Speaker 1: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 1: top stories in the coming week from our daybreak anchors
Speaker 1: all around the world. Straight ahead on the program, A
Speaker 1: look at what we can expect for US mortgage rates
Speaker 1: in twenty twenty six. I'm Alexis Christophers in New York.
Speaker 2: I'm Calain Hepkeahey in London, where we discussed the snap
Speaker 2: election in Denmark shaped by the standoff with President Trump
Speaker 2: over Greenland.
Speaker 3: I'm Doug Krisner looking at earnings in the coming week
Speaker 3: for the Chinese ev Maker byd.
Speaker 4: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 1: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 1: top stories in the coming week from our day break
Speaker 1: anchors all around the world. Straight ahead on the program,
Speaker 1: A look at what we can expect for US mortgage
Speaker 1: rates in twenty twenty six. I'm Alexis Christophers in New York.
Speaker 1: Good day to you. I'm Alexis Christophers. We begin today's
Speaker 1: program with a look at US mortgage rates for more
Speaker 1: on what we can expect this year. We're joined by
Speaker 1: Erica Aidelberg, Bloomberg Intelligence Chief mortgage backed securities strategist.
Speaker 5: Erica.
Speaker 1: Great to have you here, So glad you're on the
Speaker 1: show because this is a hot topic right now. Mortgage rates.
Speaker 1: We saw them rise last week to the highest level
Speaker 1: so far this year. Big drop in refinancings as well.
Speaker 1: What's going on in the mortgage market.
Speaker 6: Hi, thank you for having me on. A Good morning
Speaker 6: to you. Yeah, mortgages, mortgage rates in particular, are right
Speaker 6: at that interesting cusp where there's been so many barbers
Speaker 6: who had to take out mortgage at a higher rates
Speaker 6: over the past four years that we're told to we
Speaker 6: like to say, date the rate, marry the house. So
Speaker 6: a lot of these borrowers really had to stretched to
Speaker 6: take out these mortgage rates. And at the same time,
Speaker 6: since these were the highest mortgage rates in about twenty years,
Speaker 6: they were acutely aware that they were locking in relatively
Speaker 6: high mortgage rates, were hoping to be able to refinance,
Speaker 6: and in fact, some of them were really hoping because
Speaker 6: they'd really stretch to take out these mortgage rates. We
Speaker 6: saw a thirty percent drop in refinancing applications just based
Speaker 6: on this very small shift back upwards and rates, and
Speaker 6: we could talk about what caused that as well, and
Speaker 6: that what that really highlights is just the huge percentage
Speaker 6: of borrowers who are right on that cuspoer refinancing, and
Speaker 6: a thirty percent drop one way or or increase one
Speaker 6: way or the other could really make or break a
Speaker 6: year for like a mortgage banker.
Speaker 7: For instance.
Speaker 6: Sure, so what we're also saying is that mortgage bankers
Speaker 6: themselves are really intent in getting as many of these
Speaker 6: refinancings through the pipeline as quickly as possible as they can.
Speaker 1: Before rates going before rates go higher for us, what
Speaker 1: about fifteen year? Where is that sitting at the moment?
Speaker 1: Which I know that's more popular with refinancers.
Speaker 6: Yeah, it is more popular with a lot of refinancers. However,
Speaker 6: it encurs quite a bit of higher payment. You know,
Speaker 6: a lot of times when that is in fact a
Speaker 6: popular item, it's because there's been enough home price appreciation
Speaker 6: or enough seasoning in the mortgage loans that it makes
Speaker 6: that it makes sense. You know. For instance, I even
Speaker 6: refinanced into a fifteen year a few years ago because
Speaker 6: we had a thirty year mortgage and if we'd refinanced
Speaker 6: into another thirty year mortgage, our whole stream, but our
Speaker 6: whole interest stream, would have been higher.
Speaker 1: Sure, is this really all about the war with Iran,
Speaker 1: what it's doing to the oil markets and how that
Speaker 1: can be inflationary And we've seen how that has impacted
Speaker 1: the ten year treasury, and the thirty year is very
Speaker 1: closely tied to the ten year treasury, more so than
Speaker 1: what the Federal Reserve does, of course with its overnight
Speaker 1: interest rate. So is that what's behind this this rise,
Speaker 1: this re rise in mortgage rates.
Speaker 6: That's an excellent question. And just for the fun of it,
Speaker 6: recently I was working on a note where I was
Speaker 6: looking at the correlation between say, mortgage rates or mortgage
Speaker 6: spreads and oil rates. Pretty much no correlation, ok, you know,
Speaker 6: I mean, you know, you can see times, but what
Speaker 6: really is driving this? As you said, the key here
Speaker 6: is what it's doing to inflation expectations, and more importantly,
Speaker 6: it's also creating a lot of uncertainty about what the
Speaker 6: fen's going to be able to do, what direction rates
Speaker 6: are going to be able to go. What does uncertainty mean.
