The Future of Food, EVs in the Spotlight, and 3 Trends to Watch in 2022
Nikola (NASDAQ:NKLA) shares rise on an announced deal to sell 10 trucks (with the possibility of 90 more) to a logistics business. In this week’s episode of Motley Fool Money, host Chris Hill is joined by Motley Fool analysts Emily Flippen and Jason Moser. Emily weighs in on “the future of food” and the growing interest in electric vehicles, and discusses Sony‘s (NYSE:SONY) rollout of an electric SUV as it aspires to becoming an automaker. Later in the program, Jason Moser discusses three trends for investors to watch this year:
- How Shopify, Etsy, Wayfair, and Lowe’s are approaching their own investments in “the last mile.”
- Semiconductors are at the center of global supply chain issues and how businesses like AMD and Marvell Technology are reacting.
- Tech behemoths like Apple, Alphabet, and Meta Platforms are preparing for the metaverse, but so are smaller companies like Unity Software.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Jan. 05, 2022.
Chris Hill: Today on Motley Fool Money, we’ve got a closer look at some of the retailers investing in the last mile and some of the tech companies investing in the metaverse. All that and more coming up right now. I’m Chris Hill, joined by Motley Fool Senior Analyst, Emily Flippen. Thanks for being here.
Emily Flippen: Thanks for having me, Chris.
Chris Hill: We’ve also got surprising automotive news from the first day of CES, but we’re going to begin with the future of food. This morning, KFC announced it will roll out a Beyond Meat (NASDAQ:BYND) version of its fried chicken nationwide starting next Monday. Shares of both Beyond Meat and KFC’s parent company, Yum! Brands up slightly on this news. Emily, they started testing this in the summer of 2019. They’ve been working on this for a while, so you have to believe they’re confident in this national launch.
Emily Flippen: I actually think they’re not confident, Chris. The reason why I say that is because when I reflect on the last quarter for Beyond Meat and the way that management talked about their food service sales, that’s the sales of their products in places like restaurants versus grocery stores. They are feeling was actually really tepid, and this was coming out at a time when they already had the partnership with Yum China‘s KFC in China, as well as with chains like Panda Express. I actually think the presser is on for Beyond Meat right now, because consumers and investors are looking at the partnerships they’ve made in the past in particular that with Dunkin Donuts and they are looking and asking themselves, “Okay, well, is this going to be a thing that actually sticks around or is this going to be another Dunkin?” As many investors will remember, Beyond Meat had a launch a couple of years ago with Dunkin, really publicized, had Snoop Dogg in it and it saw the Dunkin beyond sausage sandwiches rolled out nationwide, and earlier this year those were actually pulled back. They need this KFC launch to be really successful and they need that partnership to last longer than 9-12 months. They need that partnership to last for five,10 years into the future.
Chris Hill: I remember trying that Dunkin breakfast sandwich. I liked it and my problem with the sandwich was not the Beyond Meat sausage. It was actually the Dunkin part of it. But anyway, let’s go back to the partnerships for a second because that’s one of the questions I have about this business. You look at the stock, it is basically where it was on the first day it went public. It’s been cut in half over the past year. What is going to drive this stock higher? Is it partnerships like this sticking around? Or is it the retail presence and really becoming more of a daily habit in everyday consumer lives?
Emily Flippen: In my opinion and as a shareholder of Beyond Meat, I think it’s the partnerships with the foodservice at the restaurant in fast casual establishments, that is going to be the thing that will set Beyond Meat apart. If you actually look at fast foods supply chains, relationships between the suppliers and the change themselves have tended to be really sticky. There’s a lot of work that goes into bringing a new product into a foodservice location. It’s not done very quickly. You can actually look at the way that McDonald’s started its partnership with Coke as an example.
