Weekly Reads
Weekly Reads - May 30, 2023

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The transition to clean-energy vehicles in the transportation industry will be far bumpier and more complicated than many realize with much of the U.S lacking the EV infrastructure needed to support state and national trade .   

Competition in the EV charging market in California is heating up with startups racing to cash in as the state continues to push the sale of electric trucks. California is forcing some trucking companies and owner-operators to start buying electric vehicles starting in 2024 and is phasing out the sale of traditional heavy-duty trucks. As the largest state economy in the country, California depends on trucks to move billions of dollars of goods each year. The state is aiming to replace more than 30,000 trucks with clean energy vehicles by 2035. This push for electrification is pressuring the state’s EV infrastructure which is not well set up to meet the state’s near-term expectations. To support a thriving truck EV charging network thousands of new charging stations are needed across the state to support inter-state transportation. To have these charging stations installed EV charging companies need to make sure that there will be enough customers around the area of the charger to generate enough return to justify the investment. On the other hand, truckers won’t switch over to EVs until there is enough charging infrastructure around their trucking routes to make purchasing an EV economically viable. The amount of investment needed to achieve these ambitious targets is immense and there are questions on whether EV trucks are even viable on a day-to-day basis. The downtime to charge heavy-duty trucks is much longer than using traditional fuel which could delay shipping times and slow down overall trade. Most electric heavy-duty trucks have a range of less than 250 miles and require more charging power than passenger vehicles so much of the already installed EV infrastructure cannot be retrofitted to support trucks. Despite these headwinds, new startups have already raised billions of dollars to take advantage of the EV trend and get access to the best quality locations with the highest customer concentration. Some of these startups might be too optimistic in their projections and could struggle near term to find the demand to justify a lot of the capital that is being invested in these charging projects. Trucking is a tough competitive business with low margins and many day-to-day logistic issues so there might be initial resistance from trucking companies in buying expensive EV trucks that could underperform their legacy fleet.

The spin-off opportunity in Sony could unlock shareholder value and position the company to better utilize its entertainment assets in the long term.

Sony Group announced Thursday that they are examining a partial spin-off of its financial business just three years after taking full control. The spin-off could take two or three years and includes the company’s operations in life insurance and banking. This could be a hallmark moment for Sony, which has become a massive conglomerate over the years.  Since the company’s founding Sony has built a portfolio of diverse businesses in image sensors, movies, music, video games, and financial services. This has led company shares to trade at a discount to pure-play companies in each of their competitive markets. This spin-off will be Sony’s first step in streamlining its business, setting the stage for more spin-offs in the future. Spin-offs historically have been value creators for shareholders in conglomerates allowing businesses with little synergy to operate independently maximizing their growth and margin opportunity long-term. Each of Sony’s businesses(entertainment, image sensors, financials) could be worth far more independently than as a part of the Sony empire. Sony has many valuable assets including its PlayStation and music business which would fetch a much higher valuation multiple if they were operated as independent businesses than as part of the Sony conglomerate. While many Asian conglomerates have resisted shareholder demands for streamlining their operations, recent years of share underperformance vs pure-play peers might be changing the mindsets of these companies which could create new opportunities to invest in great businesses that have been trapped within these companies historically.