WEBVTT - Musk’s xAI Expands Fundraise to $20 Billion 0:00:02.560 --> 0:00:13.520 Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is alive 0:00:13.560 --> 0:00:17.360 from coast to coast with Caroline Hyde and New York 0:00:17.640 --> 0:00:19.599 and Eva Low in sentences, go. 0:00:23.680 --> 0:00:27.640 This is Bloomberg Tech coming up. Elon Musk's XAI taps 0:00:27.640 --> 0:00:31.479 big name investors, including Nvidia in a curious piece of 0:00:31.560 --> 0:00:34.800 financing for GPUs. Bloomberg breaks the story wide open. 0:00:35.479 --> 0:00:38.960 Plus, Tesla unveils cheaper versions of its top selling EV models. 0:00:39.120 --> 0:00:41.720 Will it help with falling sales numbers? We'll discuss. 0:00:42.479 --> 0:00:44.920 We sit down with the UK Minister for AI to 0:00:44.960 --> 0:00:48.840 discuss increased investment between the UK and US on tech 0:00:48.880 --> 0:00:50.320 innovation and a whole lot more. 0:00:51.320 --> 0:00:53.600 First, that's check in on these markets that rally once again, 0:00:53.600 --> 0:00:55.440 if you're looking in then aw's that one hundred ed 0:00:55.640 --> 0:00:57.760 It is your key players, it is the in video's mds. 0:00:57.800 --> 0:01:01.400 We're talking so much about the relentless intertwining of generative 0:01:01.440 --> 0:01:03.960 AI players at the moment in the market. But what's 0:01:04.040 --> 0:01:06.160 notable is we still are thinking about fundamentals. We are 0:01:06.200 --> 0:01:08.679 still thinking about how far we've come from the lows 0:01:08.720 --> 0:01:09.240 of April. 0:01:09.319 --> 0:01:10.880 But what are you looking at underneath the hood. 0:01:11.520 --> 0:01:15.000 Let's get to our top story overnight, Bloomberg broke details 0:01:15.440 --> 0:01:18.880 of a financing mechanism that Xai is using for the 0:01:18.920 --> 0:01:22.680 GPUs that are going in Colossus too. Our understanding from 0:01:22.680 --> 0:01:26.720 sources is that an SPV or special purpose vehicles formed. 0:01:27.000 --> 0:01:30.760 They use debt inequity to get the capitol by the GPUs. 0:01:31.360 --> 0:01:36.440 XAI rents or leases those GPUs from the investors and 0:01:36.480 --> 0:01:39.800 pays them that fee over time. In Video is involved, 0:01:39.959 --> 0:01:43.399 it's getting involved in the equity piece. This morning, in 0:01:43.480 --> 0:01:47.319 Video CEO Jensen one confirmed a whole chunk of our reporting. Carrow, 0:01:47.640 --> 0:01:50.600 this is very complicated. Let's get into the specifics. 0:01:51.560 --> 0:01:52.680 Let's do exactly that. 0:01:52.840 --> 0:01:55.240 Sticking with the two key players in Video and Xai, 0:01:55.280 --> 0:01:56.360 bloom most common. 0:01:56.320 --> 0:01:57.480 ROYO is with us. 0:01:57.560 --> 0:02:00.240 You help break the story with Ed and I just 0:02:00.280 --> 0:02:02.560 want to get to grips of how creative this financing 0:02:02.600 --> 0:02:05.600 actually is. How often do we see SPVs being set 0:02:05.680 --> 0:02:09.320 up to buy GPUs and use them as underlying assets. 0:02:09.840 --> 0:02:12.840 Hi, thank you for having me. We've seen aspvs in 0:02:12.840 --> 0:02:15.960 the past before used for other type of assets. It's 0:02:16.080 --> 0:02:19.400 quite common in Wall Street to basically use assets as 0:02:19.440 --> 0:02:23.839 collateral instead of putting corporate debt, but it's becoming much 0:02:23.840 --> 0:02:26.799 more interesting and much more common to see tech giants 0:02:26.800 --> 0:02:29.400 basically do this type of deals because they don't want 0:02:29.440 --> 0:02:32.120 to put a lot of debt on the corporate balance sheet. 0:02:32.880 --> 0:02:34.280 So I think we're going to see more of these 0:02:34.480 --> 0:02:35.080 in the future. 0:02:36.120 --> 0:02:39.200 Common It's been a busy couple of days chasing this one, right. 