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Analysis: Tech woes in China, puff plays in the US

By Paul Mackintosh  
May 15, 2019

News from Reuters that leading Chinese technology investor Sequoia Capital China is apparently cutting up to 20% of its staff can only fuel expectations of a general tech slowdown. US President Donald Trump’s latest round of tariff increase on Chinese goods, and the ensuing global stock market plunge, provide all too clear a context for these cuts. The US-China technology axis, more important than many policymakers realise, looks under stress, with unhealthy implications for the sector worldwide. Except, it seems, within the bubble of US tech fundraising plays.

Tesla is now pushing to raise up to US$2.7 billion through an offer of fresh stock and convertible notes – straight after a stock slide following a $700 million-plus operating loss off lower deliveries. Companies like Tesla and Uber are now floating promises of ever more “visionary” – a.k.a. nebulous blue-sky – future platforms and networks to justify present greed.

Tesla Chief Executive Officer Elon Musk talks up plans for an autonomous driving network that will turn current Teslas into robo-taxis, pushing the company’s present business model into the back seat.

Uber, meanwhile, is pivoting away from its ride-hailing model more sharply than any Uber driver rounding a hairpin bend: now, apparently, it’s an Amazon-style payments-and-delivery play.

If you thought the original dotcom bubble of the 1990s was overinflated, just watch these proposals and their backers puff and puff. Only, who’s going to be left holding the string when the bubble bursts? (Hint: some stock pundits are already tweeting predictions of a sharp Tesla stock drop post-offer, trending down by up to 20% within a month.)

Tesla especially should be keeping more of an eye on the rocky macro road. Its prospectus for its latest stock offer states that, “in particular, Gigafactory Shanghai is a key strategic component for our growth in China, the largest electric vehicle market in the world”. Meanwhile, there’s nothing about robo-taxis or autonomous driving in the document. Maybe just as well, since another filing for US Section 301 investigations on intellectual property transfer to China states that Tesla was unable to source manufacturing for even its current Autopilot system, “the brain of the vehicle” in the US, and had to turn to Quanta in China. Yet the Trump administration has specifically refused to exempt Tesla from its tariff hikes.

Reuters quotes Nord LB analyst Frank Schwope saying that Mr. Musk “always tries to surprise with promises that are often not kept”. Conjoined with a stock offer, isn’t there a US law against that?

To my mind, US tech companies and their financial backers would be better engaged lobbying to stave off futile trade spats and moderate global volatility rather than fuelling it with further fantastical puff plays.