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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Applecarclay and Android Auto with the Bloomberg Business App.

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 2: Normal Linda Paul Swen, you live here in our Bloomberg

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Speaker 2: Nactive Brokers studio, streaming live on YouTube as well. How

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Speaker 2: about this Tesla proved at interim stock award worth about

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Speaker 2: thirty billion dollars for chief executive officer Elon Musk to

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Speaker 2: keep his attention on the automaker. I would think that

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Speaker 2: would do it. Steve Mann joins us. He covers all

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Speaker 2: the autos companies for Bloomberg Intelligence. He's down there in Princeton. Hey, Steve,

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Speaker 2: I mean I can't think of a company maybe since

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Speaker 2: maybe Ford Motor Company where there's a key man risk

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Speaker 2: like Tesla here and Elon Musk. What do you make

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Speaker 2: of this stock award here?

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Speaker 3: Yeah, I think it's very positive news for for Tesla

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Speaker 3: because you know they are going through a pivot right now,

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Speaker 3: not not only an automaker, but they're very focused on AI.

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Speaker 3: But if you look at Elon Musk. You know, he's

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Speaker 3: Tesla is not his only business, right He's got x Ai,

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Speaker 3: his AI company, which owns the former Twitter, and he

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Speaker 3: also has uh, you know, Space x Neurallink. I think

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Speaker 3: they're all related in some ways to Ai. And I think,

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Speaker 3: you know, without Elon must and Tesla, I think, you know,

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Speaker 3: there's going to be a lot of risk to to

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Speaker 3: that vision for Tesla without him.

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Speaker 4: There see, if you mentioned that, there are a lot

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Speaker 4: of different things that are vying for Musk's attention. Of course,

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Speaker 4: we do know that he was really politically involved in it.

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Speaker 4: We got kind of pulled back and then he mentioned

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Speaker 4: his intention for creating the America Party. So clearly he

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Speaker 4: still remains in these conversations here. But what are investors

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Speaker 4: looking for right now from him? And doesn't seem as

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Speaker 4: though he's a tension is devoted as much as it

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Speaker 4: should be to Tesla.

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Speaker 3: Yeah, I think fortunately for now, his attention is very

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Speaker 3: much devoted to Tesla. He set that at the second

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Speaker 3: quarter earnings call. I think you know, his you know,

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Speaker 3: his his presence is important because you know, you know,

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Speaker 3: right now the company is going through a changeover in

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Speaker 3: terms of the direction the strategy right uh. You know,

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Speaker 3: cars has been very important continues to be important to

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Speaker 3: drive that AI theme. But without must there, I think

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Speaker 3: the company will have to you know, won't able to

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Speaker 3: find the next person really to drive the company to

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Speaker 3: the next step and expanding robo taxi, expanding their optimis

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Speaker 3: robot offering in the future.

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Speaker 2: Do we care about how many cars they make and

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Speaker 2: whether they make any money in the old car business seed.

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Speaker 3: We do. And you know a lot of people think that,

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Speaker 3: you know, it's a it's a full pivot towards AI,

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Speaker 3: But I think making cars and and UH and developing

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Speaker 3: that AI UH software is goes hand in hand. It's

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Speaker 3: almost like Apple and its ecosystem.

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Speaker 5: UH.

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Speaker 3: I mean, there are opportunities for Tesla to actually license

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Speaker 3: the f SD, the full self driving UH software out,

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Speaker 3: but I think in the meantime it's not it's not

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Speaker 3: something he's looking to do. I think he wants to

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Speaker 3: build out Robotaxi internally and actually drive revenue and profits.

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Speaker 3: He does see huge profits from from the robotaxi and

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Speaker 3: from the FSD software. If you look at other software companies,

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Speaker 3: margins are high double digits UH on on the software

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Speaker 3: for for for for any software. But then you know

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Speaker 3: with with his f SD software that the car is

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Speaker 3: an integral, integrated component to it. It's it's, it's, it's

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Speaker 3: it's very important that he continues to make cars, not

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Speaker 3: only for cash, but for really marketing that software that he.

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Speaker 4: Has steve a lot of pressuring Tesla over the last

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Speaker 4: few months. I mean, we're looking at a stock that's

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Speaker 4: down about twenty three percent so far this here, and

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Speaker 4: it's the worst performing stock within all the mag seven

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Speaker 4: stocks that there are right now. Explain to me right

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Speaker 4: now what the latest overhangs are right now for the company.