Speaker 6: Uncertainty means increases in volatility, both implied in actual rate volatility. Now,
Speaker 6: volatility is a huge driver of mortgage spreads because mortgage
Speaker 6: borrowers have the option is what it's called an option
Speaker 6: to refinance or just not move any time they want.
Speaker 6: So as a result, the higher volatility is, the harder
Speaker 6: it is to hedge that borrower option, and the more
Speaker 6: expense of the wider spreads need to be to both
Speaker 6: in tract investors, but also for the rate the lenders
Speaker 6: are willing to offer the primary rate. And on top
Speaker 6: of that, you have added to that the fact that
Speaker 6: if inflation is expected to increase, mortgage rates are probably
Speaker 6: going to follow as quickly, which means long term rates
Speaker 6: have also risen, as you pointed out, which includes ten
Speaker 6: your treasury. So you have the actual base case rate,
Speaker 6: the ten your Treasury rate rising, and you have mortgage
Speaker 6: spreads widening because of this increase in volatility generated by
Speaker 6: the uncertainty of what's going to have with oil and
Speaker 6: the war in general.
Speaker 1: Are you thinking we might see a thirty year back
Speaker 1: at seven percent again sometime soon, especially if the war
Speaker 1: drags on.
Speaker 6: You know that that would be a really tough question.
Speaker 6: I actually didn't see the beginning above seven percent in
Speaker 6: the first place. You know, I don't think that's certainly
Speaker 6: the long term equilibrium. I don't have a crystal ball,
Speaker 6: but it does seem to me that the widening of
Speaker 6: mortgage breads that we saw that contributed to how high
Speaker 6: mortgage rates got in twenty two twenty three was mostly
Speaker 6: because the Fed had just started running off its portfolio.
Speaker 6: It was still in tightening mode, which is certainly not
Speaker 6: my base case expectation.
Speaker 1: Oh thanks to Erica Aidelberg, Bloomberg Intelligence Chief Mortgage backed
Speaker 1: security strategist. Let's take a look now at some stocks
Speaker 1: making news in the week ahead. I'm Alexis Christoffers with
Speaker 1: Tatiana dari a Bloomberg strategist for Markets Live. Tatiana, you
Speaker 1: brought three names with you. Let's begin with if you're
Speaker 1: a pet owner, you know them well.
Speaker 5: Chewy Chewey exactly. Chewey will report fourth quarter earnings and
Speaker 5: next week, and analysts are expecting a solid profit increase
Speaker 5: versus the year ahead. And that may come to how
Speaker 5: the stock revive some of that momentum because it has
Speaker 5: come under pressure this year on concerns over growth and
Speaker 5: the profitability outlook for this year and next year. And
Speaker 5: analysted Morgan Stanley expect this print to set the tone
Speaker 5: for the year ahead, and they expect full year guidance
Speaker 5: of about seven to seven and a half of revenue growth.
Speaker 5: So remember that number because anything less than that could
Speaker 5: come to pressure the stock again. The company you know
Speaker 5: has named the new CFO in February reaffirmed its financial outlook,
Speaker 5: so it has tailwinds in place. Its revenue has been
Speaker 5: steadily climbing through the years, even as we've seen consumers
Speaker 5: come under pressure from all prices rising elsewhere. Basically, so
Speaker 5: it has it has a momentum there. It's just that
Speaker 5: when people are looking ahead, they're concerned about consumers pulling
Speaker 5: back now with high oil prices, So we sort of
Speaker 5: need to see revenue outlook and that guidance be lifted
Speaker 5: so that the stock investors feel more reassured.
Speaker 1: That was interesting when you talk about consumer spending, because
Speaker 1: sometimes we'll pull back on things for ourselves, but I
Speaker 1: think history has shown people don't necessarily pull back for
Speaker 1: their pets. They're still going to pay for their pets. Also,
Speaker 1: they have their Chewy Vet clinics that I guess are
Speaker 1: in stores. I understand that's going to be a bigger
Speaker 1: part of the Chewy story, I guess in twenty twenty six.
Speaker 5: Yes, exactly a push there. And they also have their
Speaker 5: sort of revenue or their online platform or you can
Speaker 5: schedule deliveries, and that's also been a big focus for
Speaker 5: the company and for the stock. But yet again, as
Speaker 5: those growth concerns have been battering the stock, it will
Speaker 5: be very important for them to go back to what
Speaker 5: analysts have been saying to a beat and raise cadence right,
Speaker 5: which they have not had in recent quarters. We have
Speaker 5: a great function on the terminal where you could see
Speaker 5: how results have been coming in pitted against expectations, and
Speaker 5: five or four of the past five have not really
Speaker 5: been great. The last one was better, which sets up
Speaker 5: hopes that this one will come in also better than expiring.
