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Speaker 1: Super fast Bloomberg Intelligence with Alex Steel and Paul'sweenye on
Speaker 1: Bloomberg Radio.
Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 2: business stories impacting Wall Street and global markets.
Speaker 3: Each and every week we provide and up research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries our analysts cover worldwide.
Speaker 2: Today, we'll look at why trade tensions between the EU
Speaker 2: and China may be escalated.
Speaker 3: Plus we'll discuss how the energy transition will drive a
Speaker 3: significant uptick in demand for metals.
Speaker 2: But first we begin with the computer technology company Oracle.
Speaker 2: This week, Oracle reported fourth quarter results that fell short
Speaker 2: of analyst expectations. But Oracle shares still hit a record high.
Speaker 3: From where we were joined by anorog Rana, Bloomberg Intelligence
Speaker 3: technology analyst. We first asked Anaurag why investors were so
Speaker 3: happy about Oracle.
Speaker 4: I think the biggest thing in our view were the
Speaker 4: two partnerships that were announced, one with Google and one
Speaker 4: with open Ai, you know, from a.
Speaker 5: Future point of view.
Speaker 4: At the same time, we continue to see strong demand
Speaker 4: for the cloud infrastructure business, which has been kind of
Speaker 4: the story on cloud on Oracle for the last you
Speaker 4: could say, eighteen months or so. So that remained strong.
Speaker 4: But remember, prior to going into the quarter, there is
Speaker 4: a lot of noise about software spending slowing down, but
Speaker 4: that's on the application site that's a different kind of
Speaker 4: the business. But on the infrastructure side, where you're hosting
Speaker 4: somebody's you know, application or a workload, that business is
Speaker 4: still doing well. So it's good for Amazon, it's good
Speaker 4: for Microsoft, and now it's actually good for Audio.
Speaker 2: Also, Anura, can we put Oracle into our besket of
Speaker 2: ai stocks?
Speaker 4: Now, yeah, I mean have we been talking about it
Speaker 4: for a while that they would be most likely the
Speaker 4: fourth largest cloud infrastructure vendor down in the future, right
Speaker 4: behind you know, Amazon, Microsoft, Google, and then it'll be Oracle. Now, remember,
Speaker 4: everybody's trying to get the workloads or trying to figure
Speaker 4: out how to put their AI experiments out in the
Speaker 4: cloud desk to see what they can do with it,
Speaker 4: and they're running short of capacity. So when you look
Speaker 4: at a company like Oracle, which has deep pockets, can
Speaker 4: actually afford to spend more. They announced they're going to
Speaker 4: double their capex this year, so that's going to be
Speaker 4: somewhere around fourteen billion dollars or so for the next
Speaker 4: twelve months. I mean, they can spend the money so
Speaker 4: people will.
Speaker 5: Come to them.
Speaker 3: So let me just dumb it down for me here.
Speaker 3: So Microsoft and Google then are using Oracle stuff for
Speaker 3: their AI cloud infrastructure. So all the language model learning
Speaker 3: things that happen, and all the data they're collecting for
Speaker 3: AI goes now to Oracle's hardware software.
Speaker 4: Well think about it that. Let's assume that you know,
Speaker 4: Oracle is an electricity provider, and if for any reason,
Speaker 4: Microsoft feels short of it, they can go out and
Speaker 4: you know, rent some from somebody else. I mean, because
Speaker 4: everybody is getting a lot of workloads or incoming inquiries
Speaker 4: to do things. But they're running shot of capacity, and
Speaker 4: that's where you know they can go out and borrow.
Speaker 4: But when it comes to Google, what they basically are
Speaker 4: doing is they're saying, we have a lot of companies,
Speaker 4: let's say banks and airlines that house their data on
Speaker 4: Oracle's databases. They're going to take their servers and put
Speaker 4: it in Google's cloud data centers. So if anybody wants
Speaker 4: to run you could say, an AI or an mL
Speaker 4: machine learning algorithm, they can then tap into that data
Speaker 4: that's housed into the audicle database so that you know,
Speaker 4: they can run those queries faster.
Speaker 2: Listen to this evaluation story. This is just another one
Speaker 2: that's very much like Nvidia on a terms of valuation,
Speaker 2: trailing Pe on their fiscal twenty twenty four gens May
Speaker 2: thirty first, twenty four reading about thirty six times earnings
Speaker 2: on forward earnings just on their May twenty twenty five
Speaker 2: twenty two times earnings. Oh, I mean, it's another one
Speaker 2: those in video word, this is a company that appears
Speaker 2: to be growing itself into the multiple How do you
Speaker 2: think about valuation here on a rock for the oracles
Speaker 2: of the world, for the videos of the world. Now
Speaker 2: that it seems to like, boy, it's kind of a
Speaker 2: new paradigm here with AI.
Speaker 4: Yeah, when you look at cloud infrastructure companies, you know,
Speaker 4: one could argue that article's slightly cheaper than all the others,
Speaker 4: But at the same time, their cloud infrastructure business is small,
Speaker 4: so small compared to the overall pie, which is not
Speaker 4: growing as much. Remember, after all said and done, for
Speaker 4: next year, article may grow sales let's say, around eleven
Speaker 4: twelve percent someone in that rain, So it's not anywhere
Speaker 4: close to where in video is going to grow, you know,
Speaker 4: their revenues for the next twelve months.