0:02:39.680 --> 0:02:42.800 So the structure is twenty billion dollars, most of it 0:02:42.880 --> 0:02:47.000 is debt and there is some equity in there. And 0:02:47.080 --> 0:02:50.240 this morning in Video's CEO Jensen One went on another 0:02:50.320 --> 0:02:56.320 network and in an interview essentially confirmed in vidious participation. 0:02:56.680 --> 0:02:58.960 Just give us the rest of the details that we 0:02:59.040 --> 0:02:59.920 put in that story. 0:03:00.200 --> 0:03:03.240 Sure, So it will be at least twenty billion of 0:03:03.280 --> 0:03:07.000 capital basically to buy the chips that xa I will 0:03:07.040 --> 0:03:10.400 use for this data center in Memphis. And there's going 0:03:10.480 --> 0:03:12.800 to be like a variety of Wall Street investors in 0:03:12.840 --> 0:03:15.600 the dead We know Apollo is in a diameter. We 0:03:15.680 --> 0:03:19.280 reported as well. The equity will have a number of 0:03:19.320 --> 0:03:24.040 investors as well, including Valor, who's leading the financing. But yeah, 0:03:24.080 --> 0:03:26.720 and Videos invested in the equity, which is really interesting 0:03:26.800 --> 0:03:29.320 given that they're basically using that money to buy their 0:03:29.320 --> 0:03:29.920 own chips. 0:03:31.400 --> 0:03:32.440 Where do we go from here? 0:03:32.520 --> 0:03:34.600 I mean It's really difficult because I feel there's a 0:03:34.639 --> 0:03:37.080 lot more reporting to be done. The piece of the 0:03:37.160 --> 0:03:39.200 mechanism that I'm trying to get my head around is 0:03:39.240 --> 0:03:44.240 that there's an SPV and Xai rents and leases the chips. 0:03:44.280 --> 0:03:46.800 We think over a five year period, what are the 0:03:46.800 --> 0:03:49.640 investors get in return, Like are they going to get 0:03:49.640 --> 0:03:53.320 a stake in Xai? Are they just being paid rent basically? 0:03:53.640 --> 0:03:55.560 And then that covers their debt obligations. 0:03:55.640 --> 0:03:57.720 What do we know, Well, well, from what do we know, 0:03:57.840 --> 0:04:00.400 they get the least payments, which is how they can 0:04:00.400 --> 0:04:04.280 amortiz with debt overtime. So basically you get like yeah, 0:04:04.400 --> 0:04:08.200 like monthly quarterly payments for the financing, so you kind 0:04:08.200 --> 0:04:10.000 of like pay down the debt that way. But the 0:04:10.080 --> 0:04:13.080 idea from what we understand is basically at the end 0:04:13.120 --> 0:04:14.960 of it, you still have like the chips that have 0:04:15.000 --> 0:04:18.480 some value right after the five years, so that stays 0:04:18.520 --> 0:04:19.320 within that SPV. 0:04:20.520 --> 0:04:22.480 I would say just very quick that we haven't heard 0:04:22.520 --> 0:04:26.000 from Elon Musk or Xai, Gensen, Wang and Nvidia haven't 0:04:26.040 --> 0:04:29.400 responded to us formerly other than declining to comment, so 0:04:29.440 --> 0:04:31.479 we'll keep a track of this one. Bloomberg's Carmen a Roya. 0:04:31.480 --> 0:04:33.840 It's great to work with you in the newsroom. Thank you. 0:04:34.200 --> 0:04:38.080 So that latest funding on Nvidia into ex Ai only 0:04:38.080 --> 0:04:41.000 adds into what is now complex web of aideals that 0:04:41.000 --> 0:04:43.680 have been occurring. It's the topic of today's Big Take, 0:04:44.000 --> 0:04:48.680 looking at the circular transactions happening within the AI market. 0:04:48.960 --> 0:04:53.159 Bloomberg's Ai editor Seth Figgerman joins us, Now there is 0:04:53.240 --> 0:04:57.560 this big one trillion dollar headline figure and if you 0:04:57.640 --> 0:04:59.760 draw up a mad web with red string on a 0:04:59.800 --> 0:05:03.680 ball of where everything's going, it all kind of touches 0:05:03.760 --> 0:05:06.800 in Nvidia and open Ai. Give us the top line 0:05:06.800 --> 0:05:07.520 of the big Take. 0:05:08.000 --> 0:05:10.200 Well, we did try to draw that mad web of 0:05:10.240 --> 0:05:12.520 red string and our graphic, and also thank YOUEV for 0:05:12.560 --> 0:05:15.120 the extra newspeg overnight with the great scoop on video. 