Speaker 1: And just want to add Morgan Stanley kept its overweight
Speaker 1: rating on Chewy, trimming its price target to fifty dollars
Speaker 1: from fifty one, saying the stock is offering a quote
Speaker 1: compelling entry point following its recent decline, So Chewy on
Speaker 1: the move here in the coming week. Also beyond Meat,
Speaker 1: which I know is dropping the name meat from its
Speaker 1: from its official title, right, tell us what we can
Speaker 1: expect there.
Speaker 5: Well, the maker of alternative meat product is also did
Speaker 5: to report, but expectations here are much lower because they've
Speaker 5: already reported preliminary revenue and it came below expectations. With that,
Speaker 5: they also said that they will delay the filing of
Speaker 5: their ten K annual report because the company requires additional
Speaker 5: time to complete a review and analysis related to its
Speaker 5: inventory balances. And you know when you get messages like that,
Speaker 5: that always books the market. And this is something that
Speaker 5: this company did not need because if you look at
Speaker 5: the long term chart, the stock has fallen dramatically since
Speaker 5: it's much talked IPO in twenty nineteen. It's lost more
Speaker 5: than ninety percent of its value since then. So it
Speaker 5: really doesn't have a good story. It keeps getting worse,
Speaker 5: and it doesn't have a good track record when it
Speaker 5: comes to earnings either. Four of the past five quarters
Speaker 5: have seen earnings really disappoint expectations and shares fall as
Speaker 5: a result. So the bar is pretty high here for
Speaker 5: a surprise.
Speaker 1: Yeah, and you know, I know they're trying to expand
Speaker 1: beyond fake meat. They're rebranding as Beyond the Plant Protein Company.
Speaker 1: They're introducing these new products like high protein sparkling drinks
Speaker 1: and what they call simplified plant protein foods. We'll see
Speaker 1: if it's you know, that's what it takes to turn
Speaker 1: things around. All right, let's squeeze Carnival in here, the
Speaker 1: cruise line. How are they doing or how are they
Speaker 1: expected to do?
Speaker 5: Carnival of reports before the ball in March twenty seven.
Speaker 5: What the street wants to know here is how much
Speaker 5: will higher oil prices impact it's your head outlook. This
Speaker 5: is sort of the big question when it comes to
Speaker 5: earning forecasts just overall. In the S and P. Five hundred,
Speaker 5: but specifically to Carnival, Morgan Stanley identified the name as
Speaker 5: the most exposed among cruise liners to oil prices because
Speaker 5: it does not hedge, which they reckon that this would
Speaker 5: translate into about a forty five hit hit to its
Speaker 5: EPs outlook, or that's about a twenty percent hit to
Speaker 5: its overall guidance if you want to think in percentage terms. Okay, well,
Speaker 5: if you look at the stock, that's about how much
Speaker 5: it has fallen since the war has started. So basically
Speaker 5: you could argue that the market has baked that in already. Okay,
Speaker 5: But although this is an estimate, not a confirmation from
Speaker 5: the company, so we'll have to see if that comes
Speaker 5: in a sort of a higher or lower than expected.
Speaker 5: But the point is that the market has already baked
Speaker 5: in some bad news. Now we have to see how
Speaker 5: bad will the news actually be.
Speaker 1: And Carnival will have to see whether or not they
Speaker 1: pass those higher fuel costs on to consumers in the
Speaker 1: way that some of the airlines are doing that. I
Speaker 1: know some international airlines are charging fuel surcharges, but some
Speaker 1: American airlines, US based airlines, i should say, are adding
Speaker 1: it to the ticket price, to higher ticket prices. And
Speaker 1: whether or not that's going to i mean, a slower
Speaker 1: summer travel season. Right now, it doesn't look like it's
Speaker 1: going to be lots to look forward to on the
Speaker 1: earnings front in the weeks ahead. We're going to leave
Speaker 1: it there are thanks to Tatiana Darier, Bloomberg strategist for
Speaker 1: Markets Live. Coming up on Bloomberg Daybreak weekend, there is
Speaker 1: an election in Denmark. This week we bring you a preview.
Speaker 1: I'm Alexis CHRISTOPHERUS and this is Bloomberg. This is Bloomberg
Speaker 1: Daybreak weekend, our global look ahead at the top stories
Speaker 1: for investors in the coming week. I'm Alexis CHRISTOPHERUS. This
Speaker 1: week brings us an election in Denmark, and Daybreak Europe
Speaker 1: anchor Caroline Hepger is here with a preview.
