1 00:00:02,920 --> 00:00:07,800 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:10,560 --> 00:00:14,360 Speaker 2: This is Bloomberg Intelligence with Alex Steinhl and Paul'sweeny. 3 00:00:14,520 --> 00:00:17,720 Speaker 3: The real app performance has been in US corporate high yield. 4 00:00:17,880 --> 00:00:20,280 Speaker 4: Are the companies lean enough? Have they trimmed all the fats? 5 00:00:20,320 --> 00:00:24,119 Speaker 4: The semiconductor business is a really cyclical business. 6 00:00:23,600 --> 00:00:27,200 Speaker 2: Breaking market headlines and corporate news from across the globe. 7 00:00:27,240 --> 00:00:29,880 Speaker 3: Do investors like the M and A that we've seen? 8 00:00:30,080 --> 00:00:31,000 Speaker 5: These are two. 9 00:00:31,000 --> 00:00:33,120 Speaker 3: Big time blue chip companies. 10 00:00:33,320 --> 00:00:36,920 Speaker 6: The window between the peak and cut changing super fast. 11 00:00:37,080 --> 00:00:41,680 Speaker 2: Bloomberg Intelligence with Alex Steinhl and Paul'sweeny on Bloomberg Radio. 12 00:00:43,000 --> 00:00:45,840 Speaker 4: Today's Bloomberg Intelligence Show, we dig inside the big business 13 00:00:45,840 --> 00:00:47,080 Speaker 4: stories impacting Wall Street and. 14 00:00:47,040 --> 00:00:47,839 Speaker 3: The global markets. 15 00:00:47,960 --> 00:00:50,160 Speaker 4: Each and every week, we provided that research and data 16 00:00:50,159 --> 00:00:52,520 Speaker 4: on some of the two thousand companies and one hundred 17 00:00:52,520 --> 00:00:55,440 Speaker 4: and thirty industries of our analysts cover worldwide. Today, we'll 18 00:00:55,440 --> 00:00:58,600 Speaker 4: look at why restaurants are confronting a slowdown in consumer spending. 19 00:00:58,840 --> 00:01:01,080 Speaker 4: Plus we'll discuss why home post sales fell for a 20 00:01:01,120 --> 00:01:04,560 Speaker 4: fifth consecutive quarter. For first, we dive into earnings from 21 00:01:04,600 --> 00:01:07,240 Speaker 4: the world's most valuable chip maker, in Nvidia reported fourth 22 00:01:07,280 --> 00:01:11,240 Speaker 4: quarter revenue that sailed past analyst expectations. It also delivered 23 00:01:11,240 --> 00:01:14,000 Speaker 4: another eye popping sales forecast for the current quarter. This 24 00:01:14,080 --> 00:01:18,160 Speaker 4: is thanks to insatiable demand for Nvidia's artificial intelligence accelerators. 25 00:01:18,200 --> 00:01:20,559 Speaker 4: For more, co hosts Emily Grafeyo and I were joined 26 00:01:20,560 --> 00:01:24,919 Speaker 4: by Kunjohn Sabani, Bloomberg Intelligence Senior semiconductor analyst. We first 27 00:01:25,000 --> 00:01:27,480 Speaker 4: asked for his take on in Nvidia's earnings results. 28 00:01:27,800 --> 00:01:30,640 Speaker 7: Any earning surprise from Nvidia is no longer a surprise. 29 00:01:30,720 --> 00:01:32,520 Speaker 7: We have come to sort of expect this to be 30 00:01:32,560 --> 00:01:34,920 Speaker 7: a new norm. But there were a lot of positive 31 00:01:35,240 --> 00:01:38,839 Speaker 7: reassuring things on the supply side. We saw supply coming 32 00:01:38,920 --> 00:01:43,160 Speaker 7: up really strong. More importantly, supply getting diversified and the 33 00:01:43,200 --> 00:01:46,199 Speaker 7: benefits for which we're seen in their gross margin, which 34 00:01:46,280 --> 00:01:49,360 Speaker 7: beat the estimates. But more important was the assurance that 35 00:01:49,480 --> 00:01:52,560 Speaker 7: demand continues to stay strong, and not just from the 36 00:01:52,720 --> 00:01:55,160 Speaker 7: large cloud players. We all are aware of how much 37 00:01:55,160 --> 00:01:58,520 Speaker 7: money they're spending, but demand strength was broad based across 38 00:01:58,560 --> 00:02:03,320 Speaker 7: their enterprise. Customers are different verticals, so that really reassures us. 39 00:02:03,320 --> 00:02:04,920 Speaker 7: For the twenty twenty four what did. 40 00:02:04,840 --> 00:02:08,480 Speaker 6: You make of the CEO's statement that Generative AI has 41 00:02:08,600 --> 00:02:11,360 Speaker 6: hit the tipping point. I saw that headline, and I 42 00:02:11,400 --> 00:02:14,400 Speaker 6: didn't actually really understand what that meant. So what did 43 00:02:14,440 --> 00:02:15,000 Speaker 6: you think of that? 44 00:02:15,360 --> 00:02:18,440 Speaker 7: I mean, look, it's really Jensen. If you have been 45 00:02:18,440 --> 00:02:20,840 Speaker 7: following the company for the lat past ten years, at 46 00:02:20,880 --> 00:02:24,640 Speaker 7: every junction, that's what his messaging always is in whatever 47 00:02:24,680 --> 00:02:27,720 Speaker 7: they're working on. So but apart from that, I would really, 48 00:02:27,800 --> 00:02:30,720 Speaker 7: you know, ask investors to look into the end data 49 00:02:30,720 --> 00:02:33,280 Speaker 7: points rather than what just he's saying. I mean, he's 50 00:02:33,280 --> 00:02:35,840 Speaker 7: a very important person right now, but we look at 51 00:02:35,880 --> 00:02:38,680 Speaker 7: the end data points. The customers are really increasing their 52 00:02:38,680 --> 00:02:42,799 Speaker 7: AI spen right the IT total capex budgets are increasing, 53 00:02:42,960 --> 00:02:45,560 Speaker 7: but the AI portion within that is also increasing. And 54 00:02:45,600 --> 00:02:47,960 Speaker 7: it's not just at the chip level. The contracts that 55 00:02:47,960 --> 00:02:50,920 Speaker 7: they have with their software customers, even those customers are 56 00:02:50,960 --> 00:02:52,679 Speaker 7: guiding up their revenue targets. 57 00:02:52,840 --> 00:02:55,200 Speaker 3: Hey, Kun John, I love their customer list that they 58 00:02:55,200 --> 00:02:55,480 Speaker 3: read off. 59 00:02:55,520 --> 00:02:58,640 Speaker 4: It's kind of a who's who of Silicon Valley, you know, Facebook, Google, 60 00:02:58,840 --> 00:02:59,959 Speaker 4: whatever their new names are. 61 00:03:00,560 --> 00:03:01,440 Speaker 3: What's the next? 62 00:03:01,760 --> 00:03:05,040 Speaker 4: Is there a next set of customers out there above 63 00:03:05,080 --> 00:03:07,480 Speaker 4: and beyond kind of the household names that we all 64 00:03:07,520 --> 00:03:08,800 Speaker 4: know that maybe they're targeting. 65 00:03:09,080 --> 00:03:12,040 Speaker 7: Yes, an enterprise segment is sort of the new the 66 00:03:12,080 --> 00:03:15,000 Speaker 7: next area that they're really targeting. Right, They already have 67 00:03:15,280 --> 00:03:19,200 Speaker 7: the big large spenders, but now they want to diversify 68 00:03:19,520 --> 00:03:23,400 Speaker 7: and expand the reach across enterprises. And the second big 69 00:03:23,440 --> 00:03:27,079 Speaker 7: target now is sort of governments and sovereign governments and 70 00:03:27,120 --> 00:03:30,720 Speaker 7: sovereign wells. Right, that's what they're targeting that they believe 71 00:03:30,960 --> 00:03:34,160 Speaker 7: AI will be, you know, because of geopolitical and trade 72 00:03:34,200 --> 00:03:37,640 Speaker 7: issues will be more regional and every big economy will 73 00:03:37,680 --> 00:03:38,560 Speaker 7: need to spend on that. 74 00:03:38,960 --> 00:03:41,880 Speaker 6: Are there any headwinds that investors need to be looking 75 00:03:41,920 --> 00:03:44,600 Speaker 6: out for because I just looked on the A and 76 00:03:44,800 --> 00:03:48,200 Speaker 6: R function on Bloomberg and there are zero cells for 77 00:03:48,320 --> 00:03:50,480 Speaker 6: in video. There was one last thing from morning Star 78 00:03:50,560 --> 00:03:52,720 Speaker 6: and now he's upgraded to a hold. 79 00:03:53,080 --> 00:03:53,280 Speaker 8: Yeah. 80 00:03:53,280 --> 00:03:55,320 Speaker 7: I mean, look, if you look at just what the 81 00:03:55,400 --> 00:03:59,880 Speaker 7: data says, usually the stock price follows the analyst price. 82 00:04:00,680 --> 00:04:03,360 Speaker 7: It seems here the price targets are following the stock pride. 83 00:04:03,600 --> 00:04:06,040 Speaker 7: When we look at the fundamentals, right, there was really 84 00:04:06,120 --> 00:04:09,760 Speaker 7: nothing that to highlight as a risk factor in the 85 00:04:09,800 --> 00:04:12,640 Speaker 7: earnings and really in the near term for twenty twenty four. 86 00:04:12,920 --> 00:04:14,800 Speaker 7: But if we were to form a bare thesis, a 87 00:04:14,800 --> 00:04:16,680 Speaker 7: couple of things that would we would look at as 88 00:04:16,800 --> 00:04:19,600 Speaker 7: risk factors for the long term. One is the China risk. 89 00:04:19,800 --> 00:04:23,360 Speaker 7: We did see China revenue almost reduced by half versus 90 00:04:23,400 --> 00:04:26,080 Speaker 7: three q in this quarter, right and we know this 91 00:04:26,200 --> 00:04:28,760 Speaker 7: problem is not going away, if at all, getting worse. 92 00:04:28,839 --> 00:04:31,640 Speaker 7: So right now they are easily able to offset what 93 00:04:31,680 --> 00:04:34,280 Speaker 7: they could have shipped to China while shipping to other 94 00:04:34,320 --> 00:04:37,280 Speaker 7: customers in US and other regions. But at some point 95 00:04:37,400 --> 00:04:40,640 Speaker 7: when the demand supply sort of normalizes and the growth 96 00:04:40,680 --> 00:04:43,960 Speaker 7: rates become more of a normal run rate, you know, 97 00:04:44,000 --> 00:04:47,200 Speaker 7: this is taking out a bite out of that opportunity 98 00:04:47,240 --> 00:04:49,440 Speaker 7: that they could have served in China. So that's one 99 00:04:49,520 --> 00:04:52,040 Speaker 7: risk factor on the long term. The second being their 100 00:04:52,120 --> 00:04:55,080 Speaker 7: largest customers, which are the cloud players, have started to 101 00:04:55,120 --> 00:04:57,840 Speaker 7: design their own ships. So again this is far out, 102 00:04:58,120 --> 00:05:00,920 Speaker 7: but at some point this still take a bite out 103 00:05:01,000 --> 00:05:03,039 Speaker 7: of the apple that N media could have served. 