0:05:15.240 --> 0:05:19.040 But yes, I think ultimately we have seen something resembling 0:05:19.080 --> 0:05:22.440 circular or interconnected deals for a lot of the A boom. 0:05:22.440 --> 0:05:24.240 But it's getting to the point where it's harder to ignore. 0:05:24.279 --> 0:05:28.000 There are just dozens of investments and business partnerships and 0:05:28.080 --> 0:05:31.080 chip agreements primarily that all lead back one or two 0:05:31.080 --> 0:05:33.839 steps are moved to Nvidia and open Ai, and the 0:05:33.920 --> 0:05:37.040 size and scope of these have just grown exponentially, particularly 0:05:37.040 --> 0:05:39.360 as open ai itself has kind of gone from saying 0:05:39.360 --> 0:05:42.160 we're going to spend billions to possibly trillions on the 0:05:42.160 --> 0:05:44.080 infrastructure of the support this sect. Also, I think, as 0:05:44.080 --> 0:05:46.839 in Vidia has become a four point five trillion dollar 0:05:46.880 --> 0:05:49.560 company that's very eager to keep the good times going 0:05:49.600 --> 0:05:50.920 by spreading the money around. 0:05:52.120 --> 0:05:55.919 Seth talk about the good times and really whether anxiety 0:05:55.960 --> 0:05:56.880 is vindicated here. 0:05:57.080 --> 0:05:59.960 The worry on open aiyes front, is that at the moment. 0:05:59.839 --> 0:06:02.720 It's loss making, and so how does it eventually pay 0:06:02.760 --> 0:06:04.440 this back? But you have to bet on its growth 0:06:04.440 --> 0:06:07.560 and its ability to get revenue. Nvidia has the money, 0:06:07.680 --> 0:06:09.839 and that's in many ways why Goldman, for example, is 0:06:09.880 --> 0:06:12.960 saying this is not like the dot com era, even 0:06:12.960 --> 0:06:16.760 if we are seeing these complex web of integrations and relationships. 0:06:17.200 --> 0:06:19.039 I think both things can be true. You know, ultimately, 0:06:19.080 --> 0:06:21.120 a lot of what's backstopping the AI boom, as we 0:06:21.240 --> 0:06:23.559 know are these very big tech companies with very healthy 0:06:23.560 --> 0:06:27.159 balance sheets and massive cash stockpiles, including in Nvidia. On 0:06:27.160 --> 0:06:29.240 the other hand, I think the graphic makes quite clear 0:06:29.279 --> 0:06:32.440 and the story itself that increasingly a lot of these 0:06:32.440 --> 0:06:36.040 companies are very bound up, particularly open AI affirmed that 0:06:36.080 --> 0:06:38.839 while it's a decade old and a household name everywhere, 0:06:38.839 --> 0:06:41.760 has never turned the profit and plans to spend you know, 0:06:41.839 --> 0:06:45.200 hundreds of billions if not more, including through debt. So 0:06:45.400 --> 0:06:47.240 you know, I think both things can be true. Is 0:06:47.240 --> 0:06:50.200 it in Vigia about to go bust tomorrow because of this? No? 0:06:50.360 --> 0:06:53.120 But is there a heightened exposure to all these companies 0:06:53.160 --> 0:06:56.200 because they're tethering themselves to a handful of you know, 0:06:56.440 --> 0:06:59.400 fast growing but still unprofitable AIS startups. Yeah, there's a 0:06:59.480 --> 0:07:01.120 risk in. 0:07:01.240 --> 0:07:03.279 Meg Seth Fiegeman, thank you for talking us through what 0:07:03.400 --> 0:07:05.760 is an amazing piece of data journalism as well. 0:07:05.800 --> 0:07:07.280 Go read it the Big Take. 0:07:07.520 --> 0:07:10.040 Let's get more investor analysis now, though carrosh life for 0:07:10.120 --> 0:07:13.480 more as chief market strategistic BIMO Private Wealth has one 0:07:13.520 --> 0:07:16.080 hundred fifteen million dollars in assets under management. 0:07:15.920 --> 0:07:17.640 And Carol, I'm interested in. 0:07:17.680 --> 0:07:20.240 There's a great line in that Big Take coming from 0:07:20.320 --> 0:07:23.520 Stacy Ragson over at Bernstein saying basically, Sam Altman is 0:07:23.560 --> 0:07:26.720 either going to drive this economy lower, We're going to 0:07:26.720 --> 0:07:29.160 see the world economy tank or he's taking us to 0:07:29.200 --> 0:07:29.960 the promised land. 0:07:30.040 --> 0:07:31.440 Which way are you seeing it going? 