They had this initial agreement decades ago, but its consents continued in this lock step motion and to this day, you can still only find Cokes and McDonald’s. You’ll never go to McDonald’s and get a Pepsi. Once those relationships are formed, they tend to be pretty lasting. Now, this hasn’t been the case for Beyond Meat thus far, again, pointing to that Dunkin partnership. But if they can get that type of decade’s long lasting relationship with foodservice establishment, that’s going to create really sticky, long-lasting partnerships that should result in some decent shareholder returns from this point out. The big question right now is, well, our foodservice establishments’ really going to be buying into not just the non-meat alternatives, but Beyond Meat’s non-meat alternatives.
Chris Hill: I’m really fascinated to see how this plays out now, because I’m thinking about what you said right at the top. Your belief is that, Beyond Meat is maybe not as confident in this launch. This is a nationwide launch. This is something that KFC tested in a couple of localities in the southeast part of the United States. They’ve got 4,000 restaurants across the US. Doesn’t KFC at least have to be confident in this launch?
Emily Flippen: Typically when you have a foodservice establishment that is looking at a trend, you can look at the chicken sandwiches as an example. They want to act quickly, being the last person to act means that you’ve already lost the momentum behind the trend and the fact that it’s taken so many years for Yum in the United States to really get behind Beyond Meat here and get behind this chicken product says to me one of two things. They’re nervous about the staying power of this trend, or they’re nervous about the quality of the products. Now that doesn’t mean that this launch can’t be successful. Again, as a shareholder, I really hope that it is, but the time that it has taken from initiation to creation is a little bit worrying to me.
Chris Hill: Shares of Nikola are up seven percent this morning. The EV company struck a deal with USA Truck logistics business. USA Truck will buy 10 of Nikola’s electric trucks. Seems like a nice little deal, but what does it say about Nikola that the stock is up seven percent on a deal for just 10 trucks?
Emily Flippen: Well, it says a lot about the history of what it means to be the company that is Nikola. Let’s take a step back for people who are not familiar with this carmaker. It was a business that went public in 2020. Had the goal of creating hydrogen fuel cell trucks and other electric vehicles for commercial sale. Shortly after its IPO, the Founder and CEO, Trevor Milton, was actually indicted for criminal and securities fraud, reportedly lying about nearly all aspects of the business. When you see the stock up on such a, what would normally be, say for business like Tesla, a small amount of news, it really just goes to show the very low amount of expectations that investors have for this business. Nikola still trying to come out of this controversy as a real carmaker. They’re making some headway here. They delivered their first pilot trucks at the end of last year. That was the first step in the business to reach production in sales. The buy-in here, even in the only the amount of around 10 cars still says, ”Hey, maybe there’s some opportunity for production to wrap up in this business.”
Chris Hill: You mentioned Tesla and I know that Tesla is the obvious comparison for any EV maker, but when I read this news, I actually thought about Ford Motor, because the F-150 Lightning electric truck is coming out this spring and the bad news for Nikola is they’re not just competing against the likes of Tesla, they’re now about to be in direct competition with Ford Motor and based on everything we’ve read, we’ll see when it actually launches. But based on everything we’ve read so far, it seems like there’s a lot of reasons to be optimistic about the new EV version of the F-150.
Emily Flippen: There are a lot of reasons to be optimistic about electric vehicles in general. We’re seeing that tipping come in terms of adoption here. But these are still electric trucks that they’re selling and as you mentioned, everyone in their docks right now are making electric cars, electric trucks. What was supposed to be the aspect that setting Nikola apart, was the fact that they were going to be making hydrogen fuel cell trucks. That was what was promised when they IPO-ed in 2020, they did pivot back toward electric vehicles because it was easier for them to get out and scale without needing the logistics and infrastructure for hydrogen fuel across the United States. They still want those hydrogen fuel cell trucks to be launched in 2023. I’d imagine that a lot of people who are still holding onto shares of Nikola, are owning these shares not under the premise that they’re going to be the next Tesla or the next Ford in terms of their electric vehicle production, but in the belief that hydrogen and hydrogen fuel cell trucks can be the new long-way range that we use to transport machines and other items across the country. They haven’t created that yet, so it’s still very much in the air.