104 00:05:03,200 --> 00:05:05,040 Speaker 4: So that's kind of where I wanted to go, John, 105 00:05:05,120 --> 00:05:07,839 Speaker 4: I mean, just the competitive environment. Can you explain why 106 00:05:08,320 --> 00:05:10,560 Speaker 4: these guys are the only game in town? That seems 107 00:05:10,600 --> 00:05:11,080 Speaker 4: odd to me. 108 00:05:11,680 --> 00:05:14,599 Speaker 7: I mean, it's not by an accident. These guys were 109 00:05:14,640 --> 00:05:17,200 Speaker 7: sort of the inventor, if you will, for the GPU. 110 00:05:17,520 --> 00:05:20,520 Speaker 7: They have been working on a GPU for decades and 111 00:05:20,640 --> 00:05:24,000 Speaker 7: out investing everyone being at the leading edge. So this 112 00:05:24,160 --> 00:05:26,440 Speaker 7: was the same question when we talked about gaming and 113 00:05:26,480 --> 00:05:28,839 Speaker 7: when we talked about crypto, right, the last two waves 114 00:05:28,839 --> 00:05:31,000 Speaker 7: which drove the growth for this company. It was not 115 00:05:31,080 --> 00:05:33,839 Speaker 7: by accident. They have been at this forefront of these 116 00:05:33,960 --> 00:05:38,040 Speaker 7: new applications where the application suddenly realized, well, GPU is 117 00:05:38,080 --> 00:05:41,800 Speaker 7: the best case compute platform, and that's why they adopted GP. 118 00:05:41,920 --> 00:05:44,440 Speaker 7: Same thing what we're saying with AI. So this was 119 00:05:44,480 --> 00:05:46,120 Speaker 7: not by accident. If you look at that R and 120 00:05:46,160 --> 00:05:49,440 Speaker 7: D spend, which they guided to be growing by mid 121 00:05:49,520 --> 00:05:52,240 Speaker 7: thirties next year, that's a significant amount of rn NE 122 00:05:52,320 --> 00:05:55,800 Speaker 7: dollars they continue to spend and to keep again being 123 00:05:55,839 --> 00:05:58,080 Speaker 7: at the leading edge of the next cycle of innovation. 124 00:05:58,360 --> 00:06:00,920 Speaker 6: Can you talk a little bit also about the gaming 125 00:06:01,160 --> 00:06:03,880 Speaker 6: revenue here, because I'm looking at your report you said 126 00:06:03,920 --> 00:06:07,080 Speaker 6: gamings better than seasonal top line, But what was really 127 00:06:07,480 --> 00:06:09,560 Speaker 6: driving that because I actually don't really know if I 128 00:06:09,800 --> 00:06:12,400 Speaker 6: know anything about in Video's gaming involvement. 129 00:06:12,640 --> 00:06:15,080 Speaker 7: Yeah, so the last quarter was if you look at 130 00:06:15,120 --> 00:06:17,719 Speaker 7: typical seasonality, we we expected it to be a down 131 00:06:17,800 --> 00:06:21,040 Speaker 7: quarter at least by mid single digits, but it came 132 00:06:21,080 --> 00:06:23,840 Speaker 7: in flat right, So and the strength the reason driver 133 00:06:24,000 --> 00:06:27,800 Speaker 7: for there was better demand for their RTX products. These 134 00:06:27,800 --> 00:06:30,760 Speaker 7: are their gaming cards you know in dex stops and 135 00:06:30,800 --> 00:06:33,400 Speaker 7: what gamers get. So this is what came in better 136 00:06:33,440 --> 00:06:35,680 Speaker 7: than they had expected due to the holiday season. Now 137 00:06:35,680 --> 00:06:38,279 Speaker 7: this is again a temporary move and sort of not 138 00:06:38,640 --> 00:06:41,240 Speaker 7: no longer a big focus for investors, but that was 139 00:06:41,279 --> 00:06:44,120 Speaker 7: still good to see that in a typical down seasonal 140 00:06:44,160 --> 00:06:46,520 Speaker 7: quarters they were still able to do better than seasonality. 141 00:06:46,839 --> 00:06:50,800 Speaker 4: Thanks to Kunjan Sobani, Bloomberg Intelligence Senior Semiconductor analyst, we 142 00:06:50,839 --> 00:06:52,120 Speaker 4: move next to a big M and a deal in 143 00:06:52,160 --> 00:06:54,599 Speaker 4: the banking industry. Earlier in a week, Capital Won agreed 144 00:06:54,640 --> 00:06:58,120 Speaker 4: to buy Discover Financial Services in a thirty five billion. 145 00:06:57,800 --> 00:06:58,920 Speaker 3: Dollars all stock deal. 146 00:06:59,120 --> 00:07:01,400 Speaker 4: This will create the large US credit card company by 147 00:07:01,480 --> 00:07:04,120 Speaker 4: loan volume. To discuss this deal and the latest and 148 00:07:04,160 --> 00:07:06,800 Speaker 4: consumer finance space, co host Bailly Lipschaltz and I were 149 00:07:06,880 --> 00:07:09,680 Speaker 4: joined by Ben Elliott. He's a consumer finance analyst for 150 00:07:09,680 --> 00:07:12,440 Speaker 4: Bloomberg Intelligence. Well asked him what Capital One is thinking 151 00:07:12,480 --> 00:07:13,360 Speaker 4: with its latest deal. 152 00:07:13,720 --> 00:07:16,000 Speaker 1: So everything's driven by scale and the credit card business. 153 00:07:16,200 --> 00:07:19,000 Speaker 1: And the big thought here from Capital One is that 154 00:07:19,640 --> 00:07:22,280 Speaker 1: if they can acquire this sort of rare and valuable 155 00:07:22,320 --> 00:07:27,120 Speaker 1: thing that Discover has, which is a discrete, proprietary payments network. 156 00:07:27,400 --> 00:07:29,600 Speaker 1: Then they can sort of start to compete with the 157 00:07:29,680 --> 00:07:32,480 Speaker 1: Visa and MasterCard on a much bigger scale over time, 158 00:07:32,560 --> 00:07:34,240 Speaker 1: and they're paying a premium for it. 159 00:07:34,400 --> 00:07:37,240 Speaker 9: Ben is the timing at all surprise just given kind 160 00:07:37,280 --> 00:07:40,400 Speaker 9: of the issues that Discover had towards the end of 161 00:07:40,400 --> 00:07:41,160 Speaker 9: twenty twenty three. 162 00:07:41,560 --> 00:07:45,560 Speaker 1: It leaves Capital One with a potential legal overhang. The 163 00:07:45,640 --> 00:07:48,560 Speaker 1: legal issues are not settled yet at Discover. They've had 164 00:07:48,560 --> 00:07:50,800 Speaker 1: a couple of new issues that are sort of outside 165 00:07:50,800 --> 00:07:52,320 Speaker 1: of the scope of of what they've been dealing with 166 00:07:52,360 --> 00:07:55,240 Speaker 1: over the past couple of years. Discover's been talking about 167 00:07:55,240 --> 00:07:57,080 Speaker 1: sort of a five hundred million dollar a year run 168 00:07:57,200 --> 00:08:00,840 Speaker 1: rate of additional compliance expense. It's sort of a burden 169 00:08:00,840 --> 00:08:02,680 Speaker 1: that Capital One is going to have to take on 170 00:08:02,840 --> 00:08:05,720 Speaker 1: with this acquisition. But I think it's probably pretty well 171 00:08:05,760 --> 00:08:07,760 Speaker 1: understood the scope of that, and I think it's it's 172 00:08:07,760 --> 00:08:09,200 Speaker 1: probably priced into the deal. 173 00:08:09,400 --> 00:08:09,760 Speaker 9: All right. 174 00:08:09,800 --> 00:08:13,360 Speaker 4: So give us a sense of the size of Visa. 175 00:08:13,600 --> 00:08:15,840 Speaker 4: I guess the Visa network, the master Card network, and 176 00:08:15,880 --> 00:08:19,160 Speaker 4: now this new combined network. Is it competitive to Visa 177 00:08:19,520 --> 00:08:21,640 Speaker 4: and MasterCard? I guess even amics, So. 178 00:08:21,720 --> 00:08:27,000 Speaker 1: Historically it's completely non competitive. Visa and MasterCard together are about 179 00:08:27,040 --> 00:08:30,760 Speaker 1: ten trillion in domestic US credit and debit card volume, 180 00:08:31,040 --> 00:08:34,800 Speaker 1: and Discover is about five hundred and fifty billion. So 181 00:08:34,840 --> 00:08:37,000 Speaker 1: it's always been this sort of the tiny, you know, 182 00:08:37,160 --> 00:08:39,840 Speaker 1: red headed stepchild of the of the large payment networks. 183 00:08:39,880 --> 00:08:42,640 Speaker 1: But you know, if you add to that Capital One's 184 00:08:42,800 --> 00:08:45,480 Speaker 1: hundreds of billions of dollars of credit card loans and 185 00:08:45,840 --> 00:08:48,400 Speaker 1: you sort of extrapolate future growth there, it has the 186 00:08:48,400 --> 00:08:51,079 Speaker 1: potential to sort of compete more like an American Express, 187 00:08:51,080 --> 00:08:53,120 Speaker 1: which is closer to one and a half trillion. 188 00:08:53,400 --> 00:08:55,920 Speaker 9: Ben I feel like we can't talk about deals without 189 00:08:56,040 --> 00:08:59,800 Speaker 9: the threat of regulatory scrutiny. What does this bring and 190 00:08:59,800 --> 00:09:03,600 Speaker 9: what could the FTC raise any red flags about? 