After US CPI, small caps for the win, for a day at least.

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Today’s links

Cleantechnica on India’s leapfrogging to EVs, which sent me down a rabbit hole of Indian makers of EV scooters, small motorcycles, and the popular three-wheelers there which have ranges of up to 300 km for small scooters and even more for motorcycles.

Cleantechnica again, this time with a series of articles on how the increasing penetration of EVs will impact the relevant parts of the economy. First article on understanding the tipping points, second article on the 5-15% penetration level, third article on the 15-40% level that starts to materially impact legacy car infrastructure from petrol stations to auto repair, and the fourth article on 40-80% penetration level as EVs take complete ascendancy. There will certainly be some major impacts within the industry, including a possible permanent downsizing of the auto industry itself once growth in EMs has peaked. Increasingly, more ridesharing in dense urban areas is made possible by mobile tech, i.e. there is more intensive use of the average vehicle. As well, EVs may prove to last more than twice as long as ICE cars with perhaps less than half the maintenance costs over the lifetime of the vehicle. Of course, the impact of nearly universal autonomous driving, if/when that era comes would be vastly larger - have yet to come across the comprehensive thought piece on that one.

Wolfstreet is a great follow on US economic data, and especially zeroes in on the housing market with illustrative charts of developments, like recently in Texas.

EndGame Macro on X is a must-follow on key economic data and thoughts on the forces and policy choices shaping the macro future. The post yesterday on a sharp drop in new rental contracts, as per the Cleveland Fed, shows that housing costs are in steep deflation for at least a lucky few and could spread as pressure on the US housing market mounts.

I really enjoyed this post on the Value of Nothing podcast, which is a great “p-take” on the new-new right, with great additional sub-links. A great follow on many things, both societal shifts, UK-specific observations and more.

Chart of the Day -Autozone (AZO)

In line with the earlier discussion on EVs supplanting much of the legacy ICE auto industry and related ecosystem/infrastructure, it’s worth considering the knock-on effects for the network of companies that thrived in that ecosystem — including auto parts retailers, some of which also offer repair services. AutoZone fits squarely in that camp, with a business model spanning both parts sales and repairs. As an EV owner, what do you need from Autozone besides the occasional set of wiper blades and polishing cloth if you’re into washing your own car? Its stock has been a standout success story, driven not only by strong execution but also by an extraordinary capital return program — the company has repurchased more than 90% of its shares since 1998 — and by its position in the S&P 500, which ensures steady index-driven demand for the shares. Over the past two years, AutoZone has grown earnings at more than twice its 5–7% revenue growth rate, though free cash flow hasn’t kept pace. The market has rewarded this performance by rerating the stock from a sub-20 multiple to more than 27 times earnings today. Part of that EPS growth has been flattered by heavy share buybacks funded with debt, alongside rising lease liabilities that similarly flatter earnings. Long-term debt now stands at $9 billion at the end of FY 2024, up from $5 billion in FY 2019 — roughly equivalent to four years of free cash flow. Lease liabilities have gone from almost nil in 2019 to $3.2 billion last year. The question is whether the company’s long-term earnings power justifies that higher multiple, or whether the increasingly leveraged balance sheet represents a built-in vulnerability…