background image background image background image

Weekly Update: Saxo Thematic Investing Performance

Picture of Peter Garnry
Peter Garnry

Head of Saxo Strats

Summary:  The green transformation theme basket was the worst performing theme basket last year as investors are increasingly getting worried about elevated electricity prices in Europe and China causing negative impact on the demand for electric vehicles. As a result EV stocks were down across the board last with Tesla shares down 11%. As Tesla is eating through its backlog and demand is coming down the EV maker may be forced to lower prices next year risking a cut to its operating margin and profits.


High electricity prices are hurting the green transformation

Last week was a rough week for equities as the Fed and ECB did not deliver any softness to their rate policies causing a jolt to the positive inflation narrative that had been fueling the equity market since the rally on 10 November when the US October inflation report showed signs of inflation easing. Especially European equities had a rough week driven by high electricity prices as wind speeds were very low and a market not prepared for an ECB ready to hike rates into a recessionary dynamic. Elevated electricity prices in Europe are beginning to negatively impact demand for EVs as proclaimed by the CEO of a VW components division and higher electricity prices in China is also hurting the adoption rate. Europe and China are the two largest EV markets in the world. The EV demand worries were reflected in our green transformation basket declining the most last week down 5.8% taking this year’s total return to -50.7%, the third weakest performance this year among our theme baskets. High electricity prices mean slow green transformation.

19_PG_1
S&P 500 futures | Source: Saxo
19_PG_2

EV stocks are under pressure as Tesla decline 11%

If we look across the green transformation basket we see a clear pattern of EV stocks leading the declines with Tesla being the most prolific EV stock down 11%. Tesla has seen its order backlog decline rapidly in the US due to shifting supply and demand factors. Tesla has built out a lot of production capacity that has culminated as demand has come down in Europe and China due to high electricity prices, and in the case of China the lockdowns also played a role in demand destruction. In the US demand has been pushed into 2023 due to the US Inflation Reduction Act that is not enabling the US federal tax credit of $7,500 until next year. Tesla might be forced to reduce prices next year to keep demand up utilizing all of its production capacity and that could cause margins to decline in 2023 negatively impacting profitability. This is not reflected among analyst estimates but institutional investors have seen the canary in the coal mine reducing exposure to Tesla while investors are still estimated net buyers. Tesla shares closed just above $150 on Friday and is entering a consolidation area in the price back from late 2020.

19_PG_3
19_PG_4
Tesla share price | Source: Saxo

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.