Join us today at 11 a.m. Eastern for a timely discussion about the deteriorating relationship between the U.S. and China, and the implications for Huawei, TikTok, 5G and more. Our special guest for the DealBook Debrief conference call is David Sanger, The Times’s national security correspondent, who has been covering the “New Tech Cold War” between the world’s two largest economies. R.S.V.P. here. (Want this delivered to your inbox each day? Sign up here.)
Tesla’s ‘super’ quarter
Elon Musk’s electric-car maker posted an unexpected $104 million profit in the second quarter, defying expectations of a loss. The company has never reported four consecutive profitable quarters before.
Welcome to the S&P 500? Tesla, whose market cap is now around $300 billion, belongs in the blue-chip stock index based on size — it’s the 12th-largest U.S. company by market value — but until now, it hadn’t satisfied requirements for consistent profitability. Speculation that it will soon be admitted to the club, which would force index-tracking funds to buy the stock, helped push the company’s turbocharged shares even higher in after-hours trading. (Over the past year, Tesla’s shares have risen a nearly unbelievable 523 percent.)
It’s not all about cars. Tesla sold around 91,000 vehicles in its latest quarter, down 5 percent from the same time last year. Its profits were hugely lifted by sales of emissions credits to other automakers, which were nearly four times higher than in the same quarter last year.
Tesla’s feeling pretty super right now. That was the common theme to Mr. Musk’s comments to analysts:
• On factory automation: “It’s super-exciting.”
• On human workers: “We want to be super-respectful of people’s labor.”
• On its grid-connected battery technology: “It just ensures that things are super-smooth”
• On the Model Y’s rear-body casting: “I’m super-excited by this.”
• On generating profits: “We need to not go bankrupt, obviously, that’s important … But we’re not trying to be super-profitable either.”
Here’s what is happening
Republicans are nearing agreement on some coronavirus relief proposals. G.O.P. lawmakers say they’re close to unity on plans to provide over $100 billion to schools and direct payments to Americans. But they’re still divided on how much to spend on pandemic aid over all, and whether to extend enhanced unemployment aid or cut payroll taxes.
European blue chips released (relatively) upbeat earnings. Today, the Anglo-Dutch consumer goods giant Unilever said sales had held up better than expected; the German carmaker Daimler predicted a swift rebound in the second half; profits at the French advertising group Publicis weren’t as bad as feared; the Swiss drug maker Roche maintained its full-year forecast despite a drop in second-quarter results; and the French-Italian chip manufacturer STMicroelectronics raised its revenue guidance as business “returned to normal.”
Slack accused Microsoft of anticompetitive tactics. The workplace messaging service filed a complaint with the European Commission, arguing that Microsoft illegally tied its corporate collaboration product, a rival to Slack, to its dominant Microsoft Office software.
AMC scored a big win with “The Walking Dead” profits. In a case closely watched by Hollywood, a federal judge ruled that the cable channel had shared the correct percentage of profits from the top-rated drama with its creator, Robert Kirkman, and executive producers. The legal battle revolved around complicated licensing fees for the show.
JPMorgan Chase reportedly had ties to Ghislaine Maxwell, a top associate of Jeffrey Epstein. The bank managed about $10 million for her, Bloomberg News reports, as it had for Mr. Epstein. It continued to manage money for her even after Mr. Epstein moved his money to Deutsche Bank. (JPMorgan declined to comment.)
Governments sign big deals for Covid vaccines
The Trump administration has struck a $2 billion agreement to buy a huge supply of potential coronavirus vaccines. It’s the latest effort by governments to lock up preventive treatments for the illness.
The U.S. will pay Pfizer and BioNTech for 100 million doses of their vaccine by December, with the option to buy 500 million more, if the treatment passes expedited safety and efficacy tests
• That follows Britain’s deal this week to buy 90 million doses of vaccines from the Pfizer-BioNTech partnership and the French developer Valneva. Britain had previously agreed to buy 100 million doses of a vaccine being developed by Oxford University and AstraZeneca.
• Last month, the E.U. signed a deal with AstraZeneca for 400 million doses of its vaccine.
The U.S. move is out of character. Most American vaccine purchases are made by the private sector rather than the federal government, The Times’s Sarah Kliff writes. That typically leads to higher prices for treatments, while vaccines procured under the Pfizer deal would be given to Americans for free. It moves the U.S. closer to other countries, where the national government plays a bigger role in health care, something that the Trump administration has generally opposed.