191 00:09:03,920 --> 00:09:07,000 Speaker 1: Overall, this deal I think will be relatively sort of 192 00:09:07,000 --> 00:09:11,240 Speaker 1: non offensive to regulators. Discover is historically not been very 193 00:09:11,240 --> 00:09:14,840 Speaker 1: competitive with the large networks, so actually bringing sort of 194 00:09:14,880 --> 00:09:17,360 Speaker 1: the power of Capital One to bear will make it 195 00:09:17,520 --> 00:09:20,240 Speaker 1: more competitive with the large networks, as the potential to 196 00:09:20,240 --> 00:09:23,920 Speaker 1: give customers a real sort of fourth alternative, whereas in 197 00:09:23,960 --> 00:09:25,960 Speaker 1: the past you really only had one option, Right you 198 00:09:25,960 --> 00:09:28,120 Speaker 1: get a Discover card, it only has one sort of 199 00:09:28,120 --> 00:09:31,640 Speaker 1: set of rewards. It's got a relatively low credit line 200 00:09:31,720 --> 00:09:34,000 Speaker 1: versus some of the other offerings. It doesn't have sort of, 201 00:09:34,160 --> 00:09:37,800 Speaker 1: you know, high end travel rewards offerings. So I think 202 00:09:37,800 --> 00:09:39,640 Speaker 1: if Capital One can start to issue some of its 203 00:09:39,640 --> 00:09:42,440 Speaker 1: sort of higher end cards on the Discover network, that 204 00:09:42,480 --> 00:09:45,160 Speaker 1: could be pro competitive and that might make the deal 205 00:09:45,240 --> 00:09:47,120 Speaker 1: somewhat more attractive to regulators. 206 00:09:47,720 --> 00:09:51,360 Speaker 9: Ben in terms of kind of what these credit cards 207 00:09:51,600 --> 00:09:54,800 Speaker 9: offer Discover from my understanding, mainly cash back. Capital One 208 00:09:54,920 --> 00:09:56,000 Speaker 9: has a range of some of. 209 00:09:55,920 --> 00:09:56,800 Speaker 3: Those rewards cards. 210 00:09:56,840 --> 00:10:00,600 Speaker 9: How does that impact potentially acquiring new customers, new users 211 00:10:00,600 --> 00:10:03,040 Speaker 9: of for both companies or I guess the folded end company. 212 00:10:03,760 --> 00:10:06,199 Speaker 1: Yeah, So I think that will make it a challenge 213 00:10:06,320 --> 00:10:08,920 Speaker 1: for Capital One to issue some of its sort of 214 00:10:09,400 --> 00:10:13,160 Speaker 1: high fee, high reward cards on the Discover network because 215 00:10:13,240 --> 00:10:16,280 Speaker 1: historically the Discover network's only been used for a very 216 00:10:16,320 --> 00:10:19,199 Speaker 1: limited cash back card with caps that I think it's 217 00:10:19,200 --> 00:10:21,800 Speaker 1: like fifteen hundred dollars a quarter of cash back. So 218 00:10:21,880 --> 00:10:24,240 Speaker 1: for your high spenders, people who are putting tens of 219 00:10:24,280 --> 00:10:26,640 Speaker 1: thousands of dollars on a credit card, that's not a 220 00:10:26,679 --> 00:10:29,880 Speaker 1: very attractive offering. So that means that the brand has 221 00:10:29,920 --> 00:10:32,680 Speaker 1: not been sort of in their minds as you know, 222 00:10:32,720 --> 00:10:35,600 Speaker 1: a potential credit card they med aquire. So Capital One 223 00:10:35,640 --> 00:10:37,600 Speaker 1: is going to have to do some relatively heavy lifting. 224 00:10:37,600 --> 00:10:40,080 Speaker 1: And you see that in what is a very modest 225 00:10:40,400 --> 00:10:43,360 Speaker 1: run rate synergy assumption in their in their sort of 226 00:10:43,600 --> 00:10:47,199 Speaker 1: deal model which only cuts back discovers marketing costs about 227 00:10:47,200 --> 00:10:49,760 Speaker 1: ten percent. So you know, Capital One is going to 228 00:10:49,800 --> 00:10:52,120 Speaker 1: have to do some pretty heavy marketing I think, to 229 00:10:52,360 --> 00:10:54,040 Speaker 1: start to leverage that network on the credit card. 230 00:10:54,000 --> 00:10:57,319 Speaker 3: Side, the American Express. What's the investment call there these days? 231 00:10:57,480 --> 00:10:57,680 Speaker 8: Ben? 232 00:10:57,720 --> 00:10:59,679 Speaker 3: What are investors thinking about MS? 233 00:11:00,160 --> 00:11:03,360 Speaker 1: You know, MX is the super premium fashion of the 234 00:11:03,440 --> 00:11:08,280 Speaker 1: highest spending sort of most financially sound customers. So that 235 00:11:08,679 --> 00:11:12,160 Speaker 1: is a sort of a recession safe trade, if you will. 236 00:11:12,400 --> 00:11:15,240 Speaker 1: So you know, when people are looking at the forward 237 00:11:15,280 --> 00:11:17,480 Speaker 1: curve and they're seeing rate cuts, you know they're expecting 238 00:11:17,480 --> 00:11:20,480 Speaker 1: a recession. Potentially they look at the AMS spender and 239 00:11:20,520 --> 00:11:23,760 Speaker 1: think that this person will last the longest and have 240 00:11:23,880 --> 00:11:26,920 Speaker 1: the sort of lowest level of charge offs through a 241 00:11:26,920 --> 00:11:30,239 Speaker 1: potential recession. So that makes it very attractive. And additionally, 242 00:11:31,040 --> 00:11:35,120 Speaker 1: MS has a ton of momentum in acquiring millennial and 243 00:11:35,160 --> 00:11:39,080 Speaker 1: gen z high earning customers, which is the most valuable 244 00:11:39,400 --> 00:11:41,439 Speaker 1: sort of wallet chair that's out there, and MX does 245 00:11:41,440 --> 00:11:43,599 Speaker 1: it better than anyone else, so that also kind of 246 00:11:43,600 --> 00:11:44,920 Speaker 1: makes them attractive to investors. 247 00:11:45,200 --> 00:11:49,640 Speaker 4: What is the big competitive overview of kind of consumer finance? 248 00:11:49,679 --> 00:11:54,840 Speaker 4: Are we using more credit, more debit, more venmo what 249 00:11:54,880 --> 00:11:56,040 Speaker 4: a kind of the big trends there. 250 00:11:56,320 --> 00:11:59,920 Speaker 1: Yeah, so there's been a huge growth in credit volume 251 00:12:00,040 --> 00:12:02,840 Speaker 1: over the last couple of years, especially sort of in 252 00:12:02,880 --> 00:12:05,240 Speaker 1: the post pandemic period. There's been even more of a 253 00:12:05,280 --> 00:12:09,120 Speaker 1: secular shift away from cash as for the various sort 254 00:12:09,120 --> 00:12:14,559 Speaker 1: of channels. Right, credit is really attractive to higher end consumers, 255 00:12:14,559 --> 00:12:18,240 Speaker 1: people with more discretionary income, because that offers the huge 256 00:12:18,320 --> 00:12:21,160 Speaker 1: valuable reward potential. And then if you step down to 257 00:12:21,480 --> 00:12:23,840 Speaker 1: debit cards, there's some cash back, but for the most part, 258 00:12:24,280 --> 00:12:26,760 Speaker 1: not a lot of rewards there, but there's some convenience. 259 00:12:27,200 --> 00:12:30,320 Speaker 1: And then sort of the lower tier kind of fintech 260 00:12:30,400 --> 00:12:33,520 Speaker 1: payments systems, you know, they offer they're sort of targeted 261 00:12:33,520 --> 00:12:37,280 Speaker 1: at sort of youngers or gen Z lower spenders, and 262 00:12:37,320 --> 00:12:39,640 Speaker 1: they are the people who are exploring things like buy now, 263 00:12:39,679 --> 00:12:41,360 Speaker 1: pay later, which is sort of a way to give 264 00:12:41,400 --> 00:12:43,000 Speaker 1: credit to people who don't really have a lot of 265 00:12:43,160 --> 00:12:45,920 Speaker 1: credit history or substantial earnings. 266 00:12:45,520 --> 00:12:49,280 Speaker 4: History thanks to Ben Elliott, Bloomberg Intelligence consumer finance analysts 267 00:12:49,280 --> 00:12:52,480 Speaker 4: coming up a conversation with Geens Soroka, Executive director of 268 00:12:52,480 --> 00:12:54,840 Speaker 4: the Port of Los Angeles, on why cargo volumes are 269 00:12:54,920 --> 00:12:58,000 Speaker 4: picking up. You're listening to Bloomberg Intelligence on Bloomberg Radio, 270 00:12:58,120 --> 00:13:00,720 Speaker 4: providing in depth research and data on two that companies and. 271 00:13:00,720 --> 00:13:01,959 Speaker 3: One hundred and thirty industries. 272 00:13:02,280 --> 00:13:05,040 Speaker 4: You can access Bloomberg Intelligence via Bigo in the terminal. 273 00:13:05,200 --> 00:13:07,360 Speaker 4: I'm Paul Sweeney, and this is Bloomberg. 274 00:13:11,760 --> 00:13:15,640 Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live 275 00:13:15,720 --> 00:13:19,040 Speaker 2: weekdays at ten am Eastern on Applecarplaying and broud Auto 276 00:13:19,160 --> 00:13:22,080 Speaker 2: with the Bloomberg Business app. Listen on demand wherever you 277 00:13:22,120 --> 00:13:25,800 Speaker 2: get your podcasts, or watch us live on YouTube. 278 00:13:26,960 --> 00:13:29,880 Speaker 4: Let's turn out to the restaurant business. Restaurants are confronting 279 00:13:29,920 --> 00:13:33,160 Speaker 4: a slow down in consumer spending. January same store sales 280 00:13:33,240 --> 00:13:35,600 Speaker 4: fell across the restaurant industry, tough year of a year 281 00:13:35,640 --> 00:13:37,040 Speaker 4: comparisons and cold weather. 282 00:13:36,880 --> 00:13:37,920 Speaker 3: Hurt customer traffic. 283 00:13:38,120 --> 00:13:40,600 Speaker 4: Co host Belly Lipschutz and I were joined by Michael Halen, 284 00:13:40,800 --> 00:13:43,720 Speaker 4: Bloomberg Intelligence Senior Restaurant and Food service analyst. 285 00:13:44,040 --> 00:13:44,959 Speaker 3: We asked them about some. 286 00:13:44,920 --> 00:13:47,040 Speaker 4: Of the trends coming out of the pandemic and how 287 00:13:47,120 --> 00:13:49,240 Speaker 4: much people are spending on restaurants these days. 288 00:13:49,679 --> 00:13:51,800 Speaker 10: Yeah, you know, obviously there's a couple of tough years 289 00:13:52,400 --> 00:13:54,960 Speaker 10: due to the pandemic, mainly for the full service restaurants, 290 00:13:55,000 --> 00:14:00,199 Speaker 10: due to you know, limitations on hours and different regulations 291 00:14:00,520 --> 00:14:05,600 Speaker 10: on indoor dining rooms. Also just apprehension by customers. But 292 00:14:06,240 --> 00:14:09,640 Speaker 10: there was a pretty strong bounce back in restaurant sales 293 00:14:09,920 --> 00:14:11,719 Speaker 10: in twenty twenty two, and then they kind of got 294 00:14:11,760 --> 00:14:15,360 Speaker 10: hit with that margin pressure, right, twenty twenty three started 295 00:14:15,400 --> 00:14:19,680 Speaker 10: off pretty strong in early twenty twenty three, or lapping Omicron, 296 00:14:19,920 --> 00:14:23,240 Speaker 10: so the comparisons were very easy. So early twenty twenty 297 00:14:23,240 --> 00:14:26,960 Speaker 10: three was very good. Sales started to slide in the 298 00:14:27,000 --> 00:14:30,320 Speaker 10: second half of last year, and now that they're lapping 299 00:14:30,360 --> 00:14:33,320 Speaker 10: those strong comps from a year ago. We saw some 300 00:14:33,360 --> 00:14:37,520 Speaker 10: real weakness in January and so far in early February. 