Speaker 2: All right, So let's step back and look at your
Speaker 2: space in general. Here on a rock. When we think
Speaker 2: about I mean, I feel like we're learning something or
Speaker 2: at least iron every day about AI, the cloud, OU,
Speaker 2: the spending associated where the spending's coming from. So, as
Speaker 2: you sit back and you're constructing a basket of AI stocks,
Speaker 2: kind of what would you throw in there kind of
Speaker 2: in order? Would you say?
Speaker 6: Good question?
Speaker 4: Yeah, that's it's a very good question. In fact, everybody's
Speaker 4: trying to figure that out. But when you look at
Speaker 4: the AI basket, you know, the bigger companies on the
Speaker 4: chip side are the first one, So that was Sisennvidia.
Speaker 4: You know, Dell's been a bigger, somewhat of a player
Speaker 4: over there. But when you come to the software side,
Speaker 4: the number one company from an AI exposure is Microsoft
Speaker 4: and that's because of its partnership with open AI. Now
Speaker 4: when you look at you know, the downstream play, it
Speaker 4: is the cloud vendors. Now they have a very small
Speaker 4: portion of their workloads coming from AI, but that's going
Speaker 4: to rise going forward. That's going to be you know,
Speaker 4: the likes of Amazon, Google Cloud, and then Oracle Cloud.
Speaker 4: So these are the infrastructure players, then the application companies. Now,
Speaker 4: these companies are right now experimenting with products. They don't
Speaker 4: really have a full, you know, massive suite out there.
Speaker 4: You know, that's the like of Salesforce or or service
Speaker 4: Now companies that are experimenting with it or will have
Speaker 4: smaller products or newer products coming in. Adobe is actually
Speaker 4: another one that actually stands out for us because they
Speaker 4: have a product that's working very well. We'll see what
Speaker 4: they do about it.
Speaker 3: Oh really, because I feel like, isn't the whole thing
Speaker 3: with Adobe is that they haven't unveiled the right AI
Speaker 3: product or anything along those lines.
Speaker 4: Well, they have one for creating images, So that's doing
Speaker 4: really well. The one, the next one where everybody's waiting for,
Speaker 4: is the AI product that can create videos on the fly. Now,
Speaker 4: the big controversy on Adobe is that, oh, why do
Speaker 4: I need to buy a software when I can create
Speaker 4: these images through you know, let's say chat GPT. But
Speaker 4: it's not just about creating images. First and foremost. When
Speaker 4: you use an Adobe product, you first of all, are
Speaker 4: not worried about copyright issues. Second thing, you really use
Speaker 4: Adobe for editing and the entire workflow process, not just
Speaker 4: creating images. So creating images can be a commodity, but
Speaker 4: editing and actually giving out a big story you still
Speaker 4: need a software for that.
Speaker 2: Our thanks Anna rag Rana, Bloomberg Intelligence to Knowledge Analyst.
Speaker 3: We now take a look at one of the Bloomberg
Speaker 3: Big Take stories featured this week on Bloomberg Intelligence. It
Speaker 3: focuses on the recent exit of talent at the Federal
Speaker 3: Reserve Bank of New York and the piece is titled
Speaker 3: talent exit at Williams New York fed stokes concern on
Speaker 3: its way for more.
Speaker 2: We are joined by Alex Howers, Bloomberg short term interest
Speaker 2: rate reporter. We began by asking what exactly is going
Speaker 2: on at the New York FED.
Speaker 7: What's kind of happened over the last couple of years
Speaker 7: is you've seen an exodus of basically senior management. These
Speaker 7: are people who have been with the bank for decades
Speaker 7: just deciding to exit, either that they retire or that
Speaker 7: they you know, find another opportunity on Wall Street, or
Speaker 7: just really but what's ultimately driving it is the environment
Speaker 7: is just not they have found just not conducive either
Speaker 7: that you know, there's been changes in the bank under
Speaker 7: the leadership of John Williams that they have found, you know,
Speaker 7: doesn't necessarily work for them anymore. And as a result,
Speaker 7: they're leaving. And what people are worried about is the
Speaker 7: so called brand. It leaves a vacuum of people who
Speaker 7: are experienced at fighting crises. Because remember a lot of
Speaker 7: these people have been there. They were there for the
Speaker 7: financial crisis, they were there for the repo market blow up,
Speaker 7: they were there in twenty twenty. Like, they have crisis
Speaker 7: fighting experience, and so you're leaving a lot of that
Speaker 7: knowledge is leaving the bank, but then also just their
Speaker 7: ability and the question of are they ready for whatever's next,
Speaker 7: And that's what.
Speaker 6: People are really concerned.
Speaker 7: Is they're feeling like something severely lacking under the leadership
Speaker 7: of John Williams.
Speaker 3: There's why I love that you wrote this, because Alex
Speaker 3: is usually the person has those really nerdy repo market
Speaker 3: articles where you're like, I know this is important. I
Speaker 3: know I'm going to read it three times and I'm
Speaker 3: still going to understand twenty percent of it and I
Speaker 3: have to email Alex Harris. So thank you for writing
Speaker 3: an article that I understood right off the bat.
Speaker 6: What did they do about that?
Speaker 1: Then?
Speaker 3: I mean, is it as easy as like, hey, we're
Speaker 3: going to offer more work from home? Is it not
Speaker 3: that at all? Is it something very different?