Speaker 2: Caroline Alexis Metafriedrickson's party was polling at historically low numbers,
Speaker 2: but barely a month ago the Danish Prime Minister called
Speaker 2: a general election.
Speaker 7: Now.
Speaker 2: Proportional representation means that there are more than a dozen
Speaker 2: political parties running in this vote, with governments in Denmark
Speaker 2: usually formed from parties within two main blocks, either the
Speaker 2: blue block on the right or the red block on
Speaker 2: the left. Denmark also faces many of the same issues
Speaker 2: in this election as in many other European countries, from
Speaker 2: housing costs to food prices, welfare inequality and immigration. But
Speaker 2: it is President Trump's efforts to control Greenland that have
Speaker 2: created a major foreign polity crisis. As we head into
Speaker 2: Denmark's twenty twenty six election, and joining me now to
Speaker 2: discuss is our reporter in Copenhagen, sanah Vas great to
Speaker 2: speak to you, Sanna. I just want to ask you
Speaker 2: how important you think these elections are now for Denmark.
Speaker 8: They're very important. Denmark is in the middle.
Speaker 7: Of a diplomatic conflict with Donald Trump over Greenland, which
Speaker 7: is part of the Danish Kingdom. Denmark is currently negotiating
Speaker 7: with the US to find a solution to Trump's desire
Speaker 7: for more control over this island, and the next government
Speaker 7: in Denmark will have to deal with the next steps.
Speaker 8: So our Prime Minister Matiflis and she's framed.
Speaker 7: This vote as a decisive election because Danes in the
Speaker 7: next election term will have to define the relationship with
Speaker 7: the US but also the future of.
Speaker 8: The Danish Kingdom. So it's a very important election.
Speaker 2: Yes indeed. But then why was the election called quite
Speaker 2: a few months early?
Speaker 8: Yes, that's right.
Speaker 7: I mean in Denmark it's the prime minister who decides
Speaker 7: when to call an election. There is a four year
Speaker 7: constitutional deadline, but it is quite comment to call the
Speaker 7: election early when the.
Speaker 8: Prime minister sees that the timing.
Speaker 7: Looks politically favorable. And that is the case right now
Speaker 7: for metaphy X now Prime Minister, and it's all tied
Speaker 7: to Trump, and she performed very poorly in the polls
Speaker 7: in December, and then she got this massive boost when
Speaker 7: Trump he started making new threats over Greenland in early January,
Speaker 7: and this spat it just really reinforced her image as
Speaker 7: a disciplined and steady leader during periods of national crisis,
Speaker 7: and that is something that she's hoping to capsulize on
Speaker 7: with this vote.
Speaker 2: So then the US and President Trump looming over this election.
Speaker 2: What are people saying in Denmark and also in Greenland?
Speaker 2: And you might explain also that there are some seats
Speaker 2: in the parliament in Denmark, correct for Greenlandic representatives.
Speaker 7: Yeah, Greenland elects two representatives for the Danish parliament and
Speaker 7: and and they could definitely play a very important role
Speaker 7: in defining uh the future Danish government and and.
Speaker 8: For sure the future relationship with the US.
Speaker 7: And and the future of Greenland will play it an
Speaker 7: important will be an important question in those negotiations generally
Speaker 7: for for both Denmark and Greenland, it's the first time
Speaker 7: and in their modern history where geopolitics, geopolitics is really
Speaker 7: top of mind for voters. And we've seen the topic
Speaker 7: feature and national party.
Speaker 8: Leader debates and and that's quite unusual.
Speaker 7: We also saw a poll earlier in the campaign that
Speaker 7: found that foreign and defense policy that was the number
Speaker 7: one concern for Danes and and and and so in
Speaker 7: a way, Trump, he really turned.
Speaker 8: Foreign policy into a domestic issue.
Speaker 7: And and voters are they're likely to assess politicians on
Speaker 7: their leadership skills and and their capacity to handle the areknown,
Speaker 7: and that is favoring especially the governing parties and the
Speaker 7: Prime minister.
Speaker 2: So then tell me a bit more about who is
Speaker 2: favored to win. According to the polls.
Speaker 8: The Prime Minister Medphals and.
Speaker 7: Her Social Democratic Party looks set to become the biggest
Speaker 7: party by far and that will give her the first
Speaker 7: shot at forming at government. And looking at the polls,
Speaker 7: she is the most likely candidate to secure my majority
Speaker 7: backing to make her Prime Minister again. The biggest outstanding question,
Speaker 7: I'd say is whether she will return to a traditional
Speaker 7: left leaning red block government or look to renew the
Speaker 7: or expand the quite unusual centrist kind of cross block
Speaker 7: coalition that we have.
Speaker 8: At the moment.