301 00:14:38,320 --> 00:14:40,040 Speaker 9: And when I look at Michael, when I go to 302 00:14:40,080 --> 00:14:42,240 Speaker 9: the fast food restaurants, when I do eat out ball, 303 00:14:42,480 --> 00:14:45,560 Speaker 9: I'm a cheap guy. Prices are high. I go to 304 00:14:45,640 --> 00:14:49,840 Speaker 9: Chipotle and it's cost me seventeen bucks. How do price 305 00:14:49,880 --> 00:14:54,400 Speaker 9: hikes in expanding margins. How are those things playing out 306 00:14:54,480 --> 00:14:56,200 Speaker 9: and how are those going to continue to play out 307 00:14:56,200 --> 00:14:59,600 Speaker 9: in twenty twenty four given this uncertainty around consumers, maybe 308 00:15:00,400 --> 00:15:01,040 Speaker 9: some of the spending. 309 00:15:01,560 --> 00:15:03,600 Speaker 10: Yeah, you know, that's a great question. There was a 310 00:15:03,640 --> 00:15:07,960 Speaker 10: lot of you know, Ruckus really online over the eighteen dollars, 311 00:15:07,960 --> 00:15:11,360 Speaker 10: big mac meal and in some locations last week. So 312 00:15:11,720 --> 00:15:13,400 Speaker 10: you know, this is something that we're looking at. And 313 00:15:13,440 --> 00:15:15,600 Speaker 10: you know, same sort of sales were so weak in January. 314 00:15:15,640 --> 00:15:18,240 Speaker 10: They were down over two percent for fast food, which 315 00:15:18,280 --> 00:15:21,200 Speaker 10: we typically don't see unless we're in a recession. They 316 00:15:21,200 --> 00:15:24,960 Speaker 10: were down seven point seven percent at casual dining. Investors 317 00:15:25,000 --> 00:15:26,760 Speaker 10: are kind of looking past it, saying that the weather 318 00:15:26,880 --> 00:15:29,680 Speaker 10: was really cold, but people still have to eat, right, 319 00:15:29,760 --> 00:15:32,800 Speaker 10: and so so there's kind of some worry here for 320 00:15:32,880 --> 00:15:35,840 Speaker 10: us because like some of the economic indicators we watch 321 00:15:35,920 --> 00:15:38,600 Speaker 10: when you look under the hood aren't looking great. So 322 00:15:38,720 --> 00:15:40,760 Speaker 10: credit card debt is at an all time high one 323 00:15:40,760 --> 00:15:43,360 Speaker 10: point one trillion. Credit card rates are at an all 324 00:15:43,440 --> 00:15:47,200 Speaker 10: time high at twenty one percent APRS. Delinquencies have been 325 00:15:47,320 --> 00:15:50,320 Speaker 10: rising for auto loans as well as credit card loans, 326 00:15:51,080 --> 00:15:53,360 Speaker 10: and they're now above the fifteen year average and pre 327 00:15:53,480 --> 00:15:56,720 Speaker 10: pandemic level. So there is some concern, but right now 328 00:15:56,720 --> 00:15:59,000 Speaker 10: there's just so many variables going on with the weather, 329 00:15:59,080 --> 00:16:01,760 Speaker 10: with the tough comparison, and with these economic indicators to 330 00:16:01,760 --> 00:16:05,560 Speaker 10: figure out exactly how much of this weakness is because 331 00:16:05,600 --> 00:16:09,160 Speaker 10: of what right and so. But one thing we've seen 332 00:16:09,240 --> 00:16:11,680 Speaker 10: is customers are dealing with the higher prices and with 333 00:16:11,720 --> 00:16:14,000 Speaker 10: the higher inflation by putting it on their credit cards, 334 00:16:14,040 --> 00:16:15,640 Speaker 10: which is not a sustainable situation. 335 00:16:15,920 --> 00:16:17,680 Speaker 9: What are some of the names that you cover that 336 00:16:17,760 --> 00:16:22,200 Speaker 9: if we do see the general consumers tightening spending, will 337 00:16:22,200 --> 00:16:24,920 Speaker 9: be better positioned to continue to deliver sales. 338 00:16:25,280 --> 00:16:27,680 Speaker 10: What we've seen one of the weakest segments has actually 339 00:16:27,760 --> 00:16:30,280 Speaker 10: been fine dining. A lot of that has been just 340 00:16:30,280 --> 00:16:33,560 Speaker 10: a pullback and spending. People have been buying less expensive lines, 341 00:16:34,120 --> 00:16:38,000 Speaker 10: you know, cutting back maybe on appetizers. In a real 342 00:16:38,040 --> 00:16:42,120 Speaker 10: economic slowdown, fast food and quick service tend to do 343 00:16:42,160 --> 00:16:46,720 Speaker 10: better because they'll have value menu items, discountsable will be 344 00:16:46,760 --> 00:16:49,760 Speaker 10: more prevalent, and so although you'll see a lot of 345 00:16:49,760 --> 00:16:52,920 Speaker 10: low income consumers kind of trade down to the grocery store, 346 00:16:53,520 --> 00:16:55,760 Speaker 10: the quick service change will see a lot of you know, 347 00:16:55,880 --> 00:16:58,920 Speaker 10: middle and higher income consumers trade away from a higher 348 00:16:58,920 --> 00:17:02,760 Speaker 10: price full service Asian and maybe dying at McDonald's a 349 00:17:02,760 --> 00:17:03,640 Speaker 10: little bit more often. 350 00:17:04,359 --> 00:17:07,119 Speaker 4: Hey, Michael talked to us about the labor situation in 351 00:17:07,160 --> 00:17:10,320 Speaker 4: the restaurant business. I know, for a long time, like 352 00:17:10,359 --> 00:17:12,439 Speaker 4: a lot of industries, you know, the restaurant industry had 353 00:17:12,480 --> 00:17:13,960 Speaker 4: trouble getting labor. 354 00:17:14,000 --> 00:17:14,680 Speaker 3: Where is it now? 355 00:17:15,200 --> 00:17:17,879 Speaker 10: Full service is pretty much where it was prior to 356 00:17:17,920 --> 00:17:22,000 Speaker 10: the pandemic, So you know, think of Chili's and Applebee's 357 00:17:22,040 --> 00:17:24,680 Speaker 10: and most of those casual dining chains that we cover. 358 00:17:24,760 --> 00:17:28,480 Speaker 10: Cheesecake Factory, they're fully staffed right now, so they've recovered 359 00:17:28,480 --> 00:17:33,359 Speaker 10: pretty nicely. Quick service has been slower. Turnover remains a 360 00:17:33,400 --> 00:17:35,800 Speaker 10: lot higher, which is crazy to say, because it's probably 361 00:17:35,800 --> 00:17:38,640 Speaker 10: one hundred and forty percent for hourly turnover heading into 362 00:17:38,680 --> 00:17:40,840 Speaker 10: the pandemic. Now it's it's probably about one hundred and 363 00:17:40,880 --> 00:17:43,639 Speaker 10: seventy percent, So they're having a lot more of a 364 00:17:43,680 --> 00:17:47,120 Speaker 10: difficult time holding onto employees. That being said, it's been 365 00:17:47,240 --> 00:17:51,000 Speaker 10: improving and improved throughout the year. Last year, one of 366 00:17:50,680 --> 00:17:54,280 Speaker 10: the toughest times to staff the store was that late 367 00:17:54,359 --> 00:17:57,639 Speaker 10: night portion. But chains figured out it's supplying demand and 368 00:17:57,680 --> 00:18:00,360 Speaker 10: they have to offer more a higher way to those 369 00:18:00,359 --> 00:18:03,800 Speaker 10: employees to attract good workers, and they've been doing that, 370 00:18:03,840 --> 00:18:06,960 Speaker 10: and so that last kind of part of the day 371 00:18:07,000 --> 00:18:09,040 Speaker 10: that was really struggling to hire is starting to come 372 00:18:09,080 --> 00:18:11,920 Speaker 10: back to. So it's getting better. It's not where it was. 373 00:18:11,840 --> 00:18:12,400 Speaker 2: Two years ago. 374 00:18:12,440 --> 00:18:14,400 Speaker 10: Two years ago, it is very difficult. You know, there's 375 00:18:14,400 --> 00:18:16,920 Speaker 10: a lot of people concerned that restaurant workers would never 376 00:18:16,960 --> 00:18:19,480 Speaker 10: come back, but a lot of them have and it's 377 00:18:19,560 --> 00:18:20,359 Speaker 10: much better than it was. 378 00:18:20,600 --> 00:18:23,440 Speaker 9: Michael to take the labor conversation and twisted just a bit. 379 00:18:23,480 --> 00:18:25,320 Speaker 9: I was just in California for the last two weeks 380 00:18:25,560 --> 00:18:28,560 Speaker 9: where minimum wage is going to be twenty boots in April. First, 381 00:18:28,640 --> 00:18:30,760 Speaker 9: Oh went in and out twice, don't you worry. But 382 00:18:30,840 --> 00:18:33,520 Speaker 9: so twenty dollars minimum wage. I'm seeing a lot of 383 00:18:33,560 --> 00:18:36,800 Speaker 9: these self service kiosks getting rid of the kind of 384 00:18:36,840 --> 00:18:38,880 Speaker 9: front of house, if you will, at some of these 385 00:18:38,920 --> 00:18:42,120 Speaker 9: fast food chains. How does a higher minimum wage impact 386 00:18:42,320 --> 00:18:44,320 Speaker 9: what these companies are going to do and impact their 387 00:18:44,320 --> 00:18:45,160 Speaker 9: margins in turn? 388 00:18:45,680 --> 00:18:47,040 Speaker 10: Yeah, I mean you hit the nail on the head. 389 00:18:47,080 --> 00:18:50,640 Speaker 10: It's going to be more technology. And it's no coincidence 390 00:18:50,680 --> 00:18:52,760 Speaker 10: that the companies that we cover that have the highest 391 00:18:52,760 --> 00:18:56,600 Speaker 10: exposure to California. So that's Jack in the Box, that's Chapotle. 