Speaker 6: I think it's very different.
Speaker 7: I think really what people are going to have to
Speaker 7: start looking at is to be a really serious look
Speaker 7: at the role of the New York Fed. You know,
Speaker 7: for some people, they've said, look, Lorie Logan got elevated
Speaker 7: out of the New York Fed to running the Dallas Fed,
Speaker 7: and she's taken a lot of that staff with her.
Speaker 7: She has this experience on the balance sheet. People really
Speaker 7: trust her. So now people are wondering, well, it doesn't
Speaker 7: necessarily have to be New York that carries out you know,
Speaker 7: the implementation of the Fed's policies when it comes to
Speaker 7: their balance sheet, like this could shift to Dallas.
Speaker 6: So people are.
Speaker 7: Starting to ask that question or pose that question. At
Speaker 7: the same time, though, you know, people are pushing back
Speaker 7: and saying, no, no, no, this has to be in New York.
Speaker 7: We need to fix what is happening in New York.
Speaker 7: We need to retain talent in New York because the
Speaker 7: banks are here, and if something happens with the banking system,
Speaker 7: it's much easier to call everyone down to Liberty Street
Speaker 7: and say, hey, get in here, we got to figure
Speaker 7: this out than trying to call people all the way
Speaker 7: down to Dallas and say, hey, we got to figure
Speaker 7: this out.
Speaker 2: So historically the New York Fed has been the branch
Speaker 2: that manages the Treasury's balance sheet, correct buying and selling.
Speaker 7: Well the Fed's balance sheet. So there are whole things
Speaker 7: of treasuries and mbs and such.
Speaker 2: Again, they have traders there and stuff that do this.
Speaker 2: I mean, this is where it happens in New York.
Speaker 7: Well, and you have other like Chicago still has you know,
Speaker 7: market analysis people, they still have all these things coming
Speaker 7: out of the other banks.
Speaker 6: But it is primarily a function of the New York Fed.
Speaker 7: They're tasked with managing their Fed's portfolio. Roberto Pearley is
Speaker 7: the SOMA manager, so he manages the FED securities portfolio.
Speaker 7: You know, so these things, and so the New York Fed,
Speaker 7: really post financial crisis, has just taken on such a
Speaker 7: larger role. They've essentially become like a giant broker dealer
Speaker 7: just given the size and the sheer size of their
Speaker 7: balance sheet. And that's you know, someone like Christopher Whalen
Speaker 7: is making the argument that you don't need an academic
Speaker 7: running the New York Fed. You need someone who's comfortable
Speaker 7: with operations, with the nuts and bolts, and can kind
Speaker 7: of see it from a more markets oriented perspective than
Speaker 7: an academic one.
Speaker 3: So how do they pitch that, Because who's going to
Speaker 3: give up a job Goldman that pays a nice chunk
Speaker 3: of change. Actually, I have no idea how much the
Speaker 3: New York Fed does, but I have to assume it's less.
Speaker 6: How I do it.
Speaker 7: It's like I think, when I last look at the
Speaker 7: annual report from twenty twenty three, I think it's like
Speaker 7: a little over half a million dollars that the president
Speaker 7: of the New York Fed makes but I mean, look
Speaker 7: Beth Hammock, who ran funding, who ran the Goldman Sex fundings.
Speaker 6: Are she's elevated. She's taking the role as the Cleveland
Speaker 6: Fed president.
Speaker 7: You know, Lorie Logan could always you know, people are
Speaker 7: speculating that she could come back to New York and
Speaker 7: run it. You know, these are the kinds of people
Speaker 7: I think that they envision when they're thinking about the
Speaker 7: role and who could possibly you know, helm the New
Speaker 7: York Fed after John Williams, who decides to retire a
Speaker 7: step down?
Speaker 2: Do we have a problem with John Williams? Is that
Speaker 2: a people placing the blame on these departures on John
Speaker 2: Williams and his.
Speaker 7: Style or you know, I think it's a I think
Speaker 7: it's a bit of both. I think, you know, again,
Speaker 7: you know, when we spoke to people, the message was
Speaker 7: always he is a brilliant macro economist, but just ill
Speaker 7: suited for the role. I also think culturally, the other
Speaker 7: sense I got from people is that, you know, culturally,
Speaker 7: it's it's very different than the San Francisco Fed, which
Speaker 7: is what he was running for seven years before he
Speaker 7: came and took the role in New York.
Speaker 6: It's just very different.
Speaker 7: And you know, sometimes culturally people don't fit and that's okay,
Speaker 7: and so that's something to also think about.
Speaker 6: So I think it's a bit of both.
Speaker 7: I think it is somewhat of the of the culture
Speaker 7: and just sort of not meshing.
Speaker 6: You know, they were just sort of ill suited for
Speaker 6: each other.
Speaker 2: Our thanks to Alex Harris, Bloomberg Short Term interst rate Reporter.
Speaker 3: Coming up, we're gonna break down my French President Emmanuel
Speaker 3: Maccron's call for a snap legislative election may be a
Speaker 3: serious gamble.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies and one
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 2: bi go on the terminal, I'll Paul Swingey.
Speaker 3: And am Alex Steel and this is Bloomberg.
Speaker 1: You're listening to the Blueloomberg Intelligence podcast. Catch us live
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Speaker 3: We move now to politics. French President Manuel Macron recently
Speaker 3: called for a snap legislative election.
