Last year I started an annual tradition—making a few risky, forward-looking prognostications about the future.
No, I don’t have a crystal ball, and I’m not a psychic, but I’ve lived and worked in Silicon Valley for decades now, so I hope I have some grasp on what’s coming. Let’s see how firm that grasp really is, though, by ruthlessly evaluating how I did with the five predictions I made at the beginning of 2017:
- By the end of 2017 the majority of traditional car makers will start forecasting significantly lower sales due to the adoption of the auto revolution trifecta— electric cars, autonomous cars, and ride sharing. It doesn’t make me happy, but GM, Ford and Fiat-Chrysler, the domestic big three, marked the first full-year sales decline since the Great Recession, USA Today reported.
- Tesla’s stock price will be valued at over $300 compared to its 2016 closing price of $213.69.Tesla’s stock price as I write this in mid-January: $351. That’s more than a 50% increase in 12 months—if only you would’ve invested, right?
- Amazon cloud services will become major players in the autonomous driving space.In November of 2017, Amazon announced the rollout of AWS Connected Vehicle Solution, a reference implementation for secure vehicle connectivity to the AWS (Amazon Web Services) Cloud. The AWS CVS offers autonomous carmakers capabilities for local computing within vehicles, sophisticated event rules, and data processing and storage.
- We will end the year with a slightly higher unemployment rate.Admittedly, I missed this one—the United States closed out 2016 with a 4.7% unemployment rate, and 2017 officially ended at 4.1%, according to the US Bureau of Labor Statistics.
- Warriors will win the 2017 NBA Finals! Oh yeah! Four games to one over the Cavs!
So with a respectable forecasting percentage of 80%, here are my crystal-ball gazing predictions for 2018:
- Tesla stock will peak above $500 during 2018—however, it may close the year below that level.
- Bitcoin will end the year below $10,000.
- The big traditional car makers will see their stock prices end 2018 below the level at which they started the year.
- The United States unemployment rate will start going up by the end of the year, albeit slowly.
- The Warriors will not win the NBA finals.(my apologies to all my friends in the Bay Area)
Allow me to explain the logic path behind these forward-looking prognostications:
1. Tesla stock will peak above $500 during 2018—however, it may close the year below that level.For a relatively new car maker I think Tesla had a terrific 2017. Elon Musk, despite the naysayers, continues to prove that he is a modern trail-blazer. Tesla began producing their mid-priced Model 3 to glowing reviews, and unveiled designs for the all-electric Tesla Semi and the new, surprising Tesla Roadster.
After last year’s acquisition of SolarCity, one of the nation’s largest providers of solar electricity, Tesla opened its Gigafactory battery production plant outside of Reno, Nevada, in January of 2017—instantly becoming one of the world’s largest producers of rechargeable batteries. A joint effort with Panasonic, Tesla says the Gigafactory is slated to produce 35 gigawatt-hours per year of lithium-ion battery cells—which will nearly match the rest of the battery production in the world combined. Many of those new “2170” cells will go into Tesla's Powerwall 2 and Powerpack 2 energy packs, which promise to radically alter the way we power our homes, businesses and even our cities.
That Gigafactory “tent-pole” moment characterizes the vision and scope of Musk’s remarkable company, and despite production glitches and quality issues, the share price reflects investor confidence in that long-term vision.
I predict that we can expect another record-breaking 2018 from Tesla, with some potential softening of the stock price possible near the end of the year as profit-taking and the fiscal realities of modern automotive, battery and solar panel manufacturing come into play.
But Tesla’s path to success is not linear, and there will be more obstacles along the way in 2018. But if not Tesla, what other currently publicly-traded company do you think can have an Amazon or Google size market cap in 10 years? If that becomes a reality, it will mean that in 10 years Tesla stock will have to trade at about $3000 per share.
2. Bitcoin will end the year below $10,000.
Talk about irrational exuberance! The Bitcoin Bubble, the analysts call it, and we definitely saw the seesaw move up and down rapidly last year. In 2017 Bitcoin increased in value by 1000%. The value of one “coin” of Ether, from Bitcoin’s blockchain twin Ethereum, went from $8 on January 1, 2017 to $843 on January 1, 2018. But those spectacular climbs mask the fact that there were steep descents, too.
For example: near the end of 2017, Bitcoin slid dramatically, to below $10,000 per “coin”—about half its previous high a few months before.
These “distributed trust” networks don’t rely on traditional corporations, banks or governments—instead, they mimic the peer-to-peer architecture of the web itself. New blockchain-based hedge funds and a growing interest in the world’s financial capitols aside, these virtual currencies aren’t subject to any kind of regulation from any trusted organization or government—which makes them inherently volatile.