Chris Hill: The last thing before we move on. In terms of Nikola, you look at the stock, it’s down about 65 percent off of its recent highs. I understand the enthusiasm for at least some investors out there who think, OK, there’s this stock that’s been beaten down, this is a nice deal they’ve struck here. Maybe this paves the way for more like this. Is it worth looking at their stock or are there enough question marks with the underlying business of Nikola that you just think to yourself, you know what? If you want to invest in EVs, there are better places for your investing dollars.
Emily Flippen: I tend to agree with the latter, Chris, which is, if you’re interested in this space, there are companies that have proven out a bit stronger than Nikola has. That being said, if you are a purist in the world of hydrogen and you really believe that that’s the future, then maybe you take a look at this company under the understanding that that concept and that technology has not been proven out yet and that that is going to be a very long-term investment as you wait for the technology to catch up to the ideas here. The important caveat I will add before moving on is that, when we talk about this story, again, that letter of intent from U.S. A. truck for 10 battery powered electric vehicles with an option to purchase 90 more over the next two years, it’s vital to remember that there’s a difference between a purchase order and a letter of intent. Nikola has done a great job in getting a lot of these letters of intent. It’s wonderful, but it’s not the same thing as that purchase order. It’s more of an agreement that two parties want the same thing to happen. I want Nikola to do well, but whether or not those purchase orders come in, whether or not those deliveries happen, especially as they apply to the hydrogen business, I think is still very much in the air.
Chris Hill: Let’s stick with automotive. Today’s the first day of CES, largest consumer electronics show in the world, thousands of exhibitors in Las Vegas, and one of the trends we’ve seen over the past 5-10 years is the increasing presence of automakers at CES. Automotive news coming out of CES is not surprising. What is surprising is that today the automotive news out of CES is not from an automaker, it’s from Sony, the consumer electronics companies. Sony rolled out the vision as electric SUV as apparently a direct challenge to Tesla. There are a couple of things I want to get to here, but first, what was your reaction to this story because mine was just utter surprise?
Emily Flippen: Well, my first reaction was forgetting that Sony was even still a publicly traded company that was apparently innovating on the backend here. The fact that Sony was even add CES to me was my immediate kind of, oh, I guess they’re still around and I will tell you what Chris, and prepping for today’s show I did take a look at that stock performance over the last couple of years and it’s actually been pretty phenomenal. Now, whether or not Sony mobility, which is their separate division within Sony that will so focus solely on those electric vehicles, ends up being the thing that propels that stock price even higher over the next five years. I think I’m still not quite sold on the concept, but I was impressed by the fact that they were still apparently trucking, even though I had no idea what’s happening on the backend.
Chris Hill: I got to say, I do like the fact that they are being very upfront about their ambition with respect to getting into the automotive space. So often, executive teams are trying to obfuscate in some way. They’re being pretty direct about what their goal is. That said, this is a challenge that they’re going to face, and by the way, Apple will face this too if they ever actually produce the much rumored Apple Car. Which is, why should I trust you with my safety? I think that’s the challenge for any non-auto maker. Like just because I like your phone, doesn’t mean I’m going to trust you to build a car that I feel safe driving around.
Emily Flippen: I’m actually interested in the fact that you came away from the story with the feeling that they weren’t obfuscating their perspective on what they were going to do. Because only four months ago, Sony was saying, we are not interested in launching a commercial car. So from September 2021 to today in January 2022, something changed behind the scenes and that actually points to some of the issues I think that exists behind their capital allocation strategy, which is they just throw money at the wall and they see what sticks. This idea that they’ve been piloting for the past year was supposed to be focusing on the Sony sensors, and instead they’ve turned it into this entire vehicle division. To me it just begs the question of, well, why don’t you use what your competitive advantage is?
