Weekly Reads - August 8, 2022
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The passage of the Inflation Adjustment Act is expanding the $7,500 federal tax credit for EVs by removing the current cap of 200,000 vehicles on automakers for them to qualify for the credit. For automakers this could make their EV offerings more affordable for the average consumer acting as a tailwind for EV sales growth. However, this new legislation is unlikely to impact a majority of automakers with automakers forced to follow several strict requirements that would prevent 70% of EVs and hybrids from qualifying for the credit. These requirements include: MSRP being below $55,000 for cars and $80,000 for trucks/SUVs, requiring battery material sourcing from the U.S or free-trade partners, and the country of assemble being the U.S. This piece of legislation also adds income requirements making many high-earning consumers ineligible for the tax break. With a majority of vehicles and a portion of consumers not qualifying for tax credits it’s difficult to imagine this legislation acting as a significantly tailwind in the near future for EV adoption.
Avalara a cloud-based platform that helps companies with tax compliance is being taken private by Vista Equity Partners in a deal that values the company at $8.4 billion. Vista’s offer of $93.50 is at a 2% discount to Avalara’s stock last close price and a 27% premium to the stock’s close price on July 6 after reports of a possible takeover. This price is far below the company’s peak share price of over $189 just last September; a hard pill to swallow for many shareholders after shares rocketed during COVID. The Avalara deal is the latest in a string of private equity deal making driven by a widespread market sell-off. The technology sector has been one of the worst performers year-to-date with companies like Avalara (growth focused, unprofitable) taking the brunt of the sell-off. With more macro headwinds on the horizon its likely we see more deals in the technology space as private equity firms offer a safety net to these companies and allow shareholders to exit at a reasonable price.
After last week’s widely celebrated Uber earnings report, Lyft has announced the creation of a new business unit that will expand its digital advertising capabilities across its tablets, app, rooftops, and bicycles. This new business, called Lyft Media, will help the company expand into the growing vehicle digital ads market as cars become more connected and begin to offer more infotainment features. Lyft dipped their toes in digital advertising in 2020 via the acquisition of Halo Cars a maker of rooftop screens than run targeted digital ads. Lyft is taking this further by running ads on its in-car tablets that allow riders to track their route, pay/tip the driver, and control the music in the vehicle. The company expects to rollout this service to 25% of its rides in three major cities reaching millions of riders by year end. This rollout is not stopping at cars with the company allowing advertising on its mobile app with almost 20 million active users, running ads on bikeshare ad panels/docks, and their e-bikes. With Lyft shares down -52% vs-24% for Uber, management is attempting to regain investor confidence in Lyft’s ability to be a profitable viable competitor to Uber long-term. While Lyft’s grand vision of being the world’s largest transportation media network makes an excellent headline many questions loom regarding this new business including driver revenue splits, rider reaction toward these ads, advertising quality(engagement/click through rates), and the company’s ability to scale this business profitably.