Speaker 7: And one of the biggest challenges for going with renewal
Speaker 7: of this government is that if midflex And has proposed
Speaker 7: to introduce a wealth tax, and it's something that's drawn
Speaker 7: sharp criticism and especially from wealthy people in Denmark.
Speaker 8: Some are threatening to leave the country.
Speaker 7: But also from the liberal parties who will really struggle
Speaker 7: to enter a coalition on those terms.
Speaker 8: But remember Denmark has.
Speaker 7: A very fragmented political system or political landscape, and there's
Speaker 7: twelve parties.
Speaker 8: In the running.
Speaker 7: That leaves the outcome very open to kind of late
Speaker 7: shifts and alliances and policies once coalition negotiations start, and
Speaker 7: that could really reshape the balance of power. So we
Speaker 7: are preparing ourselves for potential surprises once talks begin.
Speaker 8: Hm.
Speaker 2: Hm, that'll be interesting. What about other issues? Though the
Speaker 2: Danish Prime Minister is known for her tough stance on immigration,
Speaker 2: how could the outcome of this election shape Denmark's directional
Speaker 2: mats front?
Speaker 7: Yeah, that's right if Felexon she originally in twenty nineteen
Speaker 7: rose to power in Denmark because she managed to steer
Speaker 7: her Social Democratic Party towards a tougher stance on immigration,
Speaker 7: and she in that way reclaimed working class voters who
Speaker 7: had drifted to the right.
Speaker 8: She's also been very outspoken.
Speaker 7: In the EU pushing for stricter border controls and tougher
Speaker 7: immigration policies, and the election could really shape Denmark's direction
Speaker 7: on this topic in the future, especially if Felexon were
Speaker 7: to pivot to the left to create a more kind
Speaker 7: of left leaning majority, it could complicate her ability to
Speaker 7: maintain this stract approach to immigration. So that's definitely something
Speaker 7: that not just the Danes of following, but for sure
Speaker 7: also across Europe.
Speaker 2: So then what role do you think that Denmark wants
Speaker 2: to play then or will all want to play in
Speaker 2: conversations around the EU and the US.
Speaker 7: I think it striking comment that Prime Minister Metaphlags made
Speaker 7: in a debate on TV quite recently was that the
Speaker 7: US is no longer Denmark's closest ally. Instead, she's called
Speaker 7: for closer collaboration in the EU but also with other
Speaker 7: like minded nations such as Canada for example. And we
Speaker 7: are seeing also various ways in which sentiment in Denmark,
Speaker 7: especially on defense and EU collaboration, it's really changing as
Speaker 7: Denmark is adapting to new global order, I mean Denmark.
Speaker 7: It's a very good example is the Denmark earlier this
Speaker 7: month entered into an agreement with France and nuclear deterrence,
Speaker 7: and that is quite a dramatic move for a country
Speaker 7: that has long been opposed to atomic weapons. But it's
Speaker 7: also an example of the changes that Denmark is now
Speaker 7: seeing necessary as it realizes it can't rely on the
Speaker 7: US for security and it needs to build deeper alliances elsewhere.
Speaker 2: Whoever leads Denmark next though, yes they'll be thinking about
Speaker 2: the EU, but surely front and center will be any
Speaker 2: possibility of a clash with the US. You've been reporting
Speaker 2: about the idea that there were actually deeper preparations by
Speaker 2: Copenhagen for some kind of the possibility of some kind
Speaker 2: of military confrontation with America.
Speaker 7: We've seen new information come out this week. A Danish
Speaker 7: broadcast that R reported quite extensively on some of the
Speaker 7: preparations that Copenhagen had been undertaking earlier this year. In
Speaker 7: the event of a potential US attack on Greenland, for example,
Speaker 7: Denmark deployed troops with live and ammunition. They were prepared
Speaker 7: to blow up airport runways in Greenland to prevent US
Speaker 7: forces from landing if Trump chose to take the island
Speaker 7: by force. Dr also reported that Denmark dispatched blood supplies
Speaker 7: to treat the wounded if if fighting were to break out.
Speaker 7: It really shows how worried Copenhagen were back in January,
Speaker 7: when Trump was most vocal in his threats. Denmark was
Speaker 7: extremely worried, and as Danish Prime Minister made flags and
Speaker 7: said just this week, negotiations underway. We hope for an agreement.
Speaker 7: But Trump's desire to take over Greenland remains intact, so
Speaker 7: clearly that nervousness has not gone away, and a future
Speaker 7: government may well have to have to deal with the
Speaker 7: outcome of no deal or potential deal with Trump.
Speaker 2: So then finally, this vote is also going to be
Speaker 2: very into seeing tests about whether campaigning on an anti
Speaker 2: TARP message can work. Perhaps a lot of other countries
Speaker 2: will be watching this. What do you think that they're
Speaker 2: going to be thinking about and looking at when it
Speaker 2: comes to the Danish example, Yeah.
