Gassed Out
Britain
Here in the US, we hear talk of energy crises every summer and winter, as air conditioning strains electrical grids and severe winter storms threaten power outages or natural gas shortages. Fortunately (?), the US drills, fracks, and refines much of its own oil and gas, and has a robust power grid to move power where it’s needed with minimal loss. Some states - okay, just Texas - have experimented with creating their own private power fiefdoms, and it’s been a mixed bag, though Texas has the benefit of producing a lot of oil and gas and borrowing billions to prop up its energy companies.
What would happen if a country let’s say, twice the size of Texas tried the same thing? Well:
The UK government has of course reassured people that rolling blackouts are ‘unlikely,’ despite the fact that we may very well not have enough natural gas to provide heating and electricity to businesses or even households this winter. Fossil fuel prices have reached record highs this year, supplies are low, the Russian pipeline supplying continental Europe is currently down for maintenance, and consumer utility costs in the UK have skyrocketed.
If you’ve visited the UK within the last decade or so, you’ve probably seen odd-looking metal skeletons dotting the landscape:
These are the remains of gas storage tanks, most of which were dismantled over the last few decades as the country’s gas industry was privatized and companies like BP decided lots of storage was a needless expense, because what could possibly happen that would require all that extra energy?
In the US we lose our minds when gas crests five dollars a gallon, but what if the cost to run your home went up 80 percent in a few months?
…the UK’s energy regulator, OFGEM, announced that household utilities will rise in October to £3,549 (about $4,200) per year, or about 11 percent of the median UK household disposable income. The UK’s Office of National Statistics defines disposable income differently than you might expect–it means income after taxes, but before deducting any cost-of-living expenses.
[…]
For a person employed full-time at minimum wage, household utilities are now about 19 percent of their disposable income. For someone on the minimum state pension (the U.K. equivalent to the American Social Security program), it’s about 36 percent. And energy rates are set to rise again in January, this time to an estimated £4,210 per year—18 percent more than the exorbitant October rate.
Imagine if every retiree had to pay a third of their income just to keep the lights and heat on? Crazy! Making matters worse, businesses do not have the same government-imposed caps on energy costs leading to crazy stories like this:
A Chinese takeaway in Aberdeen has been hit with a £10,000 gas bill - 10 times more than what they would usually owe.
Owner Martin Tang's quarterly gas bill for Royal Crown usually amounts to about £1,000.
His electricity bill is normally a similar price, but this quarter it totalled more than £4,000.
That is obviously not sustainable for a small, family-owned takeout restaurant. Pubs - the iconic British institution - are warning that more than two thirds could go under if the government doesn’t step in and cap energy bills:
The warning came as pub operators reported similar rises in energy costs, with reports that some suppliers are refusing to offer new contracts to the sector because they fear pubs may not be able to pay their bills. More than 35% of operators said they had seen their utility costs double, while 30% said their costs had tripled, according to a survey for the trade publication the Morning Advertiser.
The problem will likely impact all small business in the UK, according to increasingly dire reports from industry groups:
…data published on Friday by the Federation of Small Businesses (FSB) shows that a majority of firms – 53% – expect to stagnate, shrink or fold in the coming 12 months.
[…]
A Labour analysis showed that there were a record 20,200 fewer businesses in the second quarter of this year – the largest loss in this period since records began.
So, what’s the government doing about this? Thus far, both major parties have been dead set on propping up the same privatized system that is gouging its citizens into destitution:
Recent reports estimate that the total cost to the government of the Bulb bailout will be £4 billion (about $4.7 billion USD). By contrast, Britain’s Trades Union Congress estimates that nationalizing the five biggest energy suppliers would cost the government £2.85 billion.
[…]
Labour’s big policy announcement was that it would propose a freeze on the price cap, and would use government funds to pay the private energy companies the exorbitant difference.
While British citizens face a winter with uncertain heat and power, and energy bills that may consume a third of their disposable income, BP is making record profits and making it rain on its shareholders:
BP has revealed second-quarter profits more than trebled to a 14-year high as it joined Shell in reaping the benefits of soaring oil and gas prices.
[…]
BP delivered cheer to investors, with a 10% rise in the dividend shareholder payout and by ramping up its share buyback plan with another 3.5 billion US dollars (£2.9 billion) due before the end of September.
You would think that with all these compounding factors threatening to send the UK into a dangerous economic and humanitarian spiral, the candidates to replace Boris Johnson as the country’s leader would be taking the crisis seriously. Right? Right??
Neither candidate has offered a comprehensive package to deal with families hard hit by spiraling food and fuel prices. Mr. Sunak has proposed cutting the value added tax on energy bills, while Ms. Truss has promised targeted aid to consumers.
With Ms. Truss’s emphasis on tax cuts, the campaign has seemed increasingly untethered from the reality of a collapsing British economy. Household energy bills recently shot up by 80 percent; Goldman Sachs warned that inflation could reach 22 percent early next year; and the Bank of England forecast a lengthy recession.
