Tesla’s “Acceleration Boost” Highlights Its Competitive Advantages
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This week, Tesla offered an “Acceleration Boost” software update to improve the Model 3’s 0-60 mph acceleration from 4.4 to 3.9 seconds. As shown in the chart below, this improvement would be the equivalent of adding roughly 85 horsepower (hp) to a gas powered car.
Tesla is charging $2000 for this over-the-air (OTA) software update, much less than such an improvement would cost in a gas powered car. Not only would switching engines to enhance horsepower require significant time and labor in a body shop, but it also would cost more than $4,000 just for the engine, as shown in the chart below.
Highlighting Tesla’s lead in OTA updates, news broke on Thursday that VW is experiencing software problems with its ID.3 electric vehicle. ID.3 production could start with incomplete software, which means that more than 10,000 vehicles will be produced and require manual software updates to fix the problem. While Tesla is offering OTA updates for a fraction of the price of performance upgrades in traditional vehices, other automakers are struggling with the transition to electric vehicles.
How Should “Original Content” be Evaluated?
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Historically, evaluating the financial success of a theatrical movie release has been straight forward. If ticket sales exceeded the costs of production and distribution, the movie has been profitable. Admittedly an oversimplification because movies can generate revenues in many other ways, this equation is a good basis of comparison for the streaming space.
Netflix, Disney, and other streaming companies are producing original content financed by monthly subscription fees. Without ticket sales for Netflix Originals, how can we value this new slate of “original content”?
Netflix spent $175 million to produce ‘The Irishman,’ the most expensive mob movie ever produced, as shown below. Netflix expects roughly 40 million households, or 25% of its subscriber base, to view the film in its first four weeks on the streaming platform. At its current monetization rate of roughly $0.17 per user hour of viewing, Netflix will have trouble turning a profit on the 3.5-hour long film in the short term.
Netflix’s content budget will approach $15 billion this year, most of it for the production and acquisition of “original content.” To get a better understanding of the balance between its subscription pricing model and the profitability of these blockbuster movies, we will be analyzing three variables: budget, hourly monetization rate, and total viewership.
Stay tuned for a blog taking a deeper dive into our forecast of the profitability of Netflix’s “original content”.
Access to Credit Is Distributed Unevenly Throughout The US
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Earlier this year, the New York Federal Reserve released a report illustrating that access to credit varies widely across the US. Comparing the access to credit both before and after the financial crisis in 2008-09, the authors concluded that consumers have less access today than they did prior to the financial crisis, as shown in the chart below.
According to the map below, large areas of the US are not served well by the traditional financial system, suggesting that mobile wallets could take share from banks. Mobile wallets have a number of competitive advantages, including lower customer acquisition costs, more data to enable better pricing of risk, and democratized access. As a result, they should enable more equitable access to credit in the US and disintermediate the 20-90% of bank revenues associated today with credit card interest payments.