May 2023
Article
5 minutes
Perspectives on Progress #4
Claire Shaw – Portfolio Director
Ben James – Portfolio Director
Key Points
- SpaceX makes history launching the most powerful rocket ever developed
- Tesla’s Model Y becomes the best-selling vehicle in Europe while Zipline’s new model P2 Zip provides delivery in minutes
- Spotify shifting gears towards profitability leads to renewed optimism, and Redwood Materials repurposes valuable metals in consumer electronics
As with any investment, your capital is at risk.
SpaceX
The Starship test flight
In April, SpaceX once again pushed the boundaries of space access and exploration with the launch of Starship, the world's largest and most powerful rocket. Although the rocket failed to separate at the first-booster stage and enter orbit, resulting in self-destruction, the test flight was successful as it provided valuable data for future launches. SpaceX will learn from the damage to the launch pad and identify the cause of the failed separation, following the incremental and iterative approach pioneered with its reusable Falcon rocket.
Standing 120 meters high at launch, Starship is over twice the size of the Space Shuttle system. It generates twice the thrust of the Saturn 5 rocket, which carried Apollo astronauts to the moon. This represents a significant advancement in rocket technology. Both the first-stage booster and Starship are designed for full reusability, dramatically reducing space travel costs. When fully operational, Starship is expected to decrease the cost per ton of cargo to Low Earth Orbit by a factor of 100 compared to current launch vehicles. This will greatly expand opportunities for satellite deployment, scientific research and interplanetary space travel.
SpaceX consistently reinvests profits from its Falcon rocket and Starlink constellation, fuelling growth and innovation. This robust infrastructure offers limitless potential for diverse, ground-breaking business opportunities.
Zipline
Introducing Platform 2
Zipline, the innovative company leading the charge in transforming the logistics industry, has just launched its latest revolutionary technology: the Platform 2 (P2) Zip. What sets this new drone apart is its dual architecture, consisting of the Zip and a delivery droid. The Zips fly more than 300 feet above the ground and are practically silent. When the Zip arrives at its destination, it hovers safely and quietly at that altitude before the package is lowered in the delivery droid using a system of wires.
The P2 drone marks a major milestone for Zipline, as it will be the centrepiece of its home delivery operations. The goal is to provide customers with a unique experience, where they can press a button on their phone and moments later have their order appear on their doorstep. Founder Keller Rinaudo Cliffton says it's "the closest thing to teleportation ever created". With its smooth, ultrafast and convenient autonomous logistics system, the P2 could revolutionise the way we think about delivery services.
Tesla
Pricing power and profits
In the first quarter of 2023, Tesla's production ramp continued to gain momentum. The Model Y became the best-selling vehicle in Europe and the top-selling non-truck in the US — a remarkable feat for an electric car still early in its rollout.
The market continues to debate the potential impact of a weakening economic climate and increasing competition on demand for Tesla's vehicles. However, Tesla is strategically leveraging its unit economic advantage to navigate these challenges while still targeting a 50 per cent increase in production volume this year to 1.8 million cars. Despite the price cuts implemented in January, Tesla maintained industry-leading gross margins in its automotive business of nearly 20 per cent.
Looking ahead, Tesla's automotive pricing power should be enhanced by launching new models and selling software upgrades. Alongside the accelerating growth of its energy business, this should provide resilient and profitable growth during these uncertain times.
Spotify
Pivoting towards profitability
Spotify has been a company that has sometimes frustrated the market due to its struggles with profitability. It has been investing heavily for a number of years and burning a lot of cash in the process. Daniel Ek has acknowledged that Spotify may have gotten carried away and over-invested in the past. But now it is shifting gears. The company remains committed to growth but will take more care around the size and cadence of investment going forward, stating that “we will grow operating expenses slower than revenue from now on”. A focus on efficiency will mark a significant shift in how it behaves as an organisation. Sentiment towards the music streaming platform has shifted, with a renewed optimism now being shown towards the company's prospects.
Redwood Materials
Closing the loop in the battery value chain
Battery demand globally is expected to soar over the next decade due to the rapid growth in electric vehicles (EVs). But the battery value chain faces significant challenges – shortages of key raw materials such as lithium, cobalt and nickel and the associated ‘ESG’ questions raised via the extraction and refining of these raw materials. Redwood Materials is one company seeking to address these challenges head-on. It aims to strip out the valuable metals in consumer electronics, such as mobile phones, laptops and cordless power tools, and then repurpose these materials to make batteries for EVs. Redwood’s strategic ambition has caught the eye of Volkswagen, who has agreed to set up bins at its dealerships across the US to collect these end-of-life electronics and then send them to Redwood’s Nevada facility to start the transformation process. Redwood’s founder, JB Straubel, is adamant that “we need recycling to fuel electrification”, and we also believe the company is well positioned to create a circular value chain in the battery industry, thus making the sector more sustainable over the long term.
About the author - Claire Shaw
Portfolio Director
Claire Shaw is a portfolio director and plays a prominent role in servicing Scottish Mortgage’s UK shareholder base. Before joining in 2019, she spent over a decade as a fund manager with a focus on managing European equity portfolios for a global client base. With a background in analysing companies and communicating investment ideas, Claire is also responsible for creating engaging content that makes the Scottish Mortgage portfolio accessible to all its shareholders. Beyond that, she works closely with the managers, meeting with portfolio companies and conducting in-depth portfolio discussions with shareholders.
About the author - Ben James
Portfolio Director
Ben James is a portfolio director serving Scottish Mortgage’s shareholder base. Ben joined the Scottish Mortgage team in 2023 and has worked with Tom Slater as the US equity investment specialist at Baillie Gifford since 2015. A former soldier, he developed a passion for the power of investment to drive progress during his overseas deployments. Ben works closely with the managers, meeting with portfolio companies and conducting in-depth portfolio discussions with shareholders. Alongside this, he creates engaging content that makes the Scottish Mortgage portfolio accessible to all its shareholders.
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