Speaker 2: That's after Marine Lippen's far right National Rally Party defeatedt
Speaker 2: Macron's Renaissance Party in European parliament elections.
Speaker 3: The consequences of Macron putting politics above economic stability could
Speaker 3: be profound, and it's the subject of a Bloomberg opinion
Speaker 3: piece this week titled Macron plays Fast and Loose with
Speaker 3: investor Faith for more.
Speaker 2: Guest host Jess Mett and I were joined by the
Speaker 2: story's author, Marcus Ashworth. He's a Bloomberg Opinion columnist covering
Speaker 2: European markets. We first asked Marcus for his reaction to
Speaker 2: what we saw in Europe this week.
Speaker 8: I was thinking that this was a long time coming,
Speaker 8: but it was worse than perhaps everyone, including Macrol, had expected,
Speaker 8: and therefore it put him in a very difficult situation
Speaker 8: with I guess his main opposition pulling more than.
Speaker 5: Twice which his party got. Then he got like fifteen
Speaker 5: percent or something. So though he has another three years
Speaker 5: as president.
Speaker 8: If he wants to, I don't think he'll resign, but
Speaker 8: there was some question about that. He means he won't
Speaker 8: have the ability to equim of Congress to be able
Speaker 8: to do very much. He can still do a lot
Speaker 8: of presidential decrees, but nonetheless it's boxed him in, and
Speaker 8: more importantly, he can't run again by then, you know,
Speaker 8: in by twenty twenty seven, his ten year legacy would
Speaker 8: be pretty poor. So I think what he's decided to
Speaker 8: now is gamble on a political swing which has gone
Speaker 8: to the right wing that perhaps the French people they're
Speaker 8: challenged again, may push.
Speaker 5: Back against that. But the consequence of this.
Speaker 8: Is that the bomb market in particular and the stock
Speaker 8: market and some degree the economy is is going to
Speaker 8: have to take a little bit of a how can
Speaker 8: we say this bit of a shakeup, because politically this
Speaker 8: is a very aggressive move and it also puts into
Speaker 8: very much sharp contrast the financial fiscal situation of France,
Speaker 8: which is rising ever and extorably higher in debt and
Speaker 8: particularly it's budget deficits annual spend is much more than
Speaker 8: it takes in. It's five and a half percent last year,
Speaker 8: which is pretty shocking and not likely dropped much by
Speaker 8: next year. And I think the European Union could put
Speaker 8: it into double secret probation. They call it an emergency
Speaker 8: deficit procedure, but really what it means is there's in
Speaker 8: the sin bin, and that's hugely embarrassing for macn or
Speaker 8: any government. But the point is the rating agency, the
Speaker 8: credit rating agencies we saw S and P at the
Speaker 8: end of May knock France down to double A minus
Speaker 8: Fitch are already there, and movies that came out and
Speaker 8: basically said they're one notch up at double A two,
Speaker 8: but they may be having a look at it. So
Speaker 8: it's all about a worsening credit of France, a worsening
Speaker 8: political regime, which makes the European Union very nervous because
Speaker 8: you know we've seen with the previous situations with Greece
Speaker 8: and Italy that will turn the blind eye to most things.
Speaker 8: But they want everyone to be very much pro Europe
Speaker 8: and Marie La Penn's right wing party, which is the
Speaker 8: National Rally though they no longer argue for Frexit or
Speaker 8: France exit, they once did and then reason pretty.
Speaker 5: Long in Brussels.
Speaker 8: So the last thing they want is a non fully backing.
Speaker 5: Euro style prime minister.
Speaker 8: Even under Mackerel's president that we're out and settling for Brussel.
Speaker 8: That means it's very unsettling for credit rating agencies. Panic panic, panic,
Speaker 8: It means that French debt is perhaps a little bit
Speaker 8: more risky, still pretty safe, but a little bit more
Speaker 8: risk than it was before weekend.
Speaker 3: You were talking about how France has seen a sustained
Speaker 3: deterioration its fiscal position, particularly when you're looking at its debtload.
Speaker 3: How did France get into this position?
Speaker 5: Aha, they spend more than they had. The reason is
Speaker 5: I mean k Kart.
Speaker 8: Was elected on reforming the fiscal situation, and principally one
Speaker 8: of his key things was raising the retirement age, which
Speaker 8: he raised from sort of really sixty sixty two up
Speaker 8: to about sixty four. He wanted to get it up
Speaker 8: to about sixty seven, which for instance where the UK is,
Speaker 8: but massive pushback and the fact he very basically couldn't
Speaker 8: get it through unless he pushed it through by this,
Speaker 8: as I mentioned before, presidential decree worried some of the
Speaker 8: raising aginsties. Then now the fact that he has gotten
Speaker 8: really nowhere of getting stuff through the National Assembly, the
Speaker 8: Parliament or Congress is a really scary situation.
Speaker 5: So you know that means.
Speaker 8: There's even less chance of any form of fiscal improvement,
Speaker 8: of getting that budget deficit down and reducing the overall
Speaker 8: and debtness of France.
Speaker 5: And that's a pretty difficult.
Speaker 8: Situation, complete gridlock because if the national Rally were to
Speaker 8: become the person the party to have the Prime minister
Speaker 8: and try and form some form of coappitatial cohabitation, I
Speaker 8: think it's say English, is that they won't get in it.