392 00:18:57,200 --> 00:19:00,000 Speaker 10: They're leading the charge when it comes to automation technology. 393 00:19:00,480 --> 00:19:03,919 Speaker 10: Right now, Jack in the Box is testing AI automated friars. 394 00:19:04,280 --> 00:19:07,840 Speaker 10: Chipotle has an automated makeline that they're hoping to roll 395 00:19:07,880 --> 00:19:11,680 Speaker 10: out in the coming years, as well as automated AI 396 00:19:11,960 --> 00:19:15,040 Speaker 10: tortilla chip friars. Right, so, it's going to be more 397 00:19:15,560 --> 00:19:19,159 Speaker 10: automation in the restaurant, but it takes time for that 398 00:19:19,200 --> 00:19:22,280 Speaker 10: to be implemented because right now the cost for that 399 00:19:22,359 --> 00:19:25,920 Speaker 10: automation technology is very high. Right but as the wage 400 00:19:25,960 --> 00:19:29,920 Speaker 10: rates continue to rise and as the price of technology falls, 401 00:19:29,920 --> 00:19:32,159 Speaker 10: which always does over time, eventually there's going to be 402 00:19:32,240 --> 00:19:34,920 Speaker 10: an ROI and a lot of those fast food workers 403 00:19:34,920 --> 00:19:36,480 Speaker 10: are going to be replaced by technology. 404 00:19:36,720 --> 00:19:39,480 Speaker 4: Our thanks to Michael halein Bloomberg Intelligence Senior Restaurant and 405 00:19:39,520 --> 00:19:41,960 Speaker 4: Food Service Analyst, we move next to the Port of 406 00:19:42,000 --> 00:19:44,680 Speaker 4: Los Angeles, one of the world's busiest seaports in a 407 00:19:44,760 --> 00:19:48,360 Speaker 4: leading gateway for international trade in North America. The Port 408 00:19:48,359 --> 00:19:51,000 Speaker 4: of La recently reported the second biggest January on. 409 00:19:51,119 --> 00:19:52,480 Speaker 3: Record for cargo volumes. 410 00:19:52,680 --> 00:19:54,880 Speaker 4: For More, co hosts Emily Grafey and I were joined 411 00:19:54,880 --> 00:19:58,320 Speaker 4: by Jean Soroka, executive director of the Port of Los Angeles. 412 00:19:58,400 --> 00:20:01,000 Speaker 3: We started by asking Gene, how big this is going? 413 00:20:01,280 --> 00:20:03,840 Speaker 11: Business is really good, We're running it about seventy five 414 00:20:03,880 --> 00:20:06,359 Speaker 11: to eighty percent of full capacity at the Port of 415 00:20:06,400 --> 00:20:10,280 Speaker 11: Los Angeles. Anything but normal though around the world, with 416 00:20:10,359 --> 00:20:13,679 Speaker 11: issues in the Panama Canal, with respected drought in the 417 00:20:13,720 --> 00:20:17,800 Speaker 11: Middle East, with concerns around safety and security, and broader 418 00:20:17,840 --> 00:20:20,879 Speaker 11: looks at how this US economy is going to continue 419 00:20:20,880 --> 00:20:24,360 Speaker 11: to propel itself thanks to the American consumer. So let's 420 00:20:24,359 --> 00:20:26,879 Speaker 11: start off with where we're at right now, six consecutive 421 00:20:26,880 --> 00:20:31,080 Speaker 11: months of growth, the second best January ever, up eighteen 422 00:20:31,280 --> 00:20:35,159 Speaker 11: percent compared to last year, and our first quarter outlook 423 00:20:35,480 --> 00:20:37,560 Speaker 11: is it about two point two million containers or a 424 00:20:37,600 --> 00:20:40,640 Speaker 11: twenty percent year on year increase compared to Q one 425 00:20:40,800 --> 00:20:41,520 Speaker 11: of last year. 426 00:20:42,000 --> 00:20:45,520 Speaker 6: So how would you assess, then, the overall health of 427 00:20:45,560 --> 00:20:48,280 Speaker 6: the global supply chain relative to what we saw during 428 00:20:48,320 --> 00:20:50,920 Speaker 6: the pandemic, because, like Paul said, it seemed like everyone 429 00:20:51,000 --> 00:20:54,920 Speaker 6: was suddenly talking about the supply chain and where are 430 00:20:54,960 --> 00:20:57,200 Speaker 6: we relative to just a few years ago. 431 00:20:57,560 --> 00:20:59,320 Speaker 11: Emily, I think we're in a lot better shape. We've 432 00:20:59,400 --> 00:21:01,679 Speaker 11: learned a lot from what we saw then too, But 433 00:21:01,840 --> 00:21:04,640 Speaker 11: we're front of mind now to so many people outside 434 00:21:04,640 --> 00:21:07,960 Speaker 11: our general industry, whether it's us looking for our packages, 435 00:21:08,040 --> 00:21:10,840 Speaker 11: what's on the store shelves, or just the general consciousness 436 00:21:11,119 --> 00:21:16,240 Speaker 11: about how this port, supply chain and trade business impacts 437 00:21:16,280 --> 00:21:19,359 Speaker 11: economies and jobs around the world. What we see in 438 00:21:19,400 --> 00:21:21,600 Speaker 11: Los Angeles is that there are a couple things happening 439 00:21:21,680 --> 00:21:25,359 Speaker 11: right now. The stability of that labor contract has given 440 00:21:25,440 --> 00:21:28,800 Speaker 11: us about a four percentage point boost in market share, 441 00:21:28,840 --> 00:21:30,919 Speaker 11: So some of that cargo that we lost during the 442 00:21:30,960 --> 00:21:34,800 Speaker 11: protracted negotiations has started to come back, not all of it, 443 00:21:35,000 --> 00:21:38,639 Speaker 11: much more work to do, but good trajectory now. With 444 00:21:38,680 --> 00:21:42,400 Speaker 11: the Panama Canal suffering drought and the concerns of safety 445 00:21:42,440 --> 00:21:45,680 Speaker 11: in the Middle East with respect to the Hohothy going 446 00:21:45,760 --> 00:21:50,200 Speaker 11: after the ships and the cargo and oil tankers, you're 447 00:21:50,240 --> 00:21:54,280 Speaker 11: starting to see more cargo shifted our way, not services 448 00:21:54,359 --> 00:21:58,360 Speaker 11: being collapsed, not new vessels coming in, but higher levels 449 00:21:58,400 --> 00:22:02,080 Speaker 11: of capacity and utilization, and importers and exporter are saying, 450 00:22:02,560 --> 00:22:05,320 Speaker 11: I may not want to take that much time, but 451 00:22:05,359 --> 00:22:09,320 Speaker 11: the bigger difference is the gap between cargo that's moving 452 00:22:09,400 --> 00:22:13,240 Speaker 11: east and Gulf Coast versus the West Coast is wider 453 00:22:13,359 --> 00:22:17,360 Speaker 11: from a freight cost perspective. That's important because we're right 454 00:22:17,400 --> 00:22:20,680 Speaker 11: now in the middle of our annual contracting season for freight. 455 00:22:20,840 --> 00:22:22,840 Speaker 4: All right, so you're again right on the Port of 456 00:22:23,240 --> 00:22:25,439 Speaker 4: Los Angeles on the West coast. You probably have the 457 00:22:25,440 --> 00:22:27,800 Speaker 4: best of you of anybody. What's it like now, what's 458 00:22:28,080 --> 00:22:31,239 Speaker 4: your expectation for that important route of trade coming from 459 00:22:31,320 --> 00:22:32,120 Speaker 4: China to your port? 460 00:22:32,240 --> 00:22:35,960 Speaker 11: Paul, It's still our most dominant trading partner. Fifty three 461 00:22:36,040 --> 00:22:39,240 Speaker 11: percent of Port of Los Angeles business is with China. 462 00:22:39,359 --> 00:22:39,479 Speaker 8: Now. 463 00:22:39,520 --> 00:22:41,920 Speaker 11: That's down from fifty seven percent at the end of 464 00:22:42,040 --> 00:22:44,919 Speaker 11: year twenty twenty two, and it may drop into the 465 00:22:44,960 --> 00:22:49,240 Speaker 11: mid forties as many supply chain executives are continuing with 466 00:22:49,280 --> 00:22:53,040 Speaker 11: their China plus one strategy, looking at other locations to 467 00:22:53,200 --> 00:22:57,720 Speaker 11: source and produce goods in. But still forty five fifty 468 00:22:57,840 --> 00:23:00,840 Speaker 11: years of supply chain relationships exist. You don't tear that 469 00:23:00,880 --> 00:23:01,960 Speaker 11: apart overnight. 470 00:23:02,440 --> 00:23:04,520 Speaker 6: Just the other day, the White House said that they 471 00:23:04,520 --> 00:23:07,879 Speaker 6: were concerned that more than two hundred ship to shore 472 00:23:07,960 --> 00:23:11,800 Speaker 6: cranes at US ports are manufactured by China and can 473 00:23:11,840 --> 00:23:16,679 Speaker 6: be serviced and programmed remotely, creating a cybersecurity vulnerability. What 474 00:23:16,720 --> 00:23:19,040 Speaker 6: did you make of those comments. How legitimate are the 475 00:23:19,080 --> 00:23:20,240 Speaker 6: White House's concerns. 476 00:23:20,560 --> 00:23:24,080 Speaker 11: It's also very important to us. The Port of Los Angeles, 477 00:23:24,119 --> 00:23:26,679 Speaker 11: Emily was the first in the nation to create a 478 00:23:26,720 --> 00:23:30,399 Speaker 11: cyber security operations center back in twenty fourteen with the 479 00:23:30,440 --> 00:23:34,639 Speaker 11: help of the Department of Homeland Security. Today that system 480 00:23:34,680 --> 00:23:38,879 Speaker 11: is stopping more than sixty million cyber intrusion attempts per month. 481 00:23:39,480 --> 00:23:43,439 Speaker 11: It also gave us awareness to create a cyber resilient center. 482 00:23:43,560 --> 00:23:45,800 Speaker 11: Also one of the first in the world to bring 483 00:23:45,840 --> 00:23:49,679 Speaker 11: in the private sector partners with us. That co helped 484 00:23:49,680 --> 00:23:53,320 Speaker 11: with the IBM folks has now stopped to have a 485 00:23:53,480 --> 00:23:57,399 Speaker 11: dozen cyber intrusion attempts to private sector interests that they 486 00:23:57,400 --> 00:24:01,920 Speaker 11: were otherwise unaware of. This work must continue. 