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Speaker 3: Well, I think one big overhang that's removed this it

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Speaker 3: is his pay package. There is a lot of fear

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Speaker 3: in terms of him potentially being kicked out of the

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Speaker 3: kick Tesla. But I think the biggest overhang right now,

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Speaker 3: or where the investors are more focused on, is the

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Speaker 3: expansion of Robotaxi rights. He launched it back in June

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Speaker 3: in Austin. He's launching it in the San Francisco Bay area,

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Speaker 3: and he's also thinking about launching it in Nevada. And

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Speaker 3: it's from the looks of it, it's going quite well.

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Speaker 3: I Mean, there are some hiccups here and there with

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Speaker 3: this complex engineering system that he's putting in place for cars.

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Speaker 3: It's normal. It's normal. So but you know, safety is

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Speaker 3: still his priority, and you know he's gonna go on

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Speaker 3: at it at a measured pace. But it seems like

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Speaker 3: he's expanding it relatively fast. You know, the area of

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Speaker 3: coverage is much bigger than initially was back in Austin,

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Speaker 3: back in June, and we're seeing something similar in San Francisco.

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Speaker 3: So investors are really focused on when Robotaxi will start

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Speaker 3: contributing to the bottom line, and we think that's probably

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Speaker 3: more likely in twenty twenty seven.

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Speaker 2: Steve, thanks so much for joining us. Always appreciate getting

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Speaker 2: comping it into your time. Steve Man, he covers all

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Speaker 2: the autos for Bloomberg Intelligence. He's safely scones down there

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Speaker 2: in Princeton, New Jersey.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: days at ten am Eastern on Apple Coarclay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: All right, they had a little earnings from Berkshire Hathaway

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Speaker 2: over the weekend. Why did they do it over the

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Speaker 2: weekend when nobody else does it because it's warm Buffett

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Speaker 2: you can specials Matthew Palazola. That ruins his summer weekend.

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Speaker 2: He's a senior AOS covering all the insurance guys for

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Speaker 2: Bloomberg Intelligence.

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Speaker 1: We'll get to the.

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Speaker 2: Earnings, or maybe we won't, because all I want to

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Speaker 2: talk about is what is Burlington Northern Santa Fe which

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Speaker 2: Berkshire Hathaway controls. What are they going to do in

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Speaker 2: a world where it looks like we may have some

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Speaker 2: consolidation which and get cross bordered rail service. What's the

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Speaker 2: company saying about what they might do with being it?

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Speaker 6: So they're saying characteristically nothing, but what we think and

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Speaker 6: what the market's thinking is I would say this Buffett

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Speaker 6: is I would put almost a zero probability of Buffet

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Speaker 6: getting involved in a bidding war over or Fork Southern,

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Speaker 6: Right that, yeah, so.

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Speaker 2: Correctly.

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Speaker 6: So I don't think he's going to try to outbid

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Speaker 6: up on that one, right, Like, that's just not what

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Speaker 6: Berkshire does. But then the speculation is CSX is the

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Speaker 6: is the other thing out there? And I'm not a

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Speaker 6: railroad analyst, but we just mark on it only on

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Speaker 6: the weekends. Our rail analyst thinks that Burns Northern will

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Speaker 6: be at a big disadvantage should this deal go through

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Speaker 6: with UP and that they would have to do something

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Speaker 6: that would leave CSX out there, which is the other

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Speaker 6: East Coast Railroad, and then Berkshire's got the West Coast Railroad,

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Speaker 6: so they could maybe merge those two the stock of

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Speaker 6: c I mean the market believes is too, because the

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Speaker 6: stock of CSX is up like twenty five percent since

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Speaker 6: this initial bid. Again, like my as a buffet watcher

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Speaker 6: and studier, I kind of feel like almost I feel

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Speaker 6: he would want to sit this one out. But I

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Speaker 6: you know, if I could exactly predict what he would do,

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Speaker 6: then I wouldn't be taking the Metro North into work.

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Speaker 3: So you can tell me about it.

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Speaker 4: So if this were to happen though, how big would

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Speaker 4: it be for Berkshire.

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Speaker 6: Yeah, so the enterprise value of CSX is about eighty

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Speaker 6: five billion dollars, so that would assume no takeout premium.

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Speaker 6: Right now, Berkshire has three hundred and forty four billion

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Speaker 6: dollars of cash, so they could theoretically do it in

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Speaker 6: cash if they wanted to. It would take a big

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Speaker 6: chunk out of their cash. Buffett's got only a few

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Speaker 6: months left as CEO. He will step down at the

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Speaker 6: end of the year, and he still remains as chairman,

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Speaker 6: So I can't imagine that he would be, you know,

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Speaker 6: completely uninvolved. But you know, I would assume Air apparent

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Speaker 6: Greg Abil would have a lot to say about any

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Speaker 6: potential deal.