When I’m looking at Sony, they could be innovative in creating an appliance or a plug-in that improves that customer experience of smart devices or electric vehicles, but I think they took a cop-out approach here by just taking their sensors, sticking them on an electric vehicle and saying, look, we’re a car company now. I wish I had seen a bit more innovation, a bit more creativity on the backend. Something that would say, look, Sony is going to be the competitor here in this specific niche, because when I look at the potential for Apple’s again to this space, obviously, Tesla being a big player. We just talked about Nikola and all these other businesses that are going to be competitors, I can’t help but think, I don’t see Sony coming out as a winner.
Chris Hill: I am glad you mentioned capital allocation because that was another thought I had. Again, as you mentioned, the last couple of years, the stock performance for Sony has been pretty strong, and one of my thoughts this morning was, really this is what you’re going to put your money toward? Why don’t you stick to your knitting in terms of consumer electronics, in terms of gaming? That sort of thing. Moving away from Sony because capital allocation is so important. The skill that any given executive team has with respect to capital allocation is one of those things that never shows up on the balance sheet directly, but it’s such an important skill. If you and I are of the likemind, and I think we are, that Sony could be better at capital allocation than they are at the moment. What’s a company or two that you look at and you think, that’s a company that’s doing it right in terms of the way that they invest their money, whether it’s reinvesting in the business, paying a dividend, buying back shares? There are a lot of ways to allocate capital. What’s the company or two you think that’s doing it right?
Emily Flippen: When we talked about Sony taking a cop-out approach here, I’m probably going to be taking a cop-out approach with my answer. But I think probably one of the best capital allocators we can look at today is actually Amazon. I love to point that you make about capital allocation skills not showing up on the balance sheet. Because you know where they also don’t show up? On the income statement, and Amazon got a lot of flak for decades about the fact that they weren’t producing bottomline earnings, and a lot of that was because they were taking capital and reinvesting it pretty aggressively into their business. Now, the good thing is, is that the management team at Amazon had a pretty clear vision for what they imagine the company to be. Now that doesn’t mean that all of the initiatives and the projects they put money behind succeeded. Clearly, they didn’t. At the same time, the ones that did succeed were accretive to creating Amazon as a platform.
When I look at Sony and I look at where they’ve allocated capital, they’ve created numerous products. They’re almost this conglomerate of interesting things that range from gaming, to media and movies, to disks, to memory sticks. But none of them point to Sony as a platform, Sony as a company, Sony as a brand, they all just exist independently. I think when you look at the difference of the way that capital is allocated across these two businesses, you have one that was done in a way to build up the Amazon brand, build up the Amazon experience. Whereas Sony was just trying to grow their top-line with no reflection upon whether or not that capital is really going to be paying dividends for lack of better words over the next few decades.
Chris Hill: Senior Analyst Emily Flippen, thanks so much for being here.
Emily Flippen: Thanks for having me, Chris.
Chris Hill: It wouldn’t be the start of a new year for investors if we didn’t get the mother of all predictions from the financial media. Here with some thoughts on that as well as some trends to watch is Motley Fool Senior Analyst Jason Moser. Thanks for being here.
Jason Moser: Hey, thanks for having me.
Chris Hill: Now in fairness, we made predictions for 2022, on last Friday’s episode above info money but the one that gets the most headlines is the question, will the stock market go up in 2022? And I get it. It’s natural to ask that question. It’s natural to wonder that if you’re an investor but if you’re focused on the long term, one-year doesn’t matter.
Jason Moser: Yes. I agree with you. It reminds me something I was thinking of earlier that in the near-term, stock price is not really a very good indicator, its not a reliable indicator of how a given business may be performing. Whatever, however you want to call it. It. It’s almost like the psychological state of the market at any given point in time but as you noted, it’s a fun question to deliberate is when we get every year, it’s when we ask every year. It is, I think, fun to start the conversation. Everybody is hitting reset at the New Year and wanting to think about what the market may do. Obviously the market coming off of a very strong performance here in 2021, I think up better than 28 percent with dividends and everything included. It’s going to be difficult to match that performance. It’s worth remembering for investors that on average the market has a down year, one of every three…