[TOP STORY] Musings on Pelosi’s Taiwan trip, the Ukraine war and Tesla’s valuation

SIMON BROWN: I’m chatting with Viv Govender from Rand Swiss. Viv, I appreciate your time today. I want to touch on some geopolitical [matters], and kick off with Nancy Pelosi. I think many of us were tracking her flight, was it back on Tuesday where she was edging towards Taipei city, Taiwan. She did land. Markets, however, didn’t seem to mind too much – but this is not a non-event in the bigger picture of tensions between China and the US.

VIV GOVENDER: Oh, most certainly not. Look, they were never go and attack Nancy Pelosi. That would’ve caused World War Three, almost certainly, That’s the kind of like Archduke Ferdinand kind of situation which, weirdly enough, is its anniversary, I believe, this week.

But the Chinese are definitely reacting quite strongly to this. You’ve seen, I’m sure, the videos of them firing rockets into what’s called Japan’s exclusive economic zone. Basically it’s the waters that are something like 200 km off the coast of Japan, because it’s the country’s territorial economic zone, basically, whatever. And this is all very provocative, but it’s kind of like what the Chinese are willing to do right now.

Whether or not it might influence their decisions around Russia could be something that I think we need to look at, because up to this point the Chinese have been really reluctant to help the Russians. The Russians are basically sitting alone, without any kind of equipment coming in from other sources and so on, and [that could have] bottlenecks for them. But with this kind of event it might be an easy way for the Chinese to basically stick one to the US, while not directly going into conflict with them. And it could turn the Russia/Ukraine conflict basically into a literal proxy war between the US and the Chinese, which is obviously something we don’t really want to have happen.

SIMON BROWN: Yes. We’ve seen those sort of proxy wars before down here in our own continent, Afghanistan and other parts of the world.

The market’s not reacting. Fair enough. But, as you mentioned, it has enraged China. They’ve been sabre-rattling. But if we look at China-US tensions, they’ve been getting more stressed. Obviously there was Trump, but we all said Biden wasn’t going to walk back on many of those, and he didn’t. This just makes our two largest economies in the world probably get angrier and angrier with each other. And there are going to ultimately be economic considerations aside from potential support from Russia.

VIV GOVENDER: Oh, yes. Also you can understand that the Chinese are not a democracy. If you look at the kind of stuff they pulled off with the Covid situation, that’s all politically driven. No economic reasoning would basically allow you to that normal democracy……3:01 where they shut down for instance Shanghai that surrounds a hundred million-plus people basically off a few Covid cases where it’s because they don’t want to admit that their vaccines don’t work as well. They want to go through the zero-Covid policy and continue ……3:18 for the next five years, maybe, as far as the zero-Covid because HIV…… as a case basically locked it down, as much as they need to lock down to prevent any kind of expansion.

So that’s the kind of stuff that the Chinese are able to do. In that environment do you really believe that, if they think is politically viable, they will not engage in some kind of stronger economic action against the US? I think it’s quite likely. And in fact, if you look at the Chinese newspapers and the Chinese kind of blogs – of curse I’m using translators and I’m not really doing them directly, I’m not much of a polyglot – [there] does seem to be quite a lot of pressure from the Chinese people themselves about the humiliation they’ve suffered from the Americans, and they want to see a bigger reaction. And then from TVs……4:01 point of view, I think it’s also going to be totally in his character because remember he has this kind of …… part of his legacy on the fact that he will get Taiwan back into the Chinese fold. And he’s also going to be quite politically motivated from [here on] forward.

We must not forget at the moment the Chinese are experiencing a really drastic upheaval in their real estate/lending sector. That I think might be a good way to distract from these internal conflicts that are much harder to solve.

SIMON BROWN: Xi Jinping – there was no chance he was going to shoot down Nancy Pelosi; of course not. But is it on the table that he invades Taiwan? That to me was always off the table, but then I saw Ukraine/Russia back in February. and suddenly it was like ‘hang on a second’. And China’s watching that and truthfully, yes, Russia’s got sanctions, but they’re still exporting energy to Europe. They’re still selling PGMs. We can see that in the price points. Does this put a Taiwan invasion back on the table?

VIV GOVENDER: Look, if you listen to any …….5:0 military ……, I would suspect not. The Russians are exporters of food and energy. The Chinese are effectively importers of both. They may grow their food, but they get some of their fertiliser from international sources. They actually get a lot of their energy from international sources, and the seas belong to the Americans. That’s just a fact. It’s the Americans that basically make sure that the seas…….5:19 will function properly.