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Speaker 2: All right, I'm speaking as a former railroad Annolds, which

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Speaker 2: my tenure there covering industry ended in nineteen eighty nine

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Speaker 2: when I went to business school.

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Speaker 3: Have to do the deal, he has to do it.

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Speaker 6: The CSX Yeah, I mean, I mean they have the money.

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Speaker 6: I mean they buy it in cash. I was just

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Speaker 6: running the back of the envelope. It's going to be

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Speaker 6: a creative to you know, earnings versus just holding it.

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Speaker 6: And if interest rates are going down, that makes it

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Speaker 6: probably perhaps more attractive for them to do something. You know,

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Speaker 6: it'll be interesting. He wants that one last elephant and

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Speaker 6: that this would certainly be it.

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Speaker 3: Boy.

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Speaker 2: And now, to me, the whole thing is the most

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Speaker 2: important person in this whole discussion is Jennifer Ree at

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Speaker 2: Bloomberg Intelligence. He does an antitrust ruling it. I don't

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Speaker 2: know how this stuff gets improved other than Trump says

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Speaker 2: I want it done, and then the Surface Transportation Board

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Speaker 2: just follows.

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Speaker 6: And I think they have some game theory there, right,

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Speaker 6: because you know, I talk to Lee Are, a railroad

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Speaker 6: analysts BI and he was saying it seems like an

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Speaker 6: uphill battle. He's not the Andy Trust trust like Jennifer.

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Speaker 6: But you know, does Berkshire sit back and say, well,

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Speaker 6: maybe this just doesn't even get approved, So why are

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Speaker 6: we going to launch a bid for CSX It might

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Speaker 6: also not get approved.

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Speaker 2: I don't know.

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Speaker 6: I mean they have a lot to think about in Omaha.

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Speaker 4: I mean, who's left in the landscape? Right, You've got Berkshire.

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Speaker 4: I mean we've got these other names. Who are the

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Speaker 4: major players outside of that?

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Speaker 6: Are we talking about for railroads? Not exactly my expertise,

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Speaker 6: but I don't think there's anyone else without.

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Speaker 2: All right, let's get to the earnings. Any takeaway here? Hey,

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Speaker 2: what's the cash position and what are the earnings trends

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Speaker 2: for this company?

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Speaker 6: So the cash position three forty four billion. It was

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Speaker 6: down a couple of billion from last quarter. So they

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Speaker 6: took a write down on their Craft Hynes investment. It's

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Speaker 6: getting a lot of press people are I think, attributing

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Speaker 6: the stock decline in the quarter to that. I mean,

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Speaker 6: the net after tax right down is zero point six

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Speaker 6: percent of Berkshire shareholder's equity, so the stock's down three

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Speaker 6: percent on that, it doesn't really make a ton of sense.

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Speaker 6: They account for the craft Hins investment and the equity

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Speaker 6: method which they were holding it for much more than

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Speaker 6: the stock was worth. Because of those rules, they have

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Speaker 6: to write it down eventually, so I'm not shocked. I

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Speaker 6: don't necessarily think this is a vote of no confidence

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Speaker 6: in the stockholding. It's kind of the accounting. The earnings

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Speaker 6: were like eleven billion, which is that's stripping out a

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Speaker 6: lot of the noise. That's pretty much exactly what we

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Speaker 6: thought they were going to be, but there were some

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Speaker 6: moving parts. Insurance was weaker than I thought, the railroads

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Speaker 6: were better, and even retailing was better.

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Speaker 2: All right, all right, you stay close to the phone

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Speaker 2: because I want to talk to you about this railroad

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Speaker 2: thing here, and we'll get Lee Clasico on, We'll get

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Speaker 2: Jennifer Rion because you can argue transc on a railroad,

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Speaker 2: why don't we have one in this country?

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Speaker 4: I mean, come on, it's twenty twenty five exactly.

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Speaker 2: I'll come out of retirement and get this deal done

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Speaker 2: if we need be. Matthew Polozola, Senior analyst Property Casualty

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Speaker 2: Insurance for Bloomberg Intelligence, joining us live here in a

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Speaker 2: Bloomberg an Active Brokers studio.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us five

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Speaker 1: weekdays at ten am Eastern on Applecarcklay and Android Auto

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Speaker 1: with the Bloomberg Business App. Listen on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 2: All right, Workers at Boeing Saint Louis area defense factories

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Speaker 2: are striking after union members rejected the company's modified contract offer.