Speaker 8: They won't allow any form of spending cuts or anything
Speaker 8: to reduce the benefits that a lot of French people.
Speaker 8: Eight percent of the French economy is state spending. It's
Speaker 8: a very socialist driven state and they don't like their
Speaker 8: benefits getting touched, which means nothing will happen at least
Speaker 8: twenty twenty seven, no improvement on the fiscal outlook. That's
Speaker 8: very bad news for bondholders, for credit radio season, indeed
Speaker 8: probably for European Union cohesion.
Speaker 2: So I know in your column, Marcus, perhaps one of
Speaker 2: the rationales from Mark Crohn's boldness here is that will
Speaker 2: actually force Marine Leapen to maybe reveal what her plans
Speaker 2: for the economy are. What do we know or what
Speaker 2: don't we know?
Speaker 8: Well, we they deliberately a bit like the Labor Party
Speaker 8: it's about to take power in the UK.
Speaker 5: They've been very should we say with.
Speaker 8: Erchet In telling us what they are actually going to
Speaker 8: planning to do, and Marilla Penn has basically said no
Speaker 8: to many things but hasn't told anyone really what they
Speaker 8: are planning to do.
Speaker 5: How you would sort the pension situation out.
Speaker 8: But the one thing we know, if you're sure, they
Speaker 8: are pretty anti immigration, and they are pretty anti the
Speaker 8: pension changes in any other form of benefit changes. So
Speaker 8: it's gonna be almost impossible for the government to stop
Speaker 8: its welfare spending bill, and that you can only mean,
Speaker 8: you know, essentially this would be a deficit and debt
Speaker 8: to GDP ratio negative scenario.
Speaker 5: I would think it'd be very hard for her.
Speaker 8: But you know, Mackerel's gamble is precisely as you laid out,
Speaker 8: is that if they put them in power, at least nominally,
Speaker 8: the Prime Minister doesn't have anything like as much control
Speaker 8: as you would think, but they have ability.
Speaker 5: To try and put some things through.
Speaker 8: If they turn out to be incompetent and they turn
Speaker 8: out not to do what they said they would go
Speaker 8: to do, or anything like this, it would make the
Speaker 8: presdential elections in twenty twenty seven a bit of a little
Speaker 8: bit more anti rally and pros we say Macrols or
Speaker 8: more more centrists. The huge gamble was it could go
Speaker 8: the other way. These guys could turn out to be
Speaker 8: very good in power. And the fact the center rights
Speaker 8: are already talking about maybe teaming up with the National
Speaker 8: Rally of the far right and creating an anti Macron
Speaker 8: coalition that can become very popular, and we could see
Speaker 8: it would be a very stupid gamble that Macrol's taken.
Speaker 8: We just don't know. The point is that either a
Speaker 8: bondholder and indeed, as you seem with the French banks
Speaker 8: like Sockgen got hit really hard. You know, why would
Speaker 8: you want to take the risk and perhaps go to
Speaker 8: somewhere a little bit more safe like Germany or I
Speaker 8: don't know, somewhere else in Europe?
Speaker 9: All right?
Speaker 3: Thanks to Marcus Ashwareth, the Bloomberg opinion columnist covering European markets.
Speaker 2: Staying in Europe this week, you heard that the European
Speaker 2: Union will impose additional tariffs on electric cars shipped from
Speaker 2: China starting next month. This could take levies to as
Speaker 2: much as forty eight percent.
Speaker 3: It's a move that further escalates trade tensions between the
Speaker 3: EU and China, and it also adds to the cost
Speaker 3: of buying an EV For more.
Speaker 2: We were joined by Craig Trudell, Bloomberg Global Ottos Editor.
Speaker 3: We first asked Craig for his take on the tariff increases.
Speaker 10: This is huge news, it was anticipated, but the particulars
Speaker 10: are something that are very fresh. So the European Union
Speaker 10: launched this investigation last year into the extent of the
Speaker 10: subsidization of electric vehicles by China, which are are increasingly
Speaker 10: you know, coming into Europe and you know, really able
Speaker 10: to compete with local manufacturers. There's been concerns about you know,
Speaker 10: Chinese cars being able to undercut companies like Volkswagen and
Speaker 10: Stlantis and Renault. Sa I see, the maker of MG,
Speaker 10: which is a British brand that you know, was was
Speaker 10: sort of brought back from the brink by a state
Speaker 10: owned company in China. Sa I see. They are going
Speaker 10: to be subject to a thirty eight percent additional tariff.
Speaker 10: And MG has really been sort of lighting, you know,
Speaker 10: lighting things on fire here in Europe and in the
Speaker 10: UK in terms of really you know, being able to
Speaker 10: push a lot more volume the last couple of years.
Speaker 10: Another big manufacturer that's going to be subject to a
Speaker 10: substantial TERRAF will bgi Le they of course own Volvo
Speaker 10: and Pollstar and some other big brands. Byd is another
Speaker 10: company that will be subject to seventeen percent additional tariff,
Speaker 10: and the rest of the industry will be subject to
Speaker 10: an a weighted average duty of twenty one percent.
Speaker 2: So talk to us about just the EV market and
Speaker 2: the China's percentage, Like what's China's market share in Europe
Speaker 2: of EV's broadly defined, because you can't find one here
Speaker 2: in the US.