What Joe Biden would do to corporate taxes
In short, raise them. And based on what the Democratic presidential candidate has proposed thus far, it would mean major changes for companies that have gotten used to lower tax rates under President Trump.
Earnings would fall by 10 percent for a big chunk of the S&P 500, according to a new report by Zion Research Group. The effective tax rate for those companies would rise to 26.7 percent, from 18.7 percent, based on last year’s financials. A minimum tax of 15 percent on large companies would also add nearly $40 billion to the tax bills of more than 100 companies in the S&P 500 that have managed to pay less than that rate.
• Zion’s analysis excludes real estate companies, which have complained about a proposal by Mr. Biden this week to eliminate so called like-kind exchanges above a certain threshold. Republican lawmakers considered this as part of their 2017 tax cut, but didn’t include it in the final bill.
Yes, but what about me? CNBC has a useful rundown of Mr. Biden’s proposals for individual income taxes, which would raise rates for the rich (on income and capital gains) and eliminate breaks for inherited assets.
Beware the top-heavy market
Tech stocks are soaring. That makes some people nervous.
The five largest stocks now account for 22 percent of the S&P 500’s market cap. That bumper performance from Alphabet, Amazon, Apple, Facebook and Microsoft — which all set new highs this month — has led to a record degree of market concentration, according to a new research note from Goldman Sachs full of eye-catching numbers.
• So far this year, the top five stocks are up 35 percent collectively. The index’s other 495 companies are down 5 percent.
• Said five stocks account for 15 percent of the S&P 500’s total earnings.
• They’re trading at a valuation of 31 times next year’s estimated earnings, compared with 18 times for the rest of the index.
This concentration makes the market “vulnerable to an idiosyncratic shock,” Goldman’s analysts write. If the top five stocks were to fall by 10 percent, the bottom 100 of the S&P would need to rise by 90 percent just to keep the index flat.
• What could produce a shock? The analysts note that the dot-com boom ended around the time that the U.S. government won a big antitrust case against Microsoft in 2000. On Monday, the C.E.O.s of Alphabet, Amazon, Apple and Facebook will testify before Congress as part of an investigation into “the dominance of a small number of digital platforms and the adequacy of existing antitrust laws and enforcement.”
Activist investors lose some, win some
The hedge funds that buy shares in companies to agitate for change in their strategies have been dealt a blow by the S.E.C., not long after the securities regulator gave them a big win.
The loss comes from new rules for proxy advisory firms, whose recommendations to shareholders on how to vote in board elections and on mergers carry a lot of weight. They have often been criticized by company management as siding too often with activists.
• The S.E.C. voted yesterday to require proxy advisers to disclose material conflicts of interest in their reports, meant to reveal situations where activists privately brief these firms.
• Proxy advisers must also share their reports with companies and clients at the same time, while also letting clients know if companies have issued retorts, or plan to do so.
This follows an S.E.C. rule change that could help activists operate more stealthily. Last week, the regulator allowed most investors to skip the quarterly public disclosure of their holdings. Advisers to corporate boards warned that a majority of activist investors would now be able to build up holdings in targets quietly, then take companies by surprise with a campaign for change.
The speed read
• Nvidia has expressed interest in buying Arm, the computer chip designer controlled by SoftBank. (Bloomberg)
• The new blank-check investment fund raised by Bill Ackman jumped 9 percent in its market debut yesterday, and Airbnb’s C.E.O., Brian Chesky, said that such funds had approached him about merging with his company. (Business Insider, Reuters)
• The New York Times Company (hey, that’s us!) agreed to buy the production company behind the popular “Serial” podcast. (NYT)
Politics and policy
• American senators warned the British government that its digital services tax on Silicon Valley giants could trip up negotiations for a trade deal. (FT)
• “God help us” if the Senate confirms Judy Shelton as a Fed governor, the former Obama administration auto czar Steven Rattner writes in a Times Op-Ed. (NYT Opinion)
• Venture-backed start-ups are on pace this year for their lowest rate of sales or I.P.O.s in nearly a decade. (Pitchbook)
• Ahead of a high-profile antitrust hearing in Congress, Apple argued that the fees charged by its App Store are no higher than competitors. (WSJ)
Best of the rest
• Scientists say it’s not just you: Working remotely leads to more distractions than working from the office. (Vox)
• Sorry, Dr. Fauci. Go Yankees!
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