487 00:24:02,119 --> 00:24:06,119 Speaker 4: So is your business, I mean it's a GDP business? 488 00:24:06,160 --> 00:24:07,640 Speaker 4: Is that how you kind of plan it out here? 489 00:24:07,880 --> 00:24:09,840 Speaker 4: And so do you get a sense of are your 490 00:24:10,280 --> 00:24:11,960 Speaker 4: customers are they telling you? What are they telling me 491 00:24:11,960 --> 00:24:13,640 Speaker 4: about their sense of the economy? 492 00:24:14,040 --> 00:24:17,800 Speaker 11: Broadly speaking, most are upbeat. Seventy percent of our GDP 493 00:24:17,960 --> 00:24:19,960 Speaker 11: is tied to you and me buying goods. 494 00:24:20,320 --> 00:24:20,560 Speaker 2: Now. 495 00:24:20,640 --> 00:24:25,119 Speaker 11: Although the consumer purchasing was down a little bit in January, 496 00:24:25,240 --> 00:24:28,680 Speaker 11: it was not unexpected. Great sales for the holiday season 497 00:24:28,720 --> 00:24:32,960 Speaker 11: nearly a trillion dollars, up three point eight percent last year. 498 00:24:33,040 --> 00:24:34,480 Speaker 11: There was going to be a little bit of a 499 00:24:34,560 --> 00:24:37,119 Speaker 11: lull in January, but the forward look is strong. The 500 00:24:37,119 --> 00:24:41,280 Speaker 11: Atlanta Fed is currently estimating first quarter GDP around two 501 00:24:41,280 --> 00:24:44,720 Speaker 11: point nine percent, healthier than some it expected, and fourth 502 00:24:44,760 --> 00:24:47,600 Speaker 11: quarter GDP came in beyond expectations. 503 00:24:48,000 --> 00:24:48,320 Speaker 2: Again. 504 00:24:49,359 --> 00:24:52,600 Speaker 11: What we see in the forward look is an order 505 00:24:52,600 --> 00:24:54,800 Speaker 11: cycle that runs about six months ahead of when we 506 00:24:54,840 --> 00:24:58,840 Speaker 11: actually buy things in the store online. That inventory flow 507 00:24:58,920 --> 00:25:01,480 Speaker 11: is a leading economic indicator. Appears good. 508 00:25:02,119 --> 00:25:05,000 Speaker 4: So Geene, I'm the captain of this big monstership. I 509 00:25:05,040 --> 00:25:07,080 Speaker 4: got my containers all over the place. At how they 510 00:25:07,280 --> 00:25:09,800 Speaker 4: don't fall off? I have no idea. I come into 511 00:25:09,800 --> 00:25:12,400 Speaker 4: your port. How long am I there before I get 512 00:25:12,400 --> 00:25:13,040 Speaker 4: back on my way. 513 00:25:13,720 --> 00:25:16,320 Speaker 11: I look at these vital statistics as I call of 514 00:25:16,400 --> 00:25:19,320 Speaker 11: Paul every morning, and we're at or better than when 515 00:25:19,359 --> 00:25:22,400 Speaker 11: we were pre COVID. The largest ships that come into 516 00:25:22,440 --> 00:25:25,959 Speaker 11: the port of Los Angeles average twelve thousand containers on 517 00:25:26,000 --> 00:25:28,600 Speaker 11: and off, best in the industry. Every call four and 518 00:25:28,640 --> 00:25:30,560 Speaker 11: a half days is the amount of time a ship 519 00:25:30,640 --> 00:25:33,280 Speaker 11: is in port working. That's right where it should be. 520 00:25:33,400 --> 00:25:36,000 Speaker 4: Our thanks to Gene Soroka, executive director of the Port 521 00:25:36,000 --> 00:25:38,760 Speaker 4: of Los Angeles. Coming up on the program, we'll discuss 522 00:25:38,800 --> 00:25:42,120 Speaker 4: why President Biden's electric vehicle dreams are making life more 523 00:25:42,119 --> 00:25:43,439 Speaker 4: difficult for US car makers. 524 00:25:43,720 --> 00:25:44,440 Speaker 3: You're listening to. 525 00:25:44,359 --> 00:25:47,800 Speaker 4: Bloomberg Intelligence on Bloomberg Radio, providing in depth research and 526 00:25:47,880 --> 00:25:50,480 Speaker 4: data on two thousand companies and one hundred and thirty industries. 527 00:25:50,720 --> 00:25:51,520 Speaker 3: You can access. 528 00:25:51,240 --> 00:25:53,840 Speaker 4: Bloomberg Intelligence via b I go on the terminal. I'm 529 00:25:53,880 --> 00:25:56,000 Speaker 4: Paul Sweeney, and this is Bloomberg. 530 00:26:05,880 --> 00:26:09,760 Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live 531 00:26:09,840 --> 00:26:13,360 Speaker 2: weekdays at ten am Eastern on applecar Play and Android 532 00:26:13,400 --> 00:26:16,160 Speaker 2: Auto with the Bloomberg Business Act. You can also listen 533 00:26:16,280 --> 00:26:19,359 Speaker 2: live on Amazon Alexa from our flagship New York station, 534 00:26:19,760 --> 00:26:22,520 Speaker 2: Just say Alexa Play Bloomberg eleven thirty. 535 00:26:23,600 --> 00:26:26,040 Speaker 4: We take a look next at the home improvement retailer 536 00:26:26,080 --> 00:26:28,879 Speaker 4: home Depot. This week, the company reported revenue that dropped 537 00:26:28,920 --> 00:26:31,960 Speaker 4: for a fifth consecutive quarter. For More, co host Belly 538 00:26:32,000 --> 00:26:34,840 Speaker 4: Lipscholtz and I spoke with Drew Redding, Bloomberg Intelligence US 539 00:26:34,840 --> 00:26:37,600 Speaker 4: homebuilding analyst. I first asked for his take on Home 540 00:26:37,600 --> 00:26:38,560 Speaker 4: Depot's earnings. 541 00:26:38,640 --> 00:26:40,840 Speaker 8: Sure, so the three and a half percent decline in 542 00:26:40,920 --> 00:26:44,080 Speaker 8: seamstore sales was pretty much free in line with what 543 00:26:44,520 --> 00:26:47,320 Speaker 8: was expected. You have to keep in mind though, coming 544 00:26:47,359 --> 00:26:50,119 Speaker 8: into the court the bar was pretty low for home depot. 545 00:26:50,560 --> 00:26:52,840 Speaker 8: They continue to face the consumers who are pulling back 546 00:26:52,840 --> 00:26:59,280 Speaker 8: in big ticket discretionary categories to think things like flooring, cabinets, countertops. Conversely, 547 00:26:59,280 --> 00:27:01,280 Speaker 8: they're seeing rele of strength and some of the smaller 548 00:27:01,320 --> 00:27:04,720 Speaker 8: scale projects, so there's big ticket projects are being deferred. 549 00:27:04,760 --> 00:27:07,320 Speaker 8: We do think eventually they get completed, but that may 550 00:27:07,400 --> 00:27:09,879 Speaker 8: be more of a twenty twenty five story. But coming 551 00:27:09,920 --> 00:27:13,000 Speaker 8: into this quarter, the real debate was around how twenty 552 00:27:13,040 --> 00:27:15,760 Speaker 8: twenty four was going to shape up. So they offered 553 00:27:15,760 --> 00:27:19,800 Speaker 8: guidance suggesting that same store sales would fall about one percent, 554 00:27:20,240 --> 00:27:21,960 Speaker 8: and given what we heard from a handful of their 555 00:27:22,000 --> 00:27:25,080 Speaker 8: suppliers over the last couple of weeks, which we're calling 556 00:27:25,200 --> 00:27:27,320 Speaker 8: for a flat market, I think people it called people 557 00:27:27,320 --> 00:27:30,160 Speaker 8: a little bit off guard, ourselves included. We do think 558 00:27:30,200 --> 00:27:32,720 Speaker 8: that the first half is going to be comparatively weaker 559 00:27:32,720 --> 00:27:35,600 Speaker 8: than the second half as rates start to pull back, 560 00:27:35,640 --> 00:27:37,199 Speaker 8: and we think you could maybe get a little bit 561 00:27:37,320 --> 00:27:39,280 Speaker 8: bit of a boost from the housing market. 562 00:27:39,480 --> 00:27:41,280 Speaker 9: Drew this may be a dumb question, but when I 563 00:27:41,280 --> 00:27:43,520 Speaker 9: look at some of the consumer data that we've been seeing, 564 00:27:43,880 --> 00:27:47,400 Speaker 9: we are seeing a rising ninety day credit card delinquencies. 565 00:27:47,560 --> 00:27:50,160 Speaker 9: How do things like that? What does the normal spender 566 00:27:50,200 --> 00:27:52,560 Speaker 9: at home depot look like? You're mentioning kind of a 567 00:27:52,600 --> 00:27:55,600 Speaker 9: pullback on some of those bigger projects. What kind of 568 00:27:55,760 --> 00:27:58,920 Speaker 9: demographic does home depot really see in terms of driving 569 00:27:58,960 --> 00:28:01,359 Speaker 9: sales and kind of putting those numbers together. 570 00:28:01,600 --> 00:28:04,440 Speaker 8: Yeah, so about eighty percent of home depots customers or 571 00:28:04,520 --> 00:28:08,320 Speaker 8: current homeowners, they typically have higher incomes, so they are 572 00:28:08,600 --> 00:28:11,760 Speaker 8: higher spenders and they're a little bit more resilient of 573 00:28:11,760 --> 00:28:14,639 Speaker 8: a customer. I think where we're seeing the relative weakness 574 00:28:14,760 --> 00:28:16,840 Speaker 8: is in some of the low end spending, which has 575 00:28:16,920 --> 00:28:19,840 Speaker 8: kind of gone away on the DIY side. But you know, 576 00:28:19,840 --> 00:28:21,720 Speaker 8: if we look big picture, what's happening in the home 577 00:28:21,760 --> 00:28:25,760 Speaker 8: improvement market is we're seeing a reversion to more typical 578 00:28:25,960 --> 00:28:29,280 Speaker 8: spending pattern. So if you think back to the pandemic, 579 00:28:29,359 --> 00:28:33,080 Speaker 8: we had the share of PCEE that went towards household 580 00:28:33,119 --> 00:28:35,919 Speaker 8: durables was at an all time record, and we've seen that 581 00:28:36,000 --> 00:28:39,200 Speaker 8: moderate since really the first half of twenty twenty three. 582 00:28:39,280 --> 00:28:41,040 Speaker 8: So we think that there's a bit more of a 583 00:28:41,120 --> 00:28:44,040 Speaker 8: reversion that needs to take place or the remainder of 584 00:28:44,080 --> 00:28:46,760 Speaker 8: this year, which is going to keep total industry sales muted. 