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This is Fortune digital editor Andrew Nusca, filling in for Adam.
For years onlookers have compared Amazon, the famously profit-averse retailer (until it wasn’t), with Tesla, Elon Musk’s electric automaker.
It’s not difficult to see why. Amazon CEO Jeff Bezos has long maintained that investing in future growth is more important than hitting quarterly earnings targets, much to Wall Street’s chagrin. Amazon’s market value ballooned well before its actual revenues ever held a candle to that of rival Walmart; today, at 26 years old, Amazon has jumped every other company on the Fortune 500—our signature list of U.S. companies ranked by annual revenue—except one: Walmart.
Some could argue that Elon Musk has held similar sway over the Street. This month, Palo Alto-based Tesla became the world’s most valuable automaker (at the moment, worth some $304 billion), overtaking Toyota, even though Tesla controls just a couple of percentage points in market share for global car sales. In 2019, Tesla sold 367,500 vehicles globally; the same year, Toyota sold almost 2.4 million in the U.S. alone, and 10.74 million globally.
But growth potential is a hell of a drug.
On Wednesday, Tesla is set to release its next quarterly earnings report, and though Wall Street analysts are mixed on the broader narrative, they seem to agree that the company will record expectations-beating deliveries despite the economic effects of the novel coronavirus.
J.P. Morgan, July 5: “We are raising our estimates and price target to account for Tesla’s better than expected 2Q production and deliveries report…We remain Underweight-rated on TSLA shares, on what we see as lofty valuation coupled with high investor expectations and high execution risk.”
Barclays, July 6: “While we still believe TSLA is fundamentally overvalued, we see nothing to prevent the shares moving higher in the coming weeks and urge our bearish friends (perhaps emboldened by a ~$1,400 stock price) to remain in the shelter of their caves.”
Despite a pandemic-stained market that has proven exceedingly difficult for all automakers, some are even calling on 17-year-old Tesla to eke out a fourth straight quarterly profit so it can join the S&P 500, something Amazon took 11 years to accomplish.
Well, I’m here to tell you, Elon: Don’t do it. It’s still too early.
Green shoots aside, Tesla is stuck between a rock and a hard place. Its successful foray into international expansion, courtesy of its two-year-old Shanghai plant, comes at the expense of profit margins, which are thinner outside the U.S. At home, auto industry sales have plummeted as America fails its coronavirus test. Meanwhile, Tesla’s only domestic plant—in Fremont, Calif.—has reopened in defiance of state closures.
It’s likely that Tesla will fail at its stated goal of delivering 500,000 vehicles in 2020, something the company has promised each year since 2018. Given the broader environment, that’s hardly Tesla’s fault. Though the temptation is strong to notch another milestone and join the S&P, it’s clear that 2020 won’t be a banner year for most businesses—nor should it.
So damn the profits, Elon, and full speed ahead.
Andrew Nusca
This edition of Data Sheet was curated by Aaron Pressman.
NEWSWORTHY
I'm coming out, I want the world to know. As lawmakers have largely ignored the rise of the gig economy, it's been left to the courts to sort how many laws apply to such workers. The First Circuit Court of Appeals ruled last week that Amazon's independent contractors who make home deliveries are engaged in interstate commerce and thus can't be barred from suing under minimum wage and other labor statutes by mandatory arbitration clauses. Expect more lawsuits soon. Across the pond in the U.K., where Uber is fighting in court against drivers who want to be classified as employees, some drivers now allege the company is also violating data protection laws.
Got to let it show. There's growth and then there's hyper-growth. For San Francisco startup NextDoor, which bills itself as the uber-local social platform, growth during the pandemic has been at hyper, hyper speed. CEO Sarah Friar, on the July 21 episode of Fortune's podcast Leadership Next, says the number of active users has been growing by 80% per week.
There's a new me coming out. The economic costs of the pandemic continue to roil the tech industry. Some 536 startups have laid off a total of over 70,000 people, tracking web site Layoffs.fyi says. Among larger companies, Microsoft's LinkedIn is cutting almost 1,000 jobs, or 6% of its workforce, as revenue from its hiring-related services has plunged.
I'm completely positive. Speak of pandemic-induced plunges, smartphone sales dropped 25% in the second quarter from 2019, according to Counterpoint Research. The low-end Apple iPhone SE was a rare "bright spot," with one-quarter of its sales going to Android switchers, the firm said. Sales of Samsung's new Galaxy S20 line were 38% lower than sales of last year's flagship, the Galaxy S10.
Time has come for me to break out of this shell. On Wall Street, things were bad but not nearly as bad as analysts had feared for IBM. Quarterly revenue dropped 5% to $18.1 billion, but that was $400 million more than the average analyst forecast. "The economic recovery is looking to be longer and more protracted than we might have hoped for back in March,” CEO Arvind Krishna said. IBM shares, which had been down 6% this year, gained 3% in morning trading on Tuesday. Elsewhere, eBay confirmed the rumors and sold its classified ad business to Norway's Adevinta for $9.2 billion.
(Today's headline explainer video, courtesy of the great Diana Ross.)
FOOD FOR THOUGHT
There's been a renewed bout of hype around OpenAI’s app that seems to write like a human. This update, dubbed GPT-3, has seemingly written its own songs, stories, and even press releases. MIT Technology Review editor Will Douglas Heaven warns GPT-3 isn't as smart as it appears, however.
It’s also no surprise that many have been quick to start talking about intelligence. But GPT-3’s human-like output and striking versatility are the results of excellent engineering, not genuine smarts. For one thing, the AI still makes ridiculous howlers that reveal a total lack of common sense. But even its successes have a lack of depth to them, reading more like cut-and-paste jobs than original compositions.
Exactly what’s going on inside GPT-3 isn’t clear. But what it seems to be good at is synthesizing text it has found elsewhere on the internet, making it a kind of vast, eclectic scrapbook created from millions and millions of snippets of text that it then glues together in weird and wonderful ways on demand.
ON THE MOVE
Former Amazon exec Greg Greeley is out at Airbnb, where he had been head of the Homes division since 2018. Longtime Apple vet Hiroki Asai is joining Airbnb, meanwhile, as head of marketing...Longtime TV exec Lindsay Gardner is leaving T-Mobile, where he worked on the carrier's home cable project called TVision...The brains behind the Google Pixel phone's incredible camera app, Marc Levoy, has left the Googleplex and joined Adobe where he is said to be working on a mobile phone camera app.
IN CASE YOU MISSED IT
Why the world’s most valuable unicorn is shunning a U.S. IPO By Naomi Xu Elegant
What is confidential computing, and why are cloud companies so interested in it? By Jonathan Vanian
How Ford cars are getting closer to self-driving with Intel’s Mobileye By Aaron Pressman
Malls are dying, but Nordstrom has no intention of being dragged down with them By Phil Wahba
Bitcoin Cash and Litecoin to trade on public stock market for first time By Jeff John Roberts
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BEFORE YOU GO
Sure, sure, you say your A.I. app can write convincing press releases, very impressive. But next year, a much more challenging—and splashy—display of A.I. prowess is coming. The Indianapolis Motor Speedway on Monday announced the first ever "Indy Autonomous Challenge," which will pit self-driving racing cars against each other in an October 2021 event at speeds that could approach 200 miles per hour. Zoom zoom.
Aaron Pressman