0:07:32.960 --> 0:07:35.360 I'm not sure it's either or First off, thanks for 0:07:35.400 --> 0:07:38.240 having me. I'm joining you from Toronto today. Or we're 0:07:38.280 --> 0:07:42.840 doing a Female Eurasia Group US Canada summit. So there's 0:07:42.880 --> 0:07:45.880 a lot of discussions on AI and other things like 0:07:45.920 --> 0:07:46.840 that going on here. 0:07:46.880 --> 0:07:48.880 But I'm not. 0:07:48.800 --> 0:07:51.520 Sure it's all good or all bad. It's someplace in between, 0:07:51.560 --> 0:07:53.600 and there are a lot of things to watch. I 0:07:53.640 --> 0:07:55.600 love the Big Take already. I caught it in the 0:07:55.600 --> 0:07:57.440 middle of the night and sent it out to a 0:07:57.520 --> 0:08:01.200 number of co workers, especially the graphic in they're showing 0:08:01.240 --> 0:08:04.320 that circular nature that's very much like some of the 0:08:04.320 --> 0:08:08.600 stuff we saw go on in previous bubbles. But as 0:08:10.040 --> 0:08:13.480 your reporter commented on, you've got right now. It's backed 0:08:13.480 --> 0:08:17.000 by big companies with very solid balance sheets, and they're 0:08:17.080 --> 0:08:20.080 generating revenue off of that. The one thing that we 0:08:20.240 --> 0:08:23.480 keep in mind for our investors, though, is that you've 0:08:23.520 --> 0:08:27.320 also got a very concentrated stock market because of that 0:08:27.440 --> 0:08:31.280 circular nature and the interrelated deals that they're all doing. 0:08:31.840 --> 0:08:35.320 If investors start questioning one, you could get a ripple effect, 0:08:35.840 --> 0:08:39.720 but it would be a rip effect. Perhaps you lead 0:08:39.800 --> 0:08:42.920 to some sort of pullback, which we haven't had since April, 0:08:43.280 --> 0:08:46.240 but we don't see it rippling through the economy and 0:08:46.280 --> 0:08:49.240 taking known major suads of the economy. So it's a 0:08:49.400 --> 0:08:54.679 very nuanced answer, but it's it's rarely ever all black 0:08:54.760 --> 0:08:55.080 or all. 0:08:55.000 --> 0:08:56.600 White, Carol. 0:08:56.640 --> 0:08:58.880 What we are trying to see though, is actually who 0:08:58.960 --> 0:09:02.000 takes the most the profits available from all these deals 0:09:02.160 --> 0:09:06.480 in video clearly massively revenue generating and profit generating. But 0:09:06.520 --> 0:09:08.520 then you think of Oracle and some of the questioning 0:09:08.559 --> 0:09:10.480 about how much of a margin they make on a 0:09:10.559 --> 0:09:13.520 three hundred billion dollar contract for open AI. How much 0:09:13.559 --> 0:09:15.559 do you have to do the due diligence on individual 0:09:15.640 --> 0:09:16.400 names right now? 0:09:17.240 --> 0:09:18.920 Well, I think you really do it. 0:09:18.920 --> 0:09:21.880 The market's not much because I mean one of the 0:09:21.880 --> 0:09:24.400 phrases we've been using all week is the market seems 0:09:24.440 --> 0:09:27.560 to be acting like no news on economic data or anything. 0:09:27.559 --> 0:09:29.679 No news is good news, and off we go to 0:09:29.800 --> 0:09:32.640 new highs. But you have to be very discerning. But 0:09:32.679 --> 0:09:35.480 we've always been a combination of top down and bottom 0:09:35.600 --> 0:09:39.360 up in what we're looking at things. And you also 0:09:39.480 --> 0:09:42.920 have to, especially in a diversified portfolio, realize you might 0:09:42.960 --> 0:09:46.400 be over concentrated even if you're doing individual securities. If 0:09:46.440 --> 0:09:49.360 you own a passive index fund. If you own an 0:09:49.760 --> 0:09:54.280 AI specific or a technology specific ETF, you've concentrated it 0:09:54.320 --> 0:09:56.880 even more. And so it's doing some of that and 0:09:56.960 --> 0:10:00.360 it's stepping back and doing some good portfolio hygiene looking 0:10:00.400 --> 0:10:03.200 back perhaps at where we started the year, taking some 0:10:03.240 --> 0:10:05.439 of those games off the table and shifting them around 0:10:05.440 --> 0:10:09.640 to other sectors that are potential beneficiaries. Because we have energy, 0:10:09.679 --> 0:10:11.400 we have nuclear, we have a lot of things that 0:10:11.480 --> 0:10:14.040 have to happen for those for the switches to go 0:10:14.040 --> 0:10:15.439 on in those data centers. 