585 00:28:46,960 --> 00:28:48,880 Speaker 8: You know, But you talked about the consumer, you also 586 00:28:48,920 --> 00:28:52,640 Speaker 8: have the consumer out there who's battling with the cumulative 587 00:28:52,680 --> 00:28:55,680 Speaker 8: impact of massive inflation over the last couple of years. So, 588 00:28:56,040 --> 00:28:58,240 Speaker 8: you know, while we look at that head headline number 589 00:28:58,240 --> 00:29:00,720 Speaker 8: and we see that it's moderating, it's really the cumulative 590 00:29:00,760 --> 00:29:03,640 Speaker 8: impact that's kind of pressuring spending in the category. 591 00:29:04,400 --> 00:29:06,600 Speaker 4: Hey, Drew, what's the what do you think is a 592 00:29:06,640 --> 00:29:09,440 Speaker 4: normalized top line growth rate for like a home depot. 593 00:29:09,480 --> 00:29:11,960 Speaker 4: I'm looking you know, pre pandemic was kind of mid 594 00:29:11,960 --> 00:29:14,480 Speaker 4: single digit grower, then of course exploded, you know during 595 00:29:14,480 --> 00:29:16,840 Speaker 4: the pandemic with some you know, big double digit gains. 596 00:29:17,080 --> 00:29:18,560 Speaker 4: What do you kind of model out here for top 597 00:29:18,560 --> 00:29:19,040 Speaker 4: line growth? 598 00:29:19,880 --> 00:29:23,000 Speaker 8: Yeah, I think I think in a normalized environment, which 599 00:29:23,000 --> 00:29:25,800 Speaker 8: we think we get back to in twenty twenty five, 600 00:29:25,920 --> 00:29:28,640 Speaker 8: is probably in the three to four percent range as 601 00:29:28,640 --> 00:29:31,320 Speaker 8: a baseline. You know, there's a couple of industry factors 602 00:29:31,320 --> 00:29:33,320 Speaker 8: that we think will support that. Like I mentioned, we 603 00:29:33,360 --> 00:29:37,200 Speaker 8: think as rates start to moderate, perhaps as we get 604 00:29:37,240 --> 00:29:39,560 Speaker 8: through this year, we think that you could start to 605 00:29:39,560 --> 00:29:42,920 Speaker 8: see a boost from existing home sales. Remember, existing home 606 00:29:42,960 --> 00:29:45,680 Speaker 8: sales are the lowest level more than twenty five years, 607 00:29:45,680 --> 00:29:49,160 Speaker 8: and we know that people who move spend about twice 608 00:29:49,200 --> 00:29:52,680 Speaker 8: as much on remodeling as those who don't. So while 609 00:29:52,720 --> 00:29:56,400 Speaker 8: we don't see total housing turnover returning to you know, 610 00:29:56,480 --> 00:29:58,920 Speaker 8: kind of that five and a half level anytime soon, 611 00:29:58,960 --> 00:30:00,680 Speaker 8: we do think the fact that the have been so 612 00:30:00,760 --> 00:30:03,040 Speaker 8: depressed does serve as a tail and as we move 613 00:30:03,080 --> 00:30:05,600 Speaker 8: through the year. At the same time, you know, we've 614 00:30:05,600 --> 00:30:09,320 Speaker 8: had over forty percent increases in home prices since the pandemic, 615 00:30:09,440 --> 00:30:12,760 Speaker 8: so homeowtor's equity right now is at all time tighes. 616 00:30:13,000 --> 00:30:15,920 Speaker 8: The average home has about three hundred thousand dollars in equity, 617 00:30:15,960 --> 00:30:18,280 Speaker 8: So we think that's a source of pen of demand 618 00:30:18,320 --> 00:30:21,640 Speaker 8: for big ticket projects that once again as rates start 619 00:30:21,680 --> 00:30:25,560 Speaker 8: to moderate, people will get more comfortable with tapping that equity. 620 00:30:25,600 --> 00:30:27,600 Speaker 9: And drew With that in mind, you mentioned some of 621 00:30:27,600 --> 00:30:31,560 Speaker 9: those big purchases, bigger projects. How much of that was 622 00:30:31,640 --> 00:30:35,480 Speaker 9: pulled forward though during the pandemic when people were buying homes, 623 00:30:35,520 --> 00:30:38,080 Speaker 9: we saw a booming market around the US, and it 624 00:30:38,120 --> 00:30:42,120 Speaker 9: did seem like cash being relatively free with the surplus 625 00:30:42,200 --> 00:30:45,320 Speaker 9: spending and stimulus checks that people were putting money into 626 00:30:45,480 --> 00:30:46,200 Speaker 9: home improvement. 627 00:30:47,760 --> 00:30:50,000 Speaker 8: Yeah, great question, and I think that goes back to 628 00:30:50,000 --> 00:30:53,200 Speaker 8: the share of personal consumption that was spent on home improvement. 629 00:30:53,480 --> 00:30:55,200 Speaker 8: It was a lot of that stimulus money that was 630 00:30:55,240 --> 00:30:58,200 Speaker 8: out there for everybody. In terms of the big ticket project, 631 00:30:58,200 --> 00:30:59,920 Speaker 8: we think more of the pull forward was probably done 632 00:31:00,080 --> 00:31:02,200 Speaker 8: in the DIY segment. That's really where you saw the 633 00:31:02,200 --> 00:31:05,840 Speaker 8: boom early in the pandemic. That being said, we have 634 00:31:05,960 --> 00:31:09,640 Speaker 8: seen contractor backlogs over the last couple of years be 635 00:31:10,320 --> 00:31:14,280 Speaker 8: elevated compared to more traditional levels. So to some extent 636 00:31:14,560 --> 00:31:17,320 Speaker 8: it has been in both the DIY and big ticket category. 637 00:31:17,680 --> 00:31:20,600 Speaker 8: But we do think that the big ticket categories where 638 00:31:20,640 --> 00:31:22,680 Speaker 8: we're likely to see more growth for home depot as 639 00:31:22,680 --> 00:31:26,360 Speaker 8: they go after the professional contractor, as they leverage you know, 640 00:31:26,400 --> 00:31:29,240 Speaker 8: the age investments consumers are making because of the age 641 00:31:29,240 --> 00:31:31,320 Speaker 8: of the housing stock that penep equity they have in 642 00:31:31,320 --> 00:31:31,680 Speaker 8: their home. 643 00:31:32,040 --> 00:31:35,240 Speaker 4: Our thanks to Drew Reading Bloomberg Intelligence US Home Building Analyst, 644 00:31:35,520 --> 00:31:38,320 Speaker 4: we move next to the auto industry. Recently, President Biden 645 00:31:38,360 --> 00:31:41,360 Speaker 4: has been using his multi billion dollar Inflation Reduction Act 646 00:31:41,520 --> 00:31:44,280 Speaker 4: to try and create a more US centric electric vehicle 647 00:31:44,280 --> 00:31:46,880 Speaker 4: supply chain. One of the goals is to reduce China's 648 00:31:46,880 --> 00:31:50,520 Speaker 4: influence over global metals markets, but US actions have only 649 00:31:50,560 --> 00:31:52,440 Speaker 4: made life more difficult for its carmakers. 650 00:31:52,720 --> 00:31:53,480 Speaker 3: From more On this. 651 00:31:53,440 --> 00:31:55,920 Speaker 4: Co host Billy Lipscholtz and I were joined by Craig Trudell, 652 00:31:56,000 --> 00:31:58,760 Speaker 4: Bloomberg Global Autos editor. He co wrote the Big Take 653 00:31:58,800 --> 00:32:02,080 Speaker 4: column Biden's EV dream are a nightmare for Tesla and 654 00:32:02,120 --> 00:32:04,520 Speaker 4: the US car industry. We first asked Craig for some 655 00:32:04,520 --> 00:32:06,000 Speaker 4: context on what's happening. 656 00:32:06,480 --> 00:32:09,280 Speaker 5: I think this is a really challenging thing that the 657 00:32:09,320 --> 00:32:11,880 Speaker 5: Biden administration was trying to do right, they were trying 658 00:32:11,920 --> 00:32:15,040 Speaker 5: to jump start the EV industry in the US. I 659 00:32:15,040 --> 00:32:17,200 Speaker 5: would say, you know, you can give them high marks 660 00:32:17,200 --> 00:32:19,160 Speaker 5: for what they've done in terms of the amount of 661 00:32:19,560 --> 00:32:24,560 Speaker 5: manufacturing investment they've attracted. It's it's really been remarkable the 662 00:32:24,600 --> 00:32:27,000 Speaker 5: response that we've seen there. On the other side of 663 00:32:27,000 --> 00:32:29,880 Speaker 5: the equation, the demand side, I think, you know, the 664 00:32:29,920 --> 00:32:32,520 Speaker 5: marks are way more mixed, and I think, you know, 665 00:32:32,600 --> 00:32:35,360 Speaker 5: the challenges that we're going to see in the years 666 00:32:35,360 --> 00:32:38,400 Speaker 5: to come, you know, assuming, of course, Ira, you know, 667 00:32:38,720 --> 00:32:41,480 Speaker 5: stands up. If we see a change in the White 668 00:32:41,520 --> 00:32:46,480 Speaker 5: House later this year. But whether or not manufacturers can 669 00:32:46,560 --> 00:32:50,000 Speaker 5: sort of pull off what Biden you know, is asking 670 00:32:50,040 --> 00:32:52,880 Speaker 5: of them, which is to really set up a EV 671 00:32:53,000 --> 00:32:57,040 Speaker 5: and battery supply chain that is less reliant on China, 672 00:32:57,160 --> 00:32:59,880 Speaker 5: and it eventually is just not reliant on China. And 673 00:33:00,360 --> 00:33:03,120 Speaker 5: that's proven to be an extremely difficult task. And that's 674 00:33:03,120 --> 00:33:05,160 Speaker 5: what we try to lay out today in ways that 675 00:33:05,200 --> 00:33:08,160 Speaker 5: are you know, really it's a it's a complicated issue. 676 00:33:08,280 --> 00:33:11,480 Speaker 5: You know, Tesla everyone thinks about, as you know, being 677 00:33:11,800 --> 00:33:15,120 Speaker 5: a very sort of made in America car brand, and 678 00:33:15,120 --> 00:33:18,680 Speaker 5: and you know, they sort of are recognized as one legitimately. 679 00:33:18,760 --> 00:33:23,040 Speaker 5: But you know, when given the opportunity to import batteries 680 00:33:23,600 --> 00:33:26,320 Speaker 5: because of the fact that the IRA you know, didn't 681 00:33:26,360 --> 00:33:30,080 Speaker 5: really necessarily grow some teeth until the beginning of this year, 682 00:33:30,160 --> 00:33:32,479 Speaker 5: we saw, you know, just in a matter of months, 683 00:33:32,880 --> 00:33:35,200 Speaker 5: Tesla import two and a half billion dollars worth of 684 00:33:35,640 --> 00:33:36,960 Speaker 5: EV batteries from China. 