Speaker 10: Yeah, I mean, it's tricky because it of course depends
Speaker 10: a little bit on how you define it. And I
Speaker 10: think one of the things that's really interesting here is
Speaker 10: that it's not necessarily just Chinese companies that are doing
Speaker 10: this importing. The biggest importer as a matter of fact,
Speaker 10: is Tesla. They have the plant in Germany where they
Speaker 10: make Model Wise, but they don't make Model threes there,
Speaker 10: so they've been shipping an awful lot of Model threes
Speaker 10: from their plant in Shanghai. They interestingly are going to
Speaker 10: try to have a lower duty rate and make the
Speaker 10: argument to the Europink Commission that because they've been, you know,
Speaker 10: benefiting less than other manufacturers, you know, from subsidies that
Speaker 10: they should have a sort of commensurate duty rate. Other
Speaker 10: manufacturers are able to make that request and have what's
Speaker 10: called a you know, individually calculated rate, but at this juncture,
Speaker 10: the only company that we know that's asked for that
Speaker 10: and make get it is Tesla.
Speaker 3: Here's what I don't quite understand. I know I'm kind
Speaker 3: of beating my head against all on this one, but
Speaker 3: if the goal is to go green, why wouldn't they
Speaker 3: want to flood the market with a ton of Chinese
Speaker 3: ev imports and get the green stuff going. And I
Speaker 3: appreciate that they want to protect their current manufacturers, but
Speaker 3: you know, importing cheaper evs also spurs competition. So the
Speaker 3: line to thread the needle I find to be very confusing.
Speaker 10: It's absolutely needle threading or or you know, tightrope walking,
Speaker 10: pick your metaphor. And it is a very valid question.
Speaker 10: And depending on who you ask, they're they're doing absolutely
Speaker 10: the right thing here, or or they're really sort of
Speaker 10: shooting themselves in the foot folks in bruskly. The you
Speaker 10: know debate here is is to what extent do you
Speaker 10: know local manufacturers need to be protected from the fact
Speaker 10: that kinda has jumped up out to this huge lead.
Speaker 10: They're dominant in this space. They're able to you know,
Speaker 10: bring electric vehicles to market with much cheaper batteries that
Speaker 10: people can actually afford, and that's been you know, the
Speaker 10: the major you know, sort of pain point for the
Speaker 10: industry is they have not been able to bring prices
Speaker 10: down far enough fast enough for you know, more mass
Speaker 10: market adoption. China has been able to pull that off. Uh,
Speaker 10: you know, in large part European companies have not been
Speaker 10: able to do that. So while you know, we've seen
Speaker 10: quite a bit more momentum in Europe relative to say
Speaker 10: the US, that momentum has really slow of late, particularly
Speaker 10: as we've seen you know, the cost of living crisis
Speaker 10: and inflation really hitting consumers pocketbooks. We've not seen you know,
Speaker 10: the growth rates that you know, just in the last
Speaker 10: few years. We're really eye popping and you know, getting
Speaker 10: a lot of people excited about you know, this transition
Speaker 10: being doable.
Speaker 2: Our thanks to Greig Judell, Bloomberg Global Autos Editor.
Speaker 3: Coming up on the program, a conversation with Next Era
Speaker 3: Energy CEO John Ketchum on how the demand for power
Speaker 3: is dramatically increasing.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies in one
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 2: b I go on the terminal On'm Paul Sweeney.
Speaker 3: And am Alex Steel and this is Bloomberg.
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Speaker 3: Eleven thirty, we begin to look at the company Next
Speaker 3: Era Energy. It's TICKERSNEE. Next Era Energy is a leading
Speaker 3: clean energy company headquartered in Juno Beach, Florida, and it
Speaker 3: provides clean, affordable, reliable electricity to approximately five point eight
Speaker 3: million customer accounts or more than twelve million people across Florida.
Speaker 2: For more on how the demand for power is dramatically increasing,
Speaker 2: we were joined by Next Era Energy President and CEO,
Speaker 2: John Ketchum. We began by asking him more about what
Speaker 2: his company does.
Speaker 11: We're made up of two businesses. One we own the
Speaker 11: nation's largest rate regulated utility Florida Power and Light. And
Speaker 11: two we are the world's leader in renewables when solar
Speaker 11: battery storage a unique combination bringing those two companies together.
Speaker 3: But you still have like nuclear and gas too, right
Speaker 3: like it.
Speaker 2: We do for the utility side, we do so we
Speaker 2: covered all.
Speaker 11: We're in every part of the energy value chain, not
Speaker 11: only a renewables. We have six gigawatts of nuclear and
Speaker 11: we're one of the best operators in the country on
Speaker 11: the nuclear side, and we also own gas fire generation.
Speaker 11: Seventy two percent of our generation fleet in Florida is
Speaker 11: actually natural gas fired. So we view ourselves really as
Speaker 11: a very credible source in being able to advise our
Speaker 11: customers on what the lowest cost option is for generation.
Speaker 2: Owning a utility electric utility in Florida would seem to
Speaker 2: be a tough business with all the weather down there.
Speaker 2: What happens when these storms come through? How do you guys?
Speaker 2: You have to almost be in a constant state of
Speaker 2: emergency almost to be able to react.