0:10:16.440 --> 0:10:19.760 Carol, you've had a decorated career of markets as a 0:10:19.800 --> 0:10:23.160 chief investment officer. I just want to run the mechanism 0:10:23.160 --> 0:10:27.079 that I reported overnight passed you again a special purpose 0:10:27.160 --> 0:10:32.160 vehicle where you have both debt inequity pulled together by 0:10:32.200 --> 0:10:36.240 a group of investors who buy GPUs and then in 0:10:36.280 --> 0:10:40.560 this case XAI rents those GPUs or leases them from 0:10:40.559 --> 0:10:45.480 the special purpose vehicle. I haven't heard of this structure before, 0:10:45.640 --> 0:10:49.960 but just as a structural consideration in financial markets and 0:10:50.040 --> 0:10:53.480 the debt load and where it's placed, how do you 0:10:53.559 --> 0:10:54.280 react to that? 0:10:55.640 --> 0:10:59.280 I think it'll be a really interesting earning season because 0:10:59.280 --> 0:11:01.800 I'm sure a lot of analysts will be asking those 0:11:01.800 --> 0:11:05.079 detailed questions because we're starting from a place with a 0:11:05.120 --> 0:11:07.880 lot of those companies other than perhaps Oracle, as I 0:11:07.960 --> 0:11:11.360 understand it, we're starting from a place of pretty pristine 0:11:11.440 --> 0:11:15.480 balance sheets. You also have tax benefits that accrue to 0:11:15.520 --> 0:11:19.800 some where. I'm not sure exactly how their accounting works 0:11:19.840 --> 0:11:25.040 in terms of who's expensing everything, who's capitalizing some but 0:11:25.080 --> 0:11:28.160 you have to capitalize less stuff now, so if you've 0:11:28.200 --> 0:11:30.600 got the earnings to support writing it off, it's less 0:11:30.679 --> 0:11:34.400 damaging to the balance sheet. But it is indicative of 0:11:34.440 --> 0:11:36.679 the fact that Wall Street staffed up at the end 0:11:36.720 --> 0:11:38.880 of less year with an awful lot of deal making 0:11:38.920 --> 0:11:40.959 people that I've had a lot of time to think 0:11:41.040 --> 0:11:43.760 really creatively about how to put this stuff together. So 0:11:44.280 --> 0:11:46.520 as an investor, it makes a job that much more 0:11:46.520 --> 0:11:48.720 difficult because to your point, you really have to figure 0:11:48.720 --> 0:11:51.000 out what's on the balance sheet, what's not on the 0:11:51.040 --> 0:11:52.000 balance sheet. 0:11:52.920 --> 0:11:55.240 Carol, there's a lot we don't know as well, like 0:11:55.320 --> 0:11:56.400 the tax consideration. 0:11:56.880 --> 0:11:58.000 I'm trying to get after it. 0:11:58.440 --> 0:12:02.000 Oracle one hundred billion dollar is a debt swinging to 0:12:02.440 --> 0:12:04.760 negative free cash flow for the first time since nineteen 0:12:04.840 --> 0:12:08.240 ninety two. I've been tracking the data do you. 0:12:09.640 --> 0:12:11.960 Yeah, we track some of it, and we've got a 0:12:11.960 --> 0:12:15.439 lot of analysts in our global asset management and capital 0:12:15.480 --> 0:12:18.960 markets units that get really specific about that. I don't 0:12:19.000 --> 0:12:21.640 as much anymore on a macro basis, but I listened 0:12:21.720 --> 0:12:25.040 really hard, and I asked the questions, and I started 0:12:25.080 --> 0:12:28.000 a couple of months ago asking the some of the 0:12:28.040 --> 0:12:30.920 research teams, how are they financing these deals? How are 0:12:30.920 --> 0:12:33.760 they dealing with you know, when does it shift to debt, 0:12:33.800 --> 0:12:35.440 because at the time it was all coming out of 0:12:35.440 --> 0:12:39.160 cash flow, and I wanted to understand too, what goes 0:12:39.240 --> 0:12:41.480 right through the income statement so it's never showing up 0:12:41.520 --> 0:12:44.480 on the balance sheet Because an Nvidia chip isn't going 0:12:44.559 --> 0:12:47.040 to last twenty years, and anything less than twenty years 0:12:47.040 --> 0:12:49.840 you can technically write off against earnings in the period 0:12:49.880 --> 0:12:50.160 you do. 0:12:50.200 --> 0:12:52.040 It twenty years. 