Governments around the world have begun to take notice, and some countries have already started to crack down on the frenzied speculative trading in virtual currency driven by the Bitcoin Bubble. This increasing level of official scrutiny and real or impending regulatory action has made virtual currency values sensitive to the slightest hint of new intervention from regulators and elected officials.
For example: the Chinese government shut down Bitcoin exchanges last year, and the South Korean government is considering doing the same. Why? Because a frenzied surge of ordinary investors flooded the virtual currency markets, and lost enormous amounts when values declined drastically. United States regulators are also watching closely, and they’ve already stopped smaller currencies like BitConnect from trading, with some burned investors describing them as “virtual Ponzi schemes.”
So Bitcoin and its relatives in the virtual currency markets will not be able to sustain their meteoric rises in 2018—that’s my prediction, and I’m sticking to it. Invest at your own risk—and the risk is very high indeed. Clearly I’m not predicting a crash in Bitcoin prices—but I think we will see at least a leveling.
3. The big traditional car makers will see their stock prices end 2018 below the level at which they started the year.Here’s my mega-prediction: the auto revolution of connected vehicles, electric cars, autonomous driving and ride-sharing apps will begin to bite the Big Three US automakers this year. (See my past articles on this subject:
I know—it’s a risky prognostication. Strong sales in most post-Great Recession years have driven each of the Big Three Detroit automakers to solid profitability, even if their share prices haven’t kept pace. But in my view, that sales horizon—most auto analysts say the Big Three (GM, Ford and Fiat Chrysler, or FCA) automakers has to collectively manufacture and sell at least 15 million cars every year to sustain profitability—looks increasingly shaky.
Why? Because American automakers—as well as Japanese, Korean and German automakers—have to find a way to transition from their old one-customer/one-car model to the new CASE way of thinking. (CASE stands for Connected cars, Autonomous vehicles, car- and ride-Sharing apps, and Electrified vehicles.)
All of the Big Three manufacturers now have a clear awareness of the coming CASE revolution—they’ve partnered with web-based firms, signed agreements with European or Asian manufacturers to jointly develop new tech, cut deals with Google and others, and have plans to launch driverless and/or shared-ownership vehicles early in the next decade. How will they fund those ambitious initiatives? GM has sold off underperforming units like its Opel/Vauxhall European operations; Ford has cut back on jobs and costs and replaced its CEO; and FCA is actively looking for a new partner—or a possible sale of its iconic brands like Jeep—to prop up its prospects.
Every one of these major moves attempts to position the Big Three automakers for a very different future, by freeing up investment dollars for partnerships and new ventures aimed at the future of mobility, and by funneling profits to finance new technology.
Ironically, the financial markets have traditionally punished Detroit for this kind of long-term visionary thinking. That means we’re headed for a time when the total valuation and short-term stock prices of the Big Three may enter a period of decline.
The problem? Technology innovation is radically different than manufacturing—and those differences will lead to fewer cars sold. This means the more successful the Big Three will be in leading the revolution, the faster the car industry will shrink. We at One Planet Ops own a sizable business in the automotive industry and most traditional car makers are my clients, so I do love them—but I’m also worried about their future in this new and quickly-evolving market.
4. The United States unemployment rate will start going up by the end of the year, albeit slowly.
Okay, so I missed this one last year—but I’m doubling down this year!
The United States economy seems to be firing on all cylinders, with a Warriors-like level of teamwork and productivity boosting its economic fortunes. Wall Street has certainly noticed, and record stock prices have resulted. The official unemployment rate declined from 4.7% in 2016 to 4.1% in 2017, and many analysts predict that downward trend will continue.
But several other factors are now coming to the fore: increasing automation, outsourcing, the CASE revolution, the growing risk of inflation on the horizon, and the simple fact of the overall aging of the U.S. population.
Also, the Great Recession wiped out 8.3 million jobs in the United States, which resulted in a 10% unemployment rate during its peak in 2009. We’ve recovered nicely. Also, while the infusion from repatriation of cash by big companies from oversea accounts will help the domestic employment market in 2018, it really can’t get much better, so I think we will start seeing a trend in the other direction.
5. The Warriors will not win the 2018 NBA Finals! A repeat is certainly possible—the Warriors still have an unprecedented level of unity and teamwork, stellar skills and great coaching—but for some reason, call it a hunch, I don’t think it will happen. Great teams usually get slightly worse year over year after their peak, and that will be a factor that will contribute to a loss for the Warriors, but not a catastrophic one. Like most of us in Silicon Valley, I love the Dubs, but defending a title in the talent-rich NBA will not be easy.