys things legitimately. That's exactly the case. This is not a retail problem only

from a product loss because what we've started to see is the impact, as I just mentioned, there's an impact, a potential impact to the product safety and the environments when it comes to food and medicines. But we also see the impact to the consumer. We've had a number of retailers announce closings in certain areas. And when a retailer closes, that impacts the consumer because they have to go farther in order to find, you know, everyday lifestyle and life needs. We also have situations where, you know, the cost of goods already in an environment where inflation and economic impact could be harmful to certain individuals. There will come a time when retailers may have to raise their prices. We're even seeing locked up merchandise or in

the event of a shelf sweep where groups come in and sweep an entire shelf of a singular product, that product is now no longer available until the supply chain can resupply it, which is another trickle-down effect with issues in the supply chain coming off the pandemic. I wonder if self-checkout plays a role in this at all. And this may be more for the opportunistic shoplifters you've described, but I think of a company like Home Depot, where you can roll through self-checkout and have some pretty large, expensive items that they're trusting the buyer to tag and pay for? Yeah. As retailers look at other shopping alternatives, self-checkout or mobile phone

shopping, or where I even go and shop for groceries, it's scan and go, where I can scan and bag my own merchandise as I'm shopping along. There are definitely going to be issues with loss and shrink, whether it be error or intentional. But we have seen, though, that there's a big difference. And retailers will tell you that even though there are losses at the self-checkout, that compared to using your example of somebody going through a Lowe's or a Home Depot with a flatbed full of power tools and large items, there's a unique difference between, you know, They're not going through the checkout and not scanning that. They're actually stealing that merchandise.

So it is a component of loss, and they all do factor in. But retailers know what they see and are able to understand their numbers. And there's definitely a large uptick in the overall shoplifting, the intentional side of shoplifting. Every time I walk into a retailer, a lot of the larger ones, there's a big camera and they show your face on a screen. has facial recognition technology, are retailers using that to play a role in stopping this? One would think that they'd be able to tell who's coming through and who's had a history

of shoplifting and who might not be welcome in their stores after repeated offenses. The retailers are looking at a lot of innovative technologies, facial recognition technology being one of them. I will say that I think overall, there's still some hesitation just because a lot of states and even down to some local communities haven't really figured out facial recognition technology from a privacy standpoint. But in those states where they are welcome, retailers are looking at it. They are probably testing it along with other types of technologies, AI, RFID, and other things. This is one area though, when it comes to facial recognition, where the pandemic probably did hurt the retail environment.

Because even though, thankfully, you and I don't have to wear masks on a daily basis unless we choose to, this is something where the thieves take advantage of. And they will walk into these retail establishments wearing masks to make sure that their identity is concealed. As you're watching the retail landscape and watching this problem play out, are there any retailers that come to mind for you that are addressing this problem in maybe an innovative or an impressive way? Yeah, there are quite a few. One example that is public knowledge is Lowe's, where they are working in utilizing RFID in order to make power tools inoperable unless they pass

through the point of purchase. It's a public, if your readers or your listeners look up Project Unlock, it talks about how they use this RFID system so that power tools, you put a working battery in and you press the button, it doesn't work until it's actually purchased at the location. And then you can walk right out the store, put the battery in and the tool's operational. So that's something specific. A lot of other retailers are using technologies like self-servicing locking cases. One of the challenges against retailers has been the amount of items that are locked under key and unavailable for customers. There have been some manufacturers that have come out with locking mechanisms so that

customer can use their cell phone. And by providing information, a name, an email address, a telephone number to the retailer, they have the ability to get their own code to open these cases and retrieve their own items so they don't have to use or wait for an employee for assistance. Oh, interesting. And then I know earlier you mentioned there was some fraud component. I don't know if we've addressed that. Was it the online fraud?

Yeah, online is most certainly a channel that organized retail crime is supporting, whether it be through purchasing merchandise from a retailer online using a stolen credit card or, you know, taking an existing customer's account information and pretending to be them. You know, it's called account takeover in our industry. And there's also a way of, you know, what they they're doing is called. It's called BOPIS fraud or buy online, pick up in store where they'll go and buy items online with stolen credit cards, and then they'll have a booster, so to speak, go into the store, pick up that item.

that they purchased with a stolen credit card, and then bring it to the fence so that they can go and resell it. So, you know, online and e-commerce does have a play. We've also seen a large number of these criminal networks utilizing gift cards as a means. They're easily transferable and more convertible to cash and can sometimes be received with more, you know, pennies to the dollar, so to speak, after buying a fraudulent gift card. So, as we start to evolve as an industry, the criminals are starting to evolve their tactics and their capabilities as well. There's a skeptic in me where a lot of retailers are going through inventory issues that they've built up over the pandemic.

You can't necessarily fault them as supply chains constrict and then reopen. And now there's a lot of attention on shrinkage. Is this being used by some retailers as a crutch for maybe other inventory problems that they have going on? I don't believe so. Coming from my past with public companies, as an example, even though shrink or inventory loss was part of the P&L, this is something that no CEO really wants to bring forward and have a conversation about. I think it's more difficult to talk about shrinkage and loss than it is to talk about, you know, just overall decreasing sales and challenging the economy and challenging supply chain and things of that nature. What we're

seeing today, Ricky, though, is there are a lot of national companies coming out, public companies making the statements. There are also a lot of small businesses. And this is another thing that I think tells us that it's a national problem and it's really hitting more is, you know, the small businesses that are coming out and closing down or the retailers that are leaving communities in droves, you know, you may be able to fault one or two or say that, look, those businesses might not have been profitable or operable, but at the amount we're seeing and the publicity that we're seeing with regards to inventory losses, and even just, you know, look at social media and look at all of the news reports that we're seeing time and time again,

these elements of shoplifting and the violence, we can't discount the violence that's happening. It's a problem. It's definitely a problem. I do not think it's a crutch. I think there are a lot of things that come into play with loss overall and shrinkage. There's a non-theft component to inventory loss and shrinkage. But historically, and even based on our last report, you know, theft, whether it be internal theft or external theft, remains the highest categories. And of the two of them, external theft is continuing to grow. As always, people on the program may own stocks mentioned, and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely

on what you hear. I'm Dylan Lewis. Thanks for listening. We'll be back tomorrow.