Speaker 11: We are battle tested. That's one of the great things
Speaker 11: about our company is that nothing catches us up by surprise,
Speaker 11: and it comes from a culture of continuous improvement and innovation,
Speaker 11: and we practice and we drill, and we've had what
Speaker 11: forty nine hurricanes in the last twenty or thirty years.
Speaker 11: We're never caught by surprise. Company that is used to
Speaker 11: managing through diversity, and that's one of the strengths.
Speaker 3: So you mentioned catch by surprise. So there was an
Speaker 3: investor presentation that you made and you did, were you
Speaker 3: outline your forecast this year through twenty twenty six. You're
Speaker 3: also twenty twenty seven midpoint for profit forecast. That's the
Speaker 3: one that analysts said that falls short of our estimates. Yeah,
Speaker 3: And I guess the question is if data demand and
Speaker 3: data power is going to drive so much demand for
Speaker 3: your stuff, why isn't that midpoint higher.
Speaker 11: Well, here's what we see, and we talked a lot
Speaker 11: about this at the analyst day. There are three things
Speaker 11: that I think really differentiate Next Era as part of
Speaker 11: our value story. One, we're seeing an inflection point and
Speaker 11: power demand. Two, it's going to be met by renewables
Speaker 11: because it's low costs, fast to deploy, and it's clean.
Speaker 11: And no companies better positioned to meet it than we are.
Speaker 11: And our business model has always been what I would
Speaker 11: call a replacement cycle. We were building new renewables to
Speaker 11: replace higher cost coal plants, higher costs, less efficient gas
Speaker 11: fired units, oil fire units. We now have this new
Speaker 11: opportunity that's really emerged in the last six to nine months,
Speaker 11: which is what I call our growth cycle opportunity. It's
Speaker 11: a new demand that has come and it's across industries.
Speaker 11: It's not just data centers get a lot of discussion,
Speaker 11: but it's industrial electrification reshoring to manufacturing as well. But
Speaker 11: when you think about it, we're having all these discussions
Speaker 11: with these customers now. Take data centers, for example, it
Speaker 11: takes two to three years to build a data center,
Speaker 11: so they won't need the power until twenty twenty seven.
Speaker 11: We might sign a contract today, but the power comes
Speaker 11: in twenty seven, which means it contributes in twenty eight.
Speaker 11: And so we're trying to explain to investors, Look, we
Speaker 11: have a tremendous long term growth outlook, but a lot
Speaker 11: of this growth cycle demand is really going to start materializing,
Speaker 11: producing revenues and earn needs in twenty seven, which means
Speaker 11: it really starts to contribute in twenty eight.
Speaker 2: As you walk through mitt On, Manhattan, you probably see
Speaker 2: some empty office space here. I think they all move
Speaker 2: down to your state. Talk to us about how that's
Speaker 2: impacted your business in terms of demand and maybe what
Speaker 2: you have to invest back into your GRIED.
Speaker 11: Yeah, and that's what's great about our business, right is
Speaker 11: the Barbell approach. We've got the nation's leading great regularly
Speaker 11: utility in Florida and the world's leader in renewables in Florida.
Speaker 11: We're seeing tremendous growth over the next twenty years. We're
Speaker 11: projecting a forty four percent increase in GDP. We have
Speaker 11: one thousand people a day moving to the state of Florida.
Speaker 11: Four the five fastest growing metropolitan areas in the United
Speaker 11: States are in Florida.
Speaker 2: Florida.
Speaker 11: We're a country, it would have the fourteenth largest economy
Speaker 11: in the world, and we're there to power all that growth.
Speaker 11: So our growth story is not only about what I
Speaker 11: just discussed about all this renewable demand that we see
Speaker 11: power in AI and industry and manufacturing across the United States,
Speaker 11: but it's also all the growth that we see right
Speaker 11: in our own backyard in Florida.
Speaker 3: Talk to me about rates. So you're going to need
Speaker 3: to invest a lot, right, Like there's maybe an enormous
Speaker 3: investment cycle as you mentioned, like the growth cycle for utilities, right,
Speaker 3: what is it like on the regulated side of going
Speaker 3: back to the government and saying, Okay, guys, I got
Speaker 3: to invest it, You've got to raise the rates.
Speaker 1: Yeah.
Speaker 11: And so what we do is we have done a
Speaker 11: terrific job of taking cost out of our business. So
Speaker 11: when you look at what we've been able to do
Speaker 11: over the last twenty years, our O and M on
Speaker 11: a dollar per megawate hour basis is seventy percent seventy
Speaker 11: percent lower than the national average. That's three billion dollars
Speaker 11: we put in our customer's pocketbook every single year compared
Speaker 11: to an average utility. And we've always been able to
Speaker 11: make really smart capital investment decisions around bringing low cost
Speaker 11: generation in the fold. And the lowest cost generation option
Speaker 11: that we have in Florida is solar and storage. So
Speaker 11: although we're investing more capital, it's actually lowering the bill
Speaker 11: because it's a lot cheaper than other generation alternatives, combined
Speaker 11: with our ability to take cost out with the way
Speaker 11: we operate.
Speaker 2: But for you, from your investors perspective, is a unit
Speaker 2: of power from a renewable source, what's a profit margin
Speaker 2: on that versus maybe an existing source.
Speaker 11: Well, when you think about renewables, I mean renewables, you know,
Speaker 11: have really strong returns and they're low cost, and you
Speaker 11: talked about you know, interest rates, you being one of
Speaker 11: the factors we pass those costs through to our customers.