When government officials are suggesting drinking recycled wastewater might not be so bad and the likely Prime Minister is denying the country will ration energy when it very clearly will need to, it’s hard to see an easy way out of this for the UK. It’s easy to shrug and point out that the populace has repeatedly voted for Conservative governments who’ve done their best to gut regulation and shift critical services to for-profit companies, but the consequences of their naivete will, as usual, hit the least fortunate the hardest:
This is a country where an estimated 33 percent of children lived in poverty before the cost-of-living crisis began. A recent analysis claimed Britain ran the risk of becoming an emerging market economy, which is an awkward way of saying that the fifth-wealthiest country on earth is so dedicated to neoliberal ideology that it may in fact collapse its own economy in the next six months.
With everything going on in the US, I admit I did not have the UK on my list of ‘countries most likely to suffer a collapse of basic services’ but unless the government takes its duties seriously, things could get very bad very quickly this winter.
EVs
There is a lot of good news in the world of electric vehicles - new offerings from major car brands seem to be good quality, lower cost, more reliable alternatives to Tesla and its raft of startup imitators.
The thing about building cars and trucks is that it is a very expensive - ‘capital intensive’ - endeavor. It costs a lot of money to build assembly lines, factories, and to source all the parts you need before your first car rolls off the line. It’s one reason we talk about EV companies raising billions of dollars before they’ve built anything. In fact, Tesla needed billions in tax breaks and government subsidies to get where it is today, and they were helped tremendously by first-mover advantage and the personality cult around its not-quite-founder.
Many EV companies had to go public to raise the billions to build their cars. Then tech stocks went down. Now, they may not have the money to build the cars:
Electric vehicle startups that cashed in by combining with blank check companies were running out of money just as swiftly shifting market conditions were making it a real bad time to go broke.
Sure enough, over the last few months we've seen several of these EV hopefuls pursue paths that are less than ideal for their employees and investors. Five of them have announced plans in the month of August to raise a combined $9.5 billion to buttress their balance sheets, even if it may mean diluting existing shareholders. Another is cutting workers and tabling projects, and another agreed to a sale at a steep discount to its valuation at the time of its deal with a special purpose acquisition company.
Not great! Some companies thought that inking impressive-sounding deals to sell lots of vehicles would be enough to keep them afloat, like Lucid:
The maker of $169,000 Air sedans raised more than $2 billion from a convertible debt offering in December. It then locked in an order for up to 100,000 vehicles from Saudi Arabia in April, and the following month lined up as much as $3.4 billion in financing and incentives for a new factory it's building close to a major trading port along the Red Sea.
Now, it needs another $8 billion to stay afloat, which puts its total raised at an eye-watering $18 billion. The company had originally forecast it’d produce 20,000 cars this year, but now estimates it will make closer to 7,000.
Rivian, maker of very expensive electric pickups, was once valued at $153 billion dollars for some reason, and has since inked a deal with Amazon (also a major shareholder). Despite all this, and despite the company overcoming production challenges to hit production forecasts, the company’s stock has taken a beating, and it’s bleeding money:
Rivian's operating expenses in the first quarter totaled about $1.1 billion, up from $410 million in the year-earlier period, Zacks said, putting the automaker's second-quarter numbers under scrutiny.
Rivian could burn as much as $4 billion a year to produce 25,000 vehicles, which even at premium prices means the company will lose billions a year until it reaches some presumptive critical mass. Ford, on the other hand, expects to produce 150,000 of its wildly popular EV pickup next year, without needing billions to simply keep the lights on.
Lastly, there’s Canoo, the EV company that took a major investment from Walmart and is set to build 4,500 vehicles for its delivery fleet. It’s…well, even by EV company standards it’s a mess:
Crack open the hood even an inch, however, and it’s clear that, even with the Walmart deal, Canoo is floundering to an extreme degree.
[…]
But executives have been bleeding from the company—many of them off to start new ventures themselves. Institutional and retail investors have lost interest, with Canoo’s stock hovering around $3.50—down from $8 earlier this year, and from $15 shortly after its SPAC merger at the end of 2020. Canoo is burning cash—with nearly $300 million lost in the first six months of this year. Canoo’s regulatory filings are muddled with generous payment arrangements between the company, its CEO, and Aquila’s affiliated business entities.
Maybe at some point in the distant future we will be able to sit down and tally up the billions poured into buzzy industries - EVs, crypto, fintech, etc - and how much of it ended up in the pockets of a small number of founders and investors, but that’s a project for another day.
Here’s a fun Canoo anecdote:
Not long before Canoo’s SPAC announcement, the company’s original CEO, Stefan Krause, had departed from the company. He left after the head of communications, who was also his wife at the time, filed a lawsuit against him and the company alleging wrongful termination and harassment, among other claims.
When the CEO’s wife is suing him for harassment right before you’re set to IPO, I don’t know if that’s a great sign. Canoo was also backed by a Chinese investor who caught the attention of US national security agencies. Its executive team has turned over two? three? times since 2021.
Any time there are billions in investor cash ready to deploy into the new hot thing - SPACs! EV SPACs! - there will be grifters and charlatans, and now that the market has swung downwards many of them are seeking more funding, hoping sunk cost fallacy will keep them afloat until they can either build vehicles or get bought by someone else who does.