If you look at what’s happening in terms of China, if the Americans wish to they could cut off very easily all supply of Middle Eastern oil to the Chinese. They control that area. You know what I mean. The flow of resources from Africa, from South America, from Australia would all virtually cease. It’s one thing to be an exporter like the Russians and export food and energy, and have that export be diminished. It’s another thing to be an importer of food and effectively food and energy, and have those sanctions placed on you. It’ll be a very different situation.

SIMON BROWN: Yeah, that’s a great point. I hadn’t thought of that. That’s an absolutely great point.

Let’s quickly touch on Ukraine/Russia. That war will be six months old later this month. It has got to the point now where there’s almost a sense that international sort of politics has kind of moved on. We are not seeing all the leaders flying to meet Putin. Markets have kind of moved on. It’s happening, but it has sort of just become a one of those wars that exist – in this case happening in Europe, notwithstanding, I take your earlier point, that it might become a bit of a proxy war between China and the US.

VIV GOVENDER: Oh, yes. I don’t read Russian but, according to the Russian sources that I do see translated, apparently the Russian mode is going to be to try and pressure Germany in the next few months to do something about the Nato involvement in that war as we head into winter, that was effectively …… 6:50 August we happen to hit zero …… autumn, but winter is coming quite quickly. It’s quite possible the Russians think that if they get into winter and they’re able to basically pressure the Germans with regard to energy supplies and other things, they might cause the Germans to be more reluctant to get Nato ……. 7:06 like destroy the Nato …… to the UK. Well, not Nato. The Ukrainians don’t have any chance at all, because the Russians now are using some quite heavy machinery and the only way the Ukrainians are able to match up with that is by getting these massive inflows of really sophisticated large arms from the US and other Nato allies.

If the Germans can be convinced to back off a bit because of their energy demands, then we could see that kind of going to a stalemate or even a Russian victory really soon by the winter. If however that does not happen I don’t think the Russians are politically able to walk back here without some significant concessions. The Ukrainians probably won’t give any of these concessions because if the Russians are not winning they’re losing. So I think that’s going to be a situation where it could easily go on for many, many years.

SIMON BROWN: Let’s change tack for a quick last question. Tesla – you and I first chatted about it probably two years ago. It was about $200 a stock then. Your argument was always it is a tech stock; stop looking at it as a vehicle manufacturer. It had a massive selloff, as did everyone else, but it’s up 50% since the lows. The results were, I thought, quite solid. Tesla is sitting pretty here. And, if anything, autonomous driving and the like remain a fairly big driver. The only downside, perhaps, is Elon Musk and his silly games with Twitter.

VIV GOVENDER: Look, this is a case of is it the technically possible for us in the current environment to do this. If we could …… …… 8:48 fully autonomous driving, then what’s going to happen is the world changes, literally. It would be like the invention of electricity, it would be the telegram. It would be one of those major inventions that changes the world, in which case Tesla would be incredibly valuable.

And it won’t just be cars. One of the reasons that Tesla would be really powerful is because the same technology that makes your car go would make that robot that they talk about go as well. Robo Tesla did come out and say that they delayed their latest tech kind of meeting, because they think they might have a possible working prototype by the end of September – which is next month. If that is possible, then we talk about a very different kind of valuation for the company.

But in terms of a simple valuation, I saw somewhere something like, if you look at VW, and Ford is what, about $10 000 per car – that’s the valuation of the company for the cars its produces. Toyota goes up to about R26 000. Tesla goes up to close to a million dollars per car in terms of that’s valuation associated with it. It is obviously totally out of sync with every other car manufacturer in the world and the only way the valuation stays at this level is if the tech comes into play. Right now it’s been reasonably interesting what Tesla has been able to do.

But one thing I think people must also keep in mind is that Tesla does not spend as much on research and development – not even close to what VW or Toyota is doing. It’s just that they’re focusing on these moon-shot……10:12 ideas. But VW, Toyota are more concerned [about] making their engines slightly more efficient or getting a better colour paint or more comfortable seats or whatever. But Tesla is focusing these moon-shot …… things out there. If they work out the valuation is probably cheap. If they don’t, this this company is a very, very different animal. It can’t be valued as a normal car company and have a valuation this high.

SIMON BROWN: Yes. I’ve got to say I drove to Pretoria yesterday the first time in a long time – an hour each way. Man, I want autonomous driving.

We’ll leave it there. Viv Govender of Rand Swiss, I always appreciate your time, always appreciate your insights.

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