685 00:33:37,160 --> 00:33:40,760 Speaker 9: Wow, and Craig, that's happening because it feels like every 686 00:33:40,760 --> 00:33:43,160 Speaker 9: time we talk about GM for Tesla, a lot of 687 00:33:43,160 --> 00:33:47,320 Speaker 9: these companies are losing money making their evs. So what 688 00:33:47,400 --> 00:33:50,440 Speaker 9: was the point of the IRA if not to kind 689 00:33:50,480 --> 00:33:53,680 Speaker 9: of streamline. I guess the kind of inputs of of 690 00:33:53,720 --> 00:33:54,400 Speaker 9: these batteries. 691 00:33:54,680 --> 00:33:57,479 Speaker 5: I think what you have here is a situation where 692 00:33:57,600 --> 00:34:00,680 Speaker 5: you know, Joe Mansion was you know, the player who 693 00:34:01,240 --> 00:34:03,600 Speaker 5: Washington really just had to sort of bend to his will, 694 00:34:03,640 --> 00:34:06,720 Speaker 5: and he was really reluctant to you know, allow for 695 00:34:06,920 --> 00:34:10,080 Speaker 5: electric vehicles to continue to get tax credits. He was 696 00:34:10,080 --> 00:34:13,799 Speaker 5: opposed to them, and he said, okay, industry, well we'll 697 00:34:13,840 --> 00:34:15,839 Speaker 5: give you these tax credits, but you build me as 698 00:34:15,840 --> 00:34:18,640 Speaker 5: a supply chain that of course, you know, sort of 699 00:34:18,680 --> 00:34:21,680 Speaker 5: didn't take into account sort of you know the complexities 700 00:34:21,719 --> 00:34:24,520 Speaker 5: of the supply chain and the fact that China is 701 00:34:24,680 --> 00:34:28,200 Speaker 5: just so dominant in this space and they've really sort of, 702 00:34:28,239 --> 00:34:31,640 Speaker 5: you know, methodically, you know, for a time quietly, you know, 703 00:34:31,719 --> 00:34:35,359 Speaker 5: built this, you know, staggeringly strong position in terms of 704 00:34:35,400 --> 00:34:38,320 Speaker 5: you know, the control of you know, the inputs, whether 705 00:34:38,360 --> 00:34:41,800 Speaker 5: it's you know, nickel and lithium graphite. You know, these 706 00:34:41,800 --> 00:34:45,120 Speaker 5: inputs are going to be really really difficult to source, 707 00:34:45,560 --> 00:34:48,400 Speaker 5: not only just you know, whether their mind in China, 708 00:34:48,440 --> 00:34:51,160 Speaker 5: but whether they're sort of processed and refined, and you 709 00:34:51,200 --> 00:34:54,759 Speaker 5: know the sort of cost difference that that the West 710 00:34:54,880 --> 00:34:57,880 Speaker 5: is going to have to sort of overcome really just 711 00:34:57,920 --> 00:34:59,919 Speaker 5: can't be you know, sort of overstated at. 712 00:34:59,800 --> 00:35:02,160 Speaker 4: This And folks, if you want to see this article, 713 00:35:02,200 --> 00:35:05,560 Speaker 4: it's fantastic article. Really deeply reporting great graphics makes it 714 00:35:05,600 --> 00:35:07,960 Speaker 4: easy for me because I like the pictures. Bloomberg dot 715 00:35:08,000 --> 00:35:10,000 Speaker 4: Com slash a big take is kind of where you 716 00:35:10,040 --> 00:35:10,400 Speaker 4: find it. 717 00:35:10,600 --> 00:35:11,520 Speaker 3: Big team effort. 718 00:35:11,760 --> 00:35:14,040 Speaker 4: So you know, Craig, I see in your reporting here. 719 00:35:14,080 --> 00:35:16,680 Speaker 4: In twenty twenty three, the IRA required that at least 720 00:35:16,719 --> 00:35:19,400 Speaker 4: half of the value of battery components had to be 721 00:35:19,440 --> 00:35:22,200 Speaker 4: assembled in North America and that forty percent of a 722 00:35:22,280 --> 00:35:25,200 Speaker 4: raw materials had to be sourced from the US, And 723 00:35:25,239 --> 00:35:27,400 Speaker 4: in twenty twenty seven, that raw material requirement is going 724 00:35:27,440 --> 00:35:29,920 Speaker 4: to double to eighty percent. Those numbers can they be 725 00:35:29,960 --> 00:35:31,320 Speaker 4: achieved in that timeframe? 726 00:35:31,719 --> 00:35:34,120 Speaker 5: I think that's one of the things that you know, 727 00:35:34,160 --> 00:35:36,640 Speaker 5: it sort of depends on which company you ask, And 728 00:35:36,680 --> 00:35:39,840 Speaker 5: I think, you know, some of the concerns that the 729 00:35:39,920 --> 00:35:42,680 Speaker 5: industry is having here is the fact that some of 730 00:35:42,719 --> 00:35:46,200 Speaker 5: these raw materials the prices have really collapsed, and that 731 00:35:46,280 --> 00:35:48,640 Speaker 5: you would sort of think, oh, that's a good thing 732 00:35:48,680 --> 00:35:51,520 Speaker 5: for the auto companies, But if you're trying to build 733 00:35:51,960 --> 00:35:55,440 Speaker 5: a supply chain in North America for these raw materials 734 00:35:55,480 --> 00:35:58,439 Speaker 5: and the prices for them have absolutely, you know, sort 735 00:35:58,440 --> 00:36:01,840 Speaker 5: of the bottom has come out. Think of lithium in particular, 736 00:36:01,960 --> 00:36:07,759 Speaker 5: You've seen this dramatic drop in prices that significantly undermines 737 00:36:07,840 --> 00:36:10,880 Speaker 5: the economics of those projects. And so I think the 738 00:36:10,960 --> 00:36:14,080 Speaker 5: raw materials in particular are a real challenge. I think 739 00:36:14,120 --> 00:36:17,239 Speaker 5: battery components will be less of a challenge, but even 740 00:36:17,280 --> 00:36:20,080 Speaker 5: there it is a matter of you can't just sort 741 00:36:20,120 --> 00:36:22,560 Speaker 5: of snap your fingers and open up a bunch of 742 00:36:22,560 --> 00:36:25,880 Speaker 5: plants for these various components. It does take time, you know, 743 00:36:25,920 --> 00:36:28,920 Speaker 5: to dig up the ground and put up these plants 744 00:36:28,960 --> 00:36:33,000 Speaker 5: that are coming but are taking some time. 745 00:36:33,000 --> 00:36:36,960 Speaker 9: And graig across the auto makers. I'm looking at the 746 00:36:37,000 --> 00:36:39,759 Speaker 9: reporting again, seven of Tesla's twelve models sold in the 747 00:36:39,840 --> 00:36:43,480 Speaker 9: US fully cleared the IRAS sourcing hurdles and qualified for 748 00:36:43,520 --> 00:36:47,440 Speaker 9: the tax credit. What percentage of evs being sold in 749 00:36:47,440 --> 00:36:49,720 Speaker 9: the US are clearing that hurdle? 750 00:36:50,320 --> 00:36:53,440 Speaker 5: I think, because Tesla is still so dominant in the US, 751 00:36:53,760 --> 00:36:56,799 Speaker 5: we're at a point where, you know, the evs that 752 00:36:57,440 --> 00:37:00,840 Speaker 5: do the most volume are largely qualified at the moment. 753 00:37:00,920 --> 00:37:04,279 Speaker 5: But I think the fact that those raw material requirements 754 00:37:04,360 --> 00:37:08,040 Speaker 5: that kick in next year and then escalate in the 755 00:37:08,120 --> 00:37:11,440 Speaker 5: years that follow. That's really where we're going to see 756 00:37:11,480 --> 00:37:14,399 Speaker 5: even more of a sort of level of screws put 757 00:37:14,440 --> 00:37:16,759 Speaker 5: on the industry. But I think, you know, the other 758 00:37:17,040 --> 00:37:20,200 Speaker 5: carmaker that I think is particularly well positioned, I would 759 00:37:20,239 --> 00:37:23,200 Speaker 5: just call out to General Motors. I think the fact 760 00:37:23,320 --> 00:37:27,200 Speaker 5: that they have a localized supply chain four batteries, they 761 00:37:27,239 --> 00:37:32,160 Speaker 5: have a joint venture with a Korean battery supplier. We're seeing, 762 00:37:32,320 --> 00:37:34,799 Speaker 5: you know, more and more of those partnerships, you know, 763 00:37:34,960 --> 00:37:39,000 Speaker 5: for the following suit. Stilantis, the maker of Jeep and 764 00:37:39,080 --> 00:37:43,320 Speaker 5: Chrysler a similar deal where they're setting up battery plants 765 00:37:43,360 --> 00:37:45,799 Speaker 5: in North America and sort of on and on. But 766 00:37:45,880 --> 00:37:49,120 Speaker 5: those projects, I would say are much further behind where 767 00:37:49,160 --> 00:37:52,080 Speaker 5: we have Tesla, which you know for years has been 768 00:37:52,080 --> 00:37:55,719 Speaker 5: making batteries out Nevada with Panasonic, and GM, which has 769 00:37:55,760 --> 00:37:57,160 Speaker 5: a partnership with LG. 770 00:37:57,600 --> 00:38:01,000 Speaker 4: In us our Thanks to Craig Trudell, Blueborg Global Autos Editor. 771 00:38:01,280 --> 00:38:03,959 Speaker 4: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio, 772 00:38:04,000 --> 00:38:06,799 Speaker 4: providing research and data on two thousand companies and one 773 00:38:06,840 --> 00:38:09,759 Speaker 4: hundred and thirty industries. You can access Bloomberg Intelligence via 774 00:38:09,800 --> 00:38:10,920 Speaker 4: Bigo on the terminal. 775 00:38:11,400 --> 00:38:15,880 Speaker 2: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify, 776 00:38:16,120 --> 00:38:19,760 Speaker 2: and anywhere else you get your podcasts. Listen live each weekday, 777 00:38:19,880 --> 00:38:22,840 Speaker 2: ten am to noon Eastern on Bloomberg dot com, the 778 00:38:22,960 --> 00:38:26,400 Speaker 2: iHeartRadio app tune In, and the Bloomberg Business app. You 779 00:38:26,440 --> 00:38:29,640 Speaker 2: can also watch us live every weekday on YouTube and 780 00:38:29,800 --> 00:38:31,400 Speaker 2: always on the Bloomberg Terminal