After the dust settles, it seems likely that the legacy manufacturers will be the ones left building safe, reliable, reasonably priced cars people want to buy. Then we have to worry about whether our power grid can handle it, but that’s a problem for a new set of startups of solve, right?
Amazon
A couple weeks ago we talked about Meta’s India problem - their best hope to maintain user growth is a country they’ve largely ignored, allowing Facebook India to become a cesspit - a mouthpiece for Hindu fascists and a dangerous, stalker- and porn-infested newsfeed for Indian women.
Another American tech megacompany tried to bet on India as a growth market, and it’s not going great:
Amazon is lagging its chief rival Flipkart in India on several key metrics and struggling to make inroads in smaller Indian cities and towns, according to a scathing report by investment firm Sanford C. Bernstein.
It turns out that when Amazon is unable to use its anticompetitive tactics and market dominance to muscle out competition, it has a hard time making money:
Amazon, like Walmart’s Flipkart, operates a marketplace business in India due to local regulatory requirements. It’s facing a wide range of other regulatory pushback in the South Asian market. Marketplaces cannot have a controlling stake in sellers on their platform.
[…]
A single seller cannot have more than a 25% share on a foreign-owned online marketplace. No e-commerce marketplace platform can mandate a seller/brand to sell exclusively on the platform. “It has also clamped down on deep discounts,” the report adds. Additionally, a new guideline proposed by India’s central bank, if enforced, will impact Amazon’s buy now, pay later offering, the report added.
I am loathe to compliment the Indian government for anything, but its regulations and laws preventing e-commerce giants from unfairly capitalizing their own platforms with their own products, forcing merchants to exclusively sell through them, and cut prices below competitors to gain market share actually…work? How about that.
It’s not to say India’s e-commerce landscape is a paragon of free market capitalism - Amazon’s main competitors are owned by Walmart or backed by Softbank and Tiger Global, but it’s interesting to note that when the company is unable to use many of the strongarm tactics that helped it dominate the US market, it’s unable to keep up with any of its rivals.
Ritas
Before you get upset - we’re not talking about the water ice company. We’re talking one of my favorite things - food lawsuits!
A Missouri federal judge has approved a settlement to proceed involving several customers and Anheuser-Busch, allowing the beer and wine megalith to reimburse those who say they were deceived by the company’s packaging of its “Ritas” products into believing these products contained alcohol other than beer.
This is an interesting case, because I confess I’ve enjoyed more than one Lime-A-Rita at a baseball game or cookout. Thinking back, I’m not sure I considered whether it contained anything other than some malt concoction - it’s sold in the beer cooler, right? - but apparently someone did, and was upset to learn it did not:
Essentially, this case set out to prove that the name “Lime-A-Rita,” for instance, is misleading because a traditional margarita contains tequila and other spirits, and since Ritas products only contain beer with fruit flavors, the plaintiffs said it was a case of false advertising.
I am sympathetic to plaintiffs who buy things claiming to be vanilla or natural or whatever and finding out they were misled, but this case seems a little more…subjective to me?
The plaintiffs said they “never saw a disclaimer regarding the purchased products’ true contents,” and both allegedly relied on the what they say product implied it was according to their understanding, which caused them to “falsely believe that the Margarita Products contained tequila and the Wine Products contained wine.”
I mean, you could read the ingredients if you cared that much? However! One thing I’d forgotten was what the cans look like:
The plaintiffs also alleged in the suit that the use of the terms “Margarita,” “Mojito,” “Sangria” and “Rosé” “mislead a reasonable consumer into believing that the respective Products contain either tequila, rum, or wine,” adding that the these products’ respective packaging contained “a combination of misleading images and language, such as ‘sparkling classic cocktails’ with images of cocktail and wine glasses.”
Uh yeah! Saying something is ‘classic margarita’ flavor and showing a picture of a margarita on the can is pretty misleading. You can maaaaybe call something a Rita, but the packaging team got way out over their skis on this one.
Anyhow, the story has a happy ending:
As of 2022, the packaging on Anheuser-Busch line of Ritas on the product’s website contain the term “Sparkling Margarita,” and a disclaimer in the descriptor of each product refers to the beverages as “lime beer.”
This is an appropriately absurd outcome to this kind of lawsuit, and I’m glad justice has been served, on the rocks. I will probably skip the Ritas at the ballpark, because if I’m going to drink lime beer it will be the far superior Bud Light Lime, which does not rely on subterfuge to deliver artificially flavored swill into my body.
Short Cons
CNBC - “Klarna on Wednesday reported a dramatic jump in losses in the first half, adding to a deluge of negative news for the “buy now, pay later” pioneer.”
ProPublica - “A ProPublica investigation determined that Jugenburg’s dubious alter ego was created as part of what appears to be the largest Instagram account verification scheme ever uncovered.”
ProPublica - “After the state’s largest utility sold consumer debt, thousands of Detroiters faced default judgments and garnished wages. The utility only reaped pennies on the dollar.”
Tips, thoughts, or Bud Lights Lime to scammerdarkly@gmail.com