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Speaker 2: When I first read that, I was like, didn't we

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Speaker 2: already do this? I know, but that is a further reading.

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Speaker 2: I found out that was the commercial. It's different union

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Speaker 2: out in Seattle or whatever. These are the defense people.

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Speaker 3: Okay.

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Speaker 2: So just when you think you know, Boeing's kind of

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Speaker 2: clean out of the woods, cleaned up at everything, and

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Speaker 2: stocks up twenty five percent year to date, and then

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Speaker 2: this comes along. So I don't know how to make it.

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Speaker 2: George Ferguson, this is his job, Senior Aerospace, Defense and

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Speaker 2: Airlines sentels for Bloomberg Intelligence, George, how important, How big

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Speaker 2: of an issue? How big of a headwind is this

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Speaker 2: for Boeing?

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Speaker 5: Yeah, not much, So you're right, we did this before

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Speaker 5: the Lion's share of the machinists. There's some thirty thousand

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Speaker 5: that represented up in Washington instruct their deal last year.

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Speaker 5: We calculate, you know, this is about six thousand machinists

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Speaker 5: again compared to thirty thousand up in Washington state. We

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Speaker 5: calculate that if this six thousand machinists get a similar

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Speaker 5: deal as the machinists did in Seattle, which I don't

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Speaker 5: see why not, it's probably cost Boeing all in when

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Speaker 5: it's when it's all done in four years, when when

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Speaker 5: the members get forty three ish percent increase cost them

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Speaker 5: an extra two hundred million dollars for Boeing. Look, everybody

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Speaker 5: wants to preserve two hundred million dollars, but for Boeing,

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Speaker 5: I think not that not that material.

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Speaker 3: Plus.

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Speaker 5: It's in the defense business. Some forty ish percent forty

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Speaker 5: two percent of that business is cost plus, so there's

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Speaker 5: likely the ability to you know, to defray some of

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Speaker 5: those costs through those cost plus contracts. So not that

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Speaker 5: big of an issue, I think, George.

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Speaker 4: It seems like Boeing is always in the headlines. Nonetheless, though,

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Speaker 4: whether it's internally what's going on with employees or what's

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Speaker 4: happening with their planes here. Have things seem to have

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Speaker 4: gotten any better at least internally? Is this a more

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Speaker 4: you know, a newer strike if that makes sense, or

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Speaker 4: have there been a lot more claims being made?

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Speaker 5: So I think you've broke up a little bit on me.

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Speaker 5: But I think you're asking if things are any better.

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Speaker 5: But I think they are right. I think we saw

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Speaker 5: two Q numbers for the company and they're delivering airplanes.

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Speaker 5: They're at thirty eight build rate going to forty two.

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Speaker 5: The defense business has got some problems right with the

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Speaker 5: fixed cost contracts. They still eked out a bit of

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Speaker 5: a profit this year. They've might have made about two

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Speaker 5: hundred million operating profit so far this year. So that's

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Speaker 5: about the increase in the cost here to the machine.

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Speaker 5: It's not looked, you know, the things should get continued

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Speaker 5: to get better. At that defense business. They have that

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Speaker 5: big fixed price legacy programs. There's some very important programs

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Speaker 5: inside that legacy fixed costs program business that they'll be

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Speaker 5: happy they have over the years. One of them is

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Speaker 5: the Sting Ray. It's a it's an autonomous refueler that

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Speaker 5: works off Navy aircraft carriers. I think in the future

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Speaker 5: that'd be pretty important. The case forty six is the

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Speaker 5: tanker they build, that'd be very important as well. So

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Speaker 5: I do think, you know, this is no sign that

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Speaker 5: things aren't you know, haven't turned around. This is just

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Speaker 5: one of the last stubs of the of their labor

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Speaker 5: that you know, once there increases after the pandemic to

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Speaker 5: cover that increased inflation. I think it's again, it's going

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Speaker 5: to be a blip.

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Speaker 4: I think, George, you mentioned that there are still some

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Speaker 4: things to iron now as it pertains to Boeing's defense

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Speaker 4: business in particular. But how are they stacking up? How

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Speaker 4: is their defense unit stacking up against a lot of

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Speaker 4: the other different defense primes like a Lockheed for instance.