0:12:52.040 --> 0:12:55.120 So most investors I speak to you say try five years. 0:12:55.480 --> 0:12:58.440 Carol Stone. Right, you've been brilliant. You've been brilliant. We're 0:12:58.679 --> 0:13:01.040 really grateful for your time here, BG Tech, be MO, 0:13:01.160 --> 0:13:02.680 Private Wealth Corosh Live. 0:13:02.760 --> 0:13:03.120 Thank you. 0:13:03.160 --> 0:13:05.079 Now, coming up on the program, we're going to take 0:13:05.080 --> 0:13:08.720 another look at Tesla's cheaper, cheaper version of its top 0:13:08.760 --> 0:13:11.960 selling EV models and if it can help with falling 0:13:12.000 --> 0:13:12.600 sales numbers. 0:13:12.600 --> 0:13:13.920 That's next. This is Bloomberg Tech. 0:13:21.280 --> 0:13:24.920 Kees Left just unveiled new cheaper versions of its top 0:13:24.960 --> 0:13:27.839 selling models, priced it under forty thousand dollars to make 0:13:27.840 --> 0:13:30.400 them well more affordable in an effort to counteract the 0:13:30.440 --> 0:13:32.800 loss of US incentives for electric cars. 0:13:33.000 --> 0:13:35.160 One of the most croterd L who covers Auto's joins 0:13:35.200 --> 0:13:35.800 US Now for more. 0:13:36.400 --> 0:13:39.160 How much cheaper? Let's get specific on some of the 0:13:39.200 --> 0:13:40.800 price data and what you're losing for that. 0:13:42.720 --> 0:13:45.520 Yeah, you know, it's somewhere in the range of eleven 0:13:45.600 --> 0:13:48.840 or thirteen percent cheaper relative to what the base model 0:13:48.840 --> 0:13:53.040 three and Model Y we're costing prior to this. However, 0:13:53.160 --> 0:13:55.520 when you take into account the seventy five hundred dollars 0:13:55.520 --> 0:13:58.640 text credit that's gone away and what it would have 0:13:58.760 --> 0:14:01.720 cost you to buy those base models, you know, even 0:14:01.840 --> 0:14:05.720 just you know, a week ago or so, these models 0:14:05.720 --> 0:14:08.599 are are you know, two thousand dollars more expensive and 0:14:09.000 --> 0:14:12.760 for less content? So you lose a second row screen, 0:14:12.880 --> 0:14:17.960 you lose ambient lighting, you have less battery range, slower accelerations, 0:14:18.000 --> 0:14:21.840 So you know, will this be helpful for the incremental 0:14:21.880 --> 0:14:24.480 consumer who was maybe on the sort of line of 0:14:24.520 --> 0:14:27.080 being able to afford versus not being able to afford 0:14:27.080 --> 0:14:31.080 a Tesla. I think it does help Tesla's you know, 0:14:31.240 --> 0:14:34.760 business in that regard. But it's also a case of, 0:14:35.160 --> 0:14:37.760 you know, not necessarily a slam dunk if you're a consumer, 0:14:38.400 --> 0:14:41.400 because you're giving up a lot for you know, for 0:14:41.680 --> 0:14:45.960 for a lower price, and you know, there is a 0:14:46.000 --> 0:14:48.520 real sort of value equation here here to do. 0:14:49.880 --> 0:14:52.760 We reported about twenty four hours ahead of time that 0:14:52.840 --> 0:14:55.960 there would be a standard model Y. We did not 0:14:56.080 --> 0:14:58.560 report that there would also be a three, and there was. 0:14:59.280 --> 0:15:01.360 But I think if you could recap some of the 0:15:01.400 --> 0:15:05.000 reporting we did on where they engineered out cost, because 0:15:05.000 --> 0:15:07.040 the reaction on social media at least has been like, 0:15:07.120 --> 0:15:09.720 hold on, so if you engineered out seventy percent of whatever, 0:15:10.040 --> 0:15:12.240 why is it only thirteen percent cheaper. 