Speaker 7: I think the Danish example is very interesting because even
Speaker 7: though foreign security policy has taken on greater urgency, it's
Speaker 7: unclear whether it will move votes really to swing the election.
Speaker 7: I think in Denmark generally parties are very aligned on
Speaker 7: foreign policy, and so it leaves little opportunity for candidates
Speaker 7: to differentiate themselves. So parties are still they are instead
Speaker 7: directing their energy towards more domestic issues like taxes and
Speaker 7: pension reform and agriculture. That's where party device are clearer.
Speaker 7: But so far Pole suggests the vote preferences have not
Speaker 7: shifted very much during the campaign. Of course, there is
Speaker 7: also another element of unpredictability still, and that is that
Speaker 7: the election is very vulnerable to outside attempts to influence it.
Speaker 7: Denmark's intelligence service warn recently that foreign powers, including Russia
Speaker 7: but even also the US, may seek to interfere in
Speaker 7: the vote. And there is especially a worry amongst lawmakers
Speaker 7: running for election in Denmark that Donald Trump at any
Speaker 7: time could post something on social media and that could
Speaker 7: really shape the election more than he already has. So
Speaker 7: that's for sure something that we are watching for and
Speaker 7: that across Europe will be looking at.
Speaker 2: Okay, Sanah, thank you so much for being with us. Yes, well,
Speaker 2: we look forward to hearing more from you and understanding
Speaker 2: the outcome of the Danish vote in the next few days.
Speaker 2: That is Sannah vas Our, reporter in Copenhagen. My thanks.
Speaker 2: I'm Kline Hebger here in London. Catch us every weekday
Speaker 2: morning for BlueBag Daybreak Cube. That's beginning at six Am
Speaker 2: in London. That's one Am or Wall Street Alexis.
Speaker 1: Thanks Caroline, and coming up on Bloomberg Daybreak weekend, we
Speaker 1: preview Chinese ev maker BYD's earnings. I'm Alexis Christophers and
Speaker 1: this is Bloomberg. I'm Alexis Kristophers with your global look
Speaker 1: ahead at the top stories for investors. In the coming week,
Speaker 1: Chinese ev maker BYD will report earnings. For a preview,
Speaker 1: let's go to Bloomberg's Doug Chrisner, host of the Daybreak
Speaker 1: Asia podcast.
Speaker 3: Thanks Alexis. Last month mark the first time BYD sold
Speaker 3: more cars abroad than in China, and the company is
Speaker 3: now the world's top seller of evs. Its manufacturing operations
Speaker 3: have expanded outside of China. BYD has a new facility
Speaker 3: in Brazil and a joint venture in Uzbekistan. For a
Speaker 3: closer look at BYD and what we're likely to see
Speaker 3: when the company delivers earnings, I'm joined by Bloomberg's Linda Liu.
Speaker 3: Linda is China Car's reporter. She joins us from our
Speaker 3: studios in Hong Kong. Thank you for being here. Can
Speaker 3: we start with the domestic side of BYD's business. Most
Speaker 3: brands in China have been facing struggles, and I know
Speaker 3: weak domestic demand on the mainland has obviously been a
Speaker 3: major factor for quite some time. Give me your sense
Speaker 3: of BYD's business in China.
Speaker 9: BYD and other Chinese EV brands in China have been
Speaker 9: facing a number of challenges. To start with, the Chinese
Speaker 9: economy has been slowing, so you have a weak demand.
Speaker 9: The government has been trying to stimulate retail sales in
Speaker 9: the form of subsidies and cars had a trade in
Speaker 9: subsidy that really promoted EV purchases, but that has started
Speaker 9: to be scale back starting from this year. A tax
Speaker 9: break that previously exempted about ten percent in sales taxes
Speaker 9: has slowly to come back, starting with five percent this year.
Speaker 9: And subsidies that had previously gone to a lot of
Speaker 9: mass market models affordable models that which BID is really
Speaker 9: strong and has also been reduced. So demand has really
Speaker 9: been hard hits. In the first two months of this
Speaker 9: year in China, you're seeing sales falling compared to last year,
Speaker 9: so BID has a really tough time. Not to mention competition,
Speaker 9: You've got rivals like Jili that is really chasing its tail,
Speaker 9: essentially coming up with models that's exactly targeted at the
Speaker 9: models that BID has offered. So I think BID is
Speaker 9: really trying to shake off this stalemate with a launch
Speaker 9: of new technologies such as innovations and charging as well
Speaker 9: as battery technology.
Speaker 3: Over the last few years, I know there have been
Speaker 3: some pretty intense price wars among the ev makers on
Speaker 3: the mainland. What is the situation with that right now?