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Speaker 5: I mean, like Lockey just had a bunch of at

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Speaker 5: least one major charge in their last earnings and just

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Speaker 5: got roiled by that. But I would say that first financially,

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Speaker 5: they're just not performing very well compared to their peers,

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Speaker 5: which I think, you know, on the on the glass

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Speaker 5: half full kind of side. You could say that they

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Speaker 5: ought to have a lot of capacity to improve performance

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Speaker 5: at that business, you know, and they've got some, like

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Speaker 5: I said, some pretty good programs. I just talked it through,

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Speaker 5: you know, that refueler, the two refuelers actually, but they

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Speaker 5: they won the F forty seven contract where they're going

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Speaker 5: to help develop the next sixth generation fighter. That's going

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Speaker 5: to be some twenty billion dollars we think over the

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Speaker 5: next four years that's going to be largely cost plus.

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Speaker 5: That's a great contract that will improve their fighter business.

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Speaker 5: They build F fifteens and F eighteen's. Those are sort

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Speaker 5: of sunsetting but they're very, very capable fighter jets. You know,

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Speaker 5: we've seen countries around the world order them and use

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Speaker 5: them very effectively. So the defense business has again those

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Speaker 5: glimmers of hope because there's there's a strong product portfolio there.

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Speaker 5: It's just been eclipsed again by some of these fixed

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Speaker 5: price contracts that they've really you know, sort of messed

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Speaker 5: up under Muhlenberg and now need to sort of get reordered,

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Speaker 5: get some of them off of the books and and

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Speaker 5: get going. But it's a good business.

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Speaker 2: Hey, Jeff, how was I mean, George, how is the

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Speaker 2: global defense prime business change just in the last six months,

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Speaker 2: with President Trump getting agreements or from a lot of

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Speaker 2: big European countries to up their defense budget. Presumably, if

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Speaker 2: the Germans are spending more, of the French are spending more,

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Speaker 2: they're probably coming to the US defense primes. How has

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Speaker 2: the world changed, if at all?

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Speaker 3: So?

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Speaker 5: We think so so, you know, I think right now

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Speaker 5: the debate is can Europe really provide all the defense

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Speaker 5: products they need to be, you know, to create a

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Speaker 5: credible deterrent, or do they need to go outside the

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Speaker 5: block in order to buy capability. We think they need

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Speaker 5: to go outside the block to get capability, especially especially

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Speaker 5: sort of the most important capability you know currently and

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Speaker 5: I think that some of that most important capability is

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Speaker 5: air defense. And US defense companies do very very well.

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Speaker 5: They've got sort of you know, very advanced products that

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Speaker 5: they've built through a number of generations of those products

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Speaker 5: that have shown their ability over in the Middle East,

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Speaker 5: and those are going to be like RTX raytheon very

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Speaker 5: strong and interceptors radars. Lockheed as well as is in

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Speaker 5: that business and is going to do well. And we've

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Speaker 5: seen the orders come from Europe for that. I think

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Speaker 5: some of the things that Europe needs they'll probably get

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Speaker 5: largely at home, things like armored vehicles, tanks. The Europeans

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Speaker 5: built some very capable of products there. I think they'll

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Speaker 5: buy them at home. Fighter jets are a little bit different,

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Speaker 5: right Europe doesn't build a stealth fighter yet. They have

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Speaker 5: two programs in the continent that they want to build.

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Speaker 5: They'll take a decade to build. In the interim, they'll

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Speaker 5: buy the Eurofighter out of air Bus Leonardo Bae Systems.

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Speaker 5: A consortium builds that. But they're also buying Lockheed F

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Speaker 5: thirty five's because they don't have any stealth technology in

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Speaker 5: Europe right now. They need that Lockheed stealth technology, so

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Speaker 5: they'll buy some of those in the interim. So I

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Speaker 5: think that's exactly what you're going to see out of

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Speaker 5: Europe as a mixed buy. But I think it's going

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Speaker 5: to be a big improvement for the US primes because

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Speaker 5: Europe was spending nothing on defense and now they'll spend

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Speaker 5: eight hundred billion. Right, They'll go from three hundred to

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Speaker 5: eight hundred billion over a short number of years. And

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Speaker 5: think it'll give the US primes a lot of a

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Speaker 5: lot of opportunity and European primes off the ramp up

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Speaker 5: pretty quickly.

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Speaker 2: I think that means we have to send George over

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Speaker 2: to Europe even more frequently to go to some of

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Speaker 2: these spots there. George Ferguson Senior Aerospace, Defense and Airlines analyst.

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Speaker 2: He covers it all, folks, and he's a Bloomberg Intelligence

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Speaker 2: one of the best on the street. You appreciate getting

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Speaker 2: some of his times.

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