0:15:13.840 --> 0:15:16.080 Yeah, it's a really good question. And I think, you know, 0:15:16.520 --> 0:15:19.440 I go back even to April of last year and 0:15:19.600 --> 0:15:23.560 when you were reporting on the sort of idea that 0:15:23.600 --> 0:15:26.120 a twenty five thousand dollars Tesla was sort of falling 0:15:26.120 --> 0:15:29.040 by the wayside. You know, Tesla sort of came right 0:15:29.080 --> 0:15:32.760 out and sort of responded to those reports by saying 0:15:32.760 --> 0:15:35.760 that they were going to introduce more affordable models, and 0:15:35.800 --> 0:15:39.040 they sort of alluded to this idea of taking some 0:15:39.240 --> 0:15:43.760 elements of this next generation you know, vehicle that they 0:15:43.760 --> 0:15:46.600 were going to sort of incorporate into their existing lineup. 0:15:47.040 --> 0:15:49.840 I don't get a whole I don't really get much 0:15:49.840 --> 0:15:51.840 of a sense that they've actually done that. 0:15:51.920 --> 0:15:52.080 Here. 0:15:52.320 --> 0:15:56.280 It feels more like they've just decontented these vehicles. And so, 0:15:56.440 --> 0:15:59.200 you know, to the extent that I have questions for 0:15:59.440 --> 0:16:01.800 Musk and the management team, it's how much are you 0:16:01.800 --> 0:16:05.400 actually sort of innovating your vehicles versus just taking things 0:16:05.440 --> 0:16:09.240 out and then you know, charging consumers less because you've 0:16:09.280 --> 0:16:13.240 taken cost off of your own cost of goods sould 0:16:13.560 --> 0:16:16.600 And you know, that's pretty unclear at this juncture whether 0:16:16.640 --> 0:16:19.560 they've actually, you know, done things with the batteries, with 0:16:19.600 --> 0:16:20.680 the motors. 0:16:21.160 --> 0:16:23.360 Or have they just taken away content. 0:16:23.760 --> 0:16:26.360 Yeah, yeah, I mean the engineering side, that's what we 0:16:26.400 --> 0:16:28.960 had heard. Blue Bells creator ow our Global Autos editor, 0:16:29.320 --> 0:16:32.520 thank you so much. Let's continue the conversation with Steve Wesley, 0:16:32.560 --> 0:16:35.840 founder and managing partner of the Wesley Group, a venture 0:16:35.880 --> 0:16:37.800 firm with seven one hundred million dollars of assets, on 0:16:37.880 --> 0:16:40.280 the massive management but we go to Steve because at 0:16:40.320 --> 0:16:42.760 one time Steve sat on Tesla's board and shaired their 0:16:43.160 --> 0:16:46.360 audit committee. He's also been involved at state level finance 0:16:47.560 --> 0:16:49.240 at a high level for a long time. 0:16:50.440 --> 0:16:51.760 You heard all of the reporting. 0:16:51.960 --> 0:16:54.160 I'm sure you've been on Tesla's website and looked at 0:16:54.200 --> 0:16:59.000 the vehicles. The story here is the impact that is 0:16:59.080 --> 0:17:02.920 seventy five hundred dollar federal tax credit was having on 0:17:02.960 --> 0:17:04.280 the EV market in America? 0:17:04.440 --> 0:17:04.760 Is it not? 0:17:06.280 --> 0:17:08.359 Well, it's going to have a big impact. Look, the 0:17:08.359 --> 0:17:10.440 big question here is this is a step in the 0:17:10.480 --> 0:17:14.920 right direction. Tesla's bringing prices down, But at thirty seven 0:17:15.000 --> 0:17:17.600 K for the Model three, is that low enough to 0:17:17.640 --> 0:17:20.840 attract the new class of buyers? And step back a bit. 0:17:20.920 --> 0:17:23.680 Thirty seven k it's less than the average US internal 0:17:23.720 --> 0:17:26.560 combustion and engine vehicle, which day stands at forty eight k. 0:17:27.080 --> 0:17:31.440 But can Tesla's new model compete with the EV from 0:17:31.520 --> 0:17:36.520 Volkswagen at hyunda A and the US at twenty seven thousand? 0:17:36.880 --> 0:17:39.159 And how are they going to compete with those twenty 0:17:39.200 --> 0:17:43.000 thousand dollars Chinese evs that bid is bringing into Europe. 