Speaker 9: The price will has been raging now for a number
Speaker 9: of years, coming into its third year. It's a really
Speaker 9: tough situation in China because there's an over capacity. Essentially,
Speaker 9: the country's carmakers are producing more cost than customers can buy,
Speaker 9: so they really need to get sales rolling by slashing
Speaker 9: prices keep the factories operating. But in the long term
Speaker 9: they are really hurting themselves in margins and revenues, so
Speaker 9: financially it's not sustainable. And actually you've seen a number
Speaker 9: of effects on China's auto supply chain where carmakers demand
Speaker 9: really heavy price cuts, essentially slashing prices of components from
Speaker 9: its suppliers, so in turn they can pass some of
Speaker 9: that price cuts onto customers. But that really is just
Speaker 9: a lot of pressure on the entire supply chain. So
Speaker 9: the government really is trying to reign in the price war.
Speaker 9: They've told carmakers they need to pay their suppliers on time.
Speaker 9: They really shouldn't be selling vehicles at a price that's
Speaker 9: below the cost to make them, and we're starting to
Speaker 9: see some of the carmakers start to raise prices. But
Speaker 9: I think we're still waiting to see exactly how that's
Speaker 9: going to play out, because the overcapacity situation hasn't changed.
Speaker 3: And BYD has been using foreign markets as a way
Speaker 3: to deal with that excess inventory stemming obviously from the
Speaker 3: over capacity issue. I'm thinking of Europe in particular. Is
Speaker 3: that still the case?
Speaker 9: Yes, and Europe is a very attractive market for BID
Speaker 9: as well as Chinese EV makers because the European market,
Speaker 9: they will be able to afford more expensive Emmy models,
Speaker 9: and the EV adoption rates in Europe, especially when you
Speaker 9: look at countries like Norway, is very high. So Europe
Speaker 9: is a very to market for Chinese evs. But at
Speaker 9: the same time, Europe has its own domestic industries that
Speaker 9: it needs to protect. So that's why you see the
Speaker 9: European Union levying this tariff against Chinese evs to try
Speaker 9: to slow this wave of EV exports to Europe so far,
Speaker 9: actually it hasn't really slowed down the Chinese EV exports
Speaker 9: that much because we're still seeing a very healthy growth.
Speaker 9: But I think the thinking for the European Union is
Speaker 9: that they hope the Chinese companies will consider investing and
Speaker 9: forming joint ventures with local European partners. So the jobs
Speaker 9: at least will you remain in Europe and maybe there'll
Speaker 9: be job creation and technology know how transfer to really
Speaker 9: help Europe's domestic EV making industry.
Speaker 3: So speaking of joint ventures, as I mentioned earlier, there
Speaker 3: is a JV in Uzbekistan, and we know that by
Speaker 3: ideas expanding manufacturing to include Brazil. What's it work here
Speaker 3: in terms of the strategy.
Speaker 9: Localizing production is quite an important step for automakers as
Speaker 9: they expand globally. We've seen that with the Japanese automakers
Speaker 9: like Toyota, Honda, Nissan, as well as the Korean So
Speaker 9: I think it's very natural for the Chinese automakers like
Speaker 9: BID to start bringing production overseas to markets where they
Speaker 9: can see a very sizeable volumes. That would make sense
Speaker 9: to have localized production, And in a sense it's also
Speaker 9: one way for these brands to really build local recognition
Speaker 9: and goodwill. You know, if you're bringing a lot of
Speaker 9: jobs with the factory you're building in the new market,
Speaker 9: I think that will build you know, that would really
Speaker 9: help propel your brand, not just among the local consumers,
Speaker 9: but with the local governments.
Speaker 3: Whereas b ID when it comes to autonomous driving.
Speaker 9: Autonomous driving is a technology that automakers are really trying
Speaker 9: to stay on top of, especially when you look at
Speaker 9: Tesla and Elon Musk's vision for robotaxis and autonomous driving,
Speaker 9: because if this technology manages to reach a mass adoption stage,
Speaker 9: that's going to change the entire consumption pattern when it
Speaker 9: comes to cars. You know, if the vehicles can drive themselves,
Speaker 9: does it even still make sense for an individual to
Speaker 9: own cars anymore? Maybe you can just have a robotaxi
Speaker 9: fleet that serves the community or that serves a city.
Speaker 9: So the automakers, I think are also you know, trying
Speaker 9: to have their own autonomous driving technology and thinking about
Speaker 9: what the business model is going to look like in
Speaker 9: the future. And now they're doing a lot of exploration.
Speaker 9: BID is the valid ping its own smart driving technology
Speaker 9: in house, but it's also working with external suppliers such
Speaker 9: as Momenta. This week, we've also seen a number of
Speaker 9: Chinese EV makers join up with Nvidia onto Invidia's latest
Speaker 9: smart driving platform. So they trying different routes and hoping
Speaker 9: that in the future that they will be part of
Speaker 9: this transport disruption and won't be left behind.
