🎙️ Hitting the Brakes

🤯 Here’s a shocker: In the U.S., 87% of companies with revenues greater than $100 million are private.

While public companies grab headlines thanks to their size and prominence, nearly all revenue-generating entities operate without the scrutiny or reporting requirements of being publicly traded.

Clearly, private companies play a significant role in the U.S. economy. Despite being less visible to the general public, the “private giants” drive innovation, create jobs, and contribute to economic growth.

Check out the Forbes list of America’s largest private companies. We see you, Chick-fil-A fanatics.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• The trouble grows at Tesla

• Detroit’s resurgence explained

This, and more, in just 5 minutes to read.

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In The News

🚗 Tesla Profit Plunges, But Stock Jumps on Future Outlook

The world’s most-valuable automaker saw its first-quarter profit plunge to its lowest level since 2021. But shares rose Wednesday following news that CEO Elon Musk said it would bring new, more affordable models to market sooner than planned. 

Tesla in focus: Tesla reported a 55% year-over-year decline in net income. Revenue fell 9% year over year to $21.3 billion, reflecting a decline in vehicle prices and deliveries, while operating margins shrank to 5.5%, down from 11.4% a year earlier. Tesla's stock closed around $162 per share, up 12% on Wednesday (it’s down ~35% for the year, yet still up over 900% since 2019. 

• Musk emphasized Tesla's commitment to making more affordable EVs as EV competition intensifies.
  

• He also highlighted Tesla's goal of achieving autonomous driving capabilities, revealing more plans for a dedicated “robotaxi” model and ride-hailing network. Musk compared the service to Airbnb and hinted at the model's possible name, the “Cybercab,” to be unveiled in August.
  

• “If somebody doesn’t believe Tesla is going to solve autonomy, I think they should not be an investor in the company,” Musk said. 

On the decline: Tesla’s first-quarter performance was hampered by a decline in deliveries and the gradual production ramp-up of its updated Model 3 car in California. Tesla's newest model, the Cybertruck pickup, has faced challenges since its late 2023 launch.

• That includes nightmarish recalls: Nearly 4,000 Cybertrucks were recalled due to a defect with the accelerator, which caused it to get stuck when pressed, increasing the risk of a crash. This covers all the trucks Tesla has sold since the vehicle reached the market in November.
  

• Tesla reduced prices on several models by $2,000 in the U.S. as competition grows, hurting margins. Tesla's free cash flow turned negative in the first quarter, as it invested $2.5 billion in artificial intelligence infrastructure.
  

• “Tesla’s aging vehicle lineup is already facing considerable demand weakness and price pressure so far, and our sense is that Tesla has now moved into cash preservation mode,” one analyst noted.

Why it matters:

Tesla is one of the most valuable companies in the U.S., one of the most short-listed companies on the market, and one of the most controversial firms.

More controversy with Musk: Tesla is seeking shareholder approval to reapprove Musk's 2018 pay package, valued at a maximum of $55.8 billion. It’s also asking shareholders to approve a plan to move its incorporation to Texas from Delaware after a court decision in January that struck down Musk's pay package approval process.

The future: Musk remains optimistic about Tesla's future, particularly with its push to increase adoption of its "Full Self-Driving Capability" technology. Tesla reduced the price of this software to $8,000 upfront or $99 per month, down from $12,000 or $199 monthly, and began offering a one-month free trial to U.S. drivers with FSD-capable vehicles.

• “We’re putting the actual ‘auto’ in automobile,” Musk said. 
  

• Musk and Co. celebrated Telsa as the cheapest car to maintain.

Bottom line: Tesla's big themes lately are falling vehicle sales, cooling demand for EVs industrywide, and greater emphasis on developing fully autonomous driving capabilities, which might still be over a decade away from the mainstream.

Read more

More Headlines

🏢 Wall Street has abandoned Wall Street (WSJ)

📉 Meta stock plunges on weak revenue guidance

📝 FTC votes to ban noncompete agreements

😬 The least affordable metro areas for America’s middle class

💰 Senate passes $95 billion aid bill to Ukraine, Israel and Taiwan

🤔 Why higher for longer might not be a bad thing at all

🌃 Detroit Proves to Be a Model for American Downtowns

Remember earlier this month when we discussed how St. Louis’s downtown is in a doom loop? Well, there’s hope for American cities, especially those in the middle of the country.

Look no further than Detroit, “The Motor City,” which has drastically reversed its fortunes. 

On the rise: Once bankrupt and plagued by urban decay, Detroit has undergone a surprising real-estate boom, making it a model for other struggling cities. The city's downtown is enjoying a development surge. 

• Major companies like Ford and developer Related Cos. have invested billions in office buildings and properties. Home prices have surged by 40% since 2020, and the number of downtown apartments has more than doubled since 2010 at 5,903. 

Key reasons for Detroit's turnaround could provide a blueprint for others:

Leadership: Billionaire Dan Gilbert, co-founder of Rocket Mortgage, has been a driving force. His company, Bedrock Detroit, has bought over 130 properties downtown, converting old buildings into apartments, hotels, offices, and retail spaces.

Preservation of historic buildings: Unlike other cities where old buildings might be torn down, Detroit's abundance of historic but empty buildings became opportunities for Gilbert and other developers to renovate and repurpose them.

The buildings, with beautiful architecture, were converted into apartment buildings and other commercial spaces, preserving the city's character. Many other old American cities with better days also have old, beautiful buildings ripe for redevelopment. 

Diverse investments: Developers have diversified investments beyond office spaces by adding casinos and sports venues and restoring aging theaters, reducing the city's dependence on office space. This diversification has made Detroit less vulnerable in the age of remote work.

Tax incentives and funding: The city and state have offered tax breaks and other financial incentives to attract developers and investors. For instance, the Michigan Central project received over $200 million in tax incentives.

Public-private partnerships: Major companies like Ford also invest heavily in Detroit's downtown. Ford is spending over $900 million to redevelop Michigan Central and surrounding properties, while the Ilitch family, owners of Little Caesars Pizza, is partnering with developer Stephen Ross on a $1.5 billion development.

Why it matters:

It’s no secret that old industrial-age cities have had a rough go, especially amid globalization toward the second half of the 20th century and the rise of the internet. 

And, to be sure, Detroit still faces challenges. Office vacancy rates remain high, and foot traffic has not rebounded to pre-pandemic levels due to remote work. 

• Rising interest rates and cautious banks have made development financing more challenging. Concerns remain about the future of General Motors' old headquarters, the Renaissance Center, and issues related to homelessness and mental health in the downtown area.

Breaking free: But Detroit's downtown recovery is ahead of schedule, offering valuable lessons to other cities on reviving empty downtowns and breaking free from urban decay. 

• As Gilbert stated, "If somebody would have told you there was going to be a Gucci store in Detroit 10 years ago, I mean, I would have laughed at them."

Maybe other Midwestern cities will take note. 

Read more

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Quick Poll

On Monday, we asked: If you were Nike CEO tomorrow, what would you do first to get the company back to growth?

— Respondents had many ideas, including finding better endorsement deals, launching new products, and doubling-down on an already enormous marketing budget. “Nike needs another Michael Jordan, that probably will never happen so creating new products would be the best alternative.”

— Another reader said, “Get back to reasonable shoes (and reasonable prices) - something that the public as a whole might want to buy.”

— Others said new product lines is Nike’s future. “Other brands like On, Hoka, and Speedland are leaving Nike in the dust in terms of product quality. Nike is a premium brand and their products should be premium products.”

See you next time!

That's it for today on We Study Markets!

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