0:17:43.280 --> 0:17:45.640 So I think there's a chance the new slim down 0:17:45.680 --> 0:17:48.480 Model Y. It's going to bring in some new buyers 0:17:48.480 --> 0:17:50.720 for sure, but how much is it going to cut 0:17:50.760 --> 0:17:53.320 into the premium market and are they going to end 0:17:53.400 --> 0:17:56.800 up ahead at the end of the day. Looking forward, 0:17:57.040 --> 0:17:59.800 battery prices are going to continue to drop. This may 0:17:59.840 --> 0:18:03.040 be a stopgap measure, but Tesla, I believe, still needs 0:18:03.080 --> 0:18:08.880 that twenty five thousand dollars model to get into new 0:18:08.960 --> 0:18:12.080 developing markets and attract for first time entering buyers in 0:18:12.080 --> 0:18:12.560 the US. 0:18:13.440 --> 0:18:17.560 You know, Tesla considers itself a technology company and the 0:18:18.000 --> 0:18:21.000 leader in global engineering. Right when you were at Tesla, 0:18:21.119 --> 0:18:24.280 it was about Model S principally and like that was 0:18:24.480 --> 0:18:27.359 value for money because it was so performant and had 0:18:27.400 --> 0:18:31.359 all of these bells and whistles with it. I guess 0:18:31.800 --> 0:18:33.520 the root of my question is why would they release 0:18:33.600 --> 0:18:36.520 this vehicle? You know, to many people, it doesn't live 0:18:36.600 --> 0:18:41.200 up to that engineering or technology value that Tesla's given historically. 0:18:42.400 --> 0:18:44.840 I think you put your finger on the problem. Tesla's 0:18:44.840 --> 0:18:49.160 a premium vehicle. They charge a premium and people expect 0:18:49.320 --> 0:18:52.720 to have the latest and greatest, and I don't think 0:18:52.720 --> 0:18:56.159 they're really seeing that. You see these other brands like 0:18:56.320 --> 0:19:01.639 VIEID with twelve models and Swagen and the eight I 0:19:01.720 --> 0:19:05.720 Think and General Motors with ten ge Whiz. Tesla has 0:19:05.880 --> 0:19:10.560 only had five models in its history, and the cyber 0:19:10.600 --> 0:19:13.040 truck barely accounts because that was a flop. People want 0:19:13.080 --> 0:19:16.119 to see new technology, new products coming into market. I 0:19:16.240 --> 0:19:18.720 really think they need that twenty five thousand dollars car. 0:19:19.000 --> 0:19:21.440 But they've got to do both. They not only need 0:19:21.440 --> 0:19:23.800 to bring new models and lower cost cars to market. 0:19:24.000 --> 0:19:25.879 At the same time, they have to deliver on this 0:19:26.040 --> 0:19:29.800 promise of getting full self driving out there, staying competitive 0:19:29.800 --> 0:19:32.200 with Weemo. They've got some things to prove. 0:19:32.840 --> 0:19:35.800 Stee that is the technology that they're now betting on. 0:19:35.840 --> 0:19:39.160 The innovation cycle moves towards robotics and wards to automation. 0:19:39.840 --> 0:19:43.560 How integral is the cash cow of car sales to you. 0:19:44.800 --> 0:19:47.719 Well, again, they've got to do both. When you have 0:19:47.760 --> 0:19:50.920 a company that's trading at a two hundred and fifty 0:19:52.240 --> 0:19:58.040 price to earnings ratio, that's nosebleedy high. I mean, gosh, 0:19:58.200 --> 0:20:00.520 in VideA is only at fifty to one. So they've 0:20:00.520 --> 0:20:02.080 got to show that they can not only bring new 0:20:02.119 --> 0:20:05.440 products to market, stay in the ballpark price wise. I'm 0:20:05.480 --> 0:20:08.920 not sure a four k reduction really gets them there 0:20:09.320 --> 0:20:12.520 and get licensing in new cities so they could show 0:20:12.560 --> 0:20:16.840 that their full self driving is going national and hopefully international, 0:20:17.040 --> 0:20:18.439 and that they're going to be a deliver on this 0:20:18.600 --> 0:20:22.600 humanoid robots. They've got a tough road ahead to show 0:20:22.640 --> 0:20:27.600 that they can stand up to the evaluation they currently have. 0:20:27.880 --> 0:20:30.520 Now aren't argue with one point trillion dollar market cap, 0:20:30.600 --> 0:20:33.320