Speaker 3: You mentioned Tesla. I'm curious when you look at the
Speaker 3: rivalry between Tesla and BYD and China, how do they compare.
Speaker 9: The dynamics just keep changing all the time. Tesla, for
Speaker 9: a very long time was seen as the pioneer for
Speaker 9: the EV industry. It was really the brand that kick started,
Speaker 9: you know, everyday consumers kind of acceptance of EV's with
Speaker 9: these really technological Leyden evs, you know that actually drive
Speaker 9: for arrange without charging. You know, that's more useful for
Speaker 9: daily lives. BYD for quite a what, for quite a
Speaker 9: number of years was playing catch up to Tesla, but
Speaker 9: last year it finally became the world's biggest brand in
Speaker 9: selling EV's and Tesla, as we know, was hit by
Speaker 9: a backlash against Elon Musk's uh you know, political views
Speaker 9: and activities. And now I think going forward, the competition
Speaker 9: dynamics is going to change again. Because we're seeing by
Speaker 9: D bringing out all of these new EV charging and
Speaker 9: EV battery technology that we I have to be honest,
Speaker 9: I haven't really seen from Tesla so far. It seems
Speaker 9: like Tesla and Elon Musk's priorities have shifted to robotics.
Speaker 9: They're trying to really get their humanoid robot off the
Speaker 9: ground as well as robot taxis. Uh So, the focus
Speaker 9: has changed so much for Tesla that I'm not sure
Speaker 9: if their heart is really in the game anymore. Just
Speaker 9: to be an EV company.
Speaker 3: It seems like you're describing the rate at which you
Speaker 3: can charge a Chinese EV and how that compares with
Speaker 3: other manufacturers.
Speaker 8: Right.
Speaker 9: Yes, So BYD had a product launch recently in which
Speaker 9: they claim the latest generation of their EV platform and
Speaker 9: EV batteries allows you to charge from ten percent to
Speaker 9: seventy percent, from ten percent to seventy percent in five
Speaker 9: minutes and nearly full charge in just under ten minutes. Now,
Speaker 9: with a charging time like that, it really changes the
Speaker 9: whole paradigm when you come when you're thinking about EV's
Speaker 9: as well as petrol powered cars. Essentially, now you probably
Speaker 9: will be able to get get rid of range anxiety
Speaker 9: if you can power up in ev in the same
Speaker 9: amount of time you would have been able to fill
Speaker 9: up your car with petrol. So that's BYD's goal is
Speaker 9: to essentially make evs as easy and convenient to use
Speaker 9: as petrol cars.
Speaker 3: So we have earnings from BYD in the week ahead.
Speaker 3: Give me your sense of what the market is expecting,
Speaker 3: what to look for and when we view the stock,
Speaker 3: how has the stock been performing and what is it
Speaker 3: reflecting right now?
Speaker 9: Earnings is going to be tough for BYD. They've had
Speaker 9: a couple of quarters of falls in their net income,
Speaker 9: so looking forward to the four year results, they may
Speaker 9: actually have a first annual decline in profits, probably since
Speaker 9: the pandemic days. This is largely due to this whole
Speaker 9: erosion of margins and profits in China's ultra competitive market
Speaker 9: where you've had this price will go on, as well
Speaker 9: as regularly scrutiny that basically forced BYD to really clean
Speaker 9: up its balance sheets. These sales growth has also slowed
Speaker 9: a lot, so it's facing all of these pressures for
Speaker 9: its upcoming earnings, and in terms of stock price, it's
Speaker 9: come down from a high, but it's still actually doing
Speaker 9: a lot better than its rivals. Such as Julie. I
Speaker 9: think people still see BYD as the technology pioneer in
Speaker 9: the EV industry. But in the short term, I think
Speaker 9: there's going to be pressures on the stock price as
Speaker 9: the whole autos and EV industry in China is facing
Speaker 9: a lot of challenges with demand in the near future.
Speaker 3: Linda, thank you so very much for helping us preview
Speaker 3: earnings in the week ahead from Chinese EV Maker byd
Speaker 3: Bloomberg's Linda lu. She is China Carr's reporter, joining from
Speaker 3: our studios in Hong Kong. I'm Doug Krisner. You can
Speaker 3: catch us weekdays for the Daybreak Asia podcast. It's available
Speaker 3: wherever you get your podcast. Alexis.
Speaker 1: Thanks Doug, and that does it for this edition of
Speaker 1: Bloomberg Daybreak Weekend. Join us again Monday morning at five
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Speaker 1: and the news you need to start your day. I'm
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