Speaker 11: And so the cost of wind and solar has gone
Speaker 11: up a little bit as we've seen some pressure you
Speaker 11: know here from the macro environment, So have cost increase
Speaker 11: for every other type of generation. Actually, gas fired generation
Speaker 11: has really gone up in price. So you know, what
Speaker 11: we have seen with gas fire technology is a fifty
Speaker 11: percent increase in the last twelve months. That has not
Speaker 11: happened to renewables, making renewables even lower cost than they've
Speaker 11: ever been on a relative basis to gas turbine options.
Speaker 3: So what I hear is that everything is just more
Speaker 3: expensive because that's the environment that we're in. But because
Speaker 3: you're able to take costs out, the rate payer may
Speaker 3: not get hit as hard. Is that a fair statement?
Speaker 11: That's exactly right. And so what we've been able to
Speaker 11: do in Florida, our bill is thirty seven percent lower
Speaker 11: than the national average thirty seven percent. It's because of
Speaker 11: our ability to take all those costs out of the
Speaker 11: company and also offer them low cost renewable solutions as
Speaker 11: part of the generation mix. And when you put those
Speaker 11: two together, that's how we're able to achieve that thirty
Speaker 11: seven percent lower bill than the rest of the nation.
Speaker 11: That's a really compelling customer value proposition and investor value opposition.
Speaker 2: Our thanks to John Ketchum, President and CEO of next Er.
Speaker 3: Energy, saying with energy, we have something here at Bloomberg
Speaker 3: called Bloomberg New Energy Finance. The idea behind it is
Speaker 3: to provide data on commodities, power, transport, industries, buildings and
Speaker 3: agriculture plus new technology.
Speaker 2: This week we looked at how the energy transition will
Speaker 2: drive a significant uptick in demand for metals.
Speaker 3: Bloomberg and EF estimates six trillion dollars worth of key
Speaker 3: metals will be needed between twenty twenty two and twenty fifty,
Speaker 3: and to reach net zero emissions by mid century that
Speaker 3: number leaps to ten trillion.
Speaker 2: For more, we were joined by Sung at Choi Bloomberg
Speaker 2: BNEF Metals and Mining Analyst. We first to ask Sung
Speaker 2: to comment about the amount of metal that would be
Speaker 2: needed in the energy transition.
Speaker 9: As we progress through the technologies where we shift from
Speaker 9: fossil fuel to clean energy, and with the innovation and technologies,
Speaker 9: especially in the transportation sector and data sector as well
Speaker 9: and power grids more, obviously more metals will be needed
Speaker 9: in order to get the electrons flow. You need metals
Speaker 9: obvious right now, the particular categories of metals that are
Speaker 9: of interest lately is lithium and copper. Those two metals
Speaker 9: are very interesting at this moment.
Speaker 2: Where do we get these metals and is that a
Speaker 2: concern where we do get them?
Speaker 9: Yes, that is a concern. So for me, demand is
Speaker 9: is of a concern, but it isn't too much of concern.
Speaker 9: Supply is more of the concern. The reason for that
Speaker 9: is the reason that I say that is because many
Speaker 9: of the places that have this particular resource such as
Speaker 9: copper and lithium in areas where it has very sensitive
Speaker 9: political and social landscape. And in order to get those
Speaker 9: you know, supply out of the ground right, miners have
Speaker 9: to navigate through those complicated situations. Right For example, just
Speaker 9: starting this year or last end of last year, many
Speaker 9: people podcast that the copper will be in set plus
Speaker 9: for twenty twenty four will be a cur us yah.
Speaker 9: It would be a slight surplus for twenty twenty four,
Speaker 9: there was, there was the expectation. But then at the
Speaker 9: start of this year right in Panama, Cobra Panama was
Speaker 9: shut down for many reasons. Right as a result of that,
Speaker 9: we're experiencing this, you know, run up in copper prices,
Speaker 9: right because there's a dislocation between a copper mince plot
Speaker 9: and the smell of capacity.
Speaker 7: So here is.
Speaker 3: Where I think raises the problem because you're looking at
Speaker 3: a structural shift among metals that are cyclical. So that's
Speaker 3: one area where we were surprised to the upside, and
Speaker 3: now we're going to see a deficit. But then I
Speaker 3: look at lithium, and we knew the ev revolution and
Speaker 3: the batteries we were going to need lithium. So all
Speaker 3: of a sudden the lithium guys, and a lot of
Speaker 3: them are in South America. When game busters are like,
Speaker 3: we need all this lithium. It's going to be awesome.
Speaker 3: The demand's going to be there, and then the price
Speaker 3: is crashed and then they had to shut down some
Speaker 3: of their operations because it wasn't economic anymore. We do
Speaker 3: need the lithium, but we didn't need it that day.
Speaker 6: How do we manage that.
Speaker 9: So you know, with everything, you know, timing is everything,
Speaker 9: but it's really impossible to predict any type of timing
Speaker 9: with any type of investments, right, So copper is in
Speaker 9: this moment right now. For lithium, there was two years ago, right,
Speaker 9: all this hype around you know, electric vehicles use of lithium,
Speaker 9: difficulties in getting lidium, so all the investments poured in
Speaker 9: into lidium space and as a result of that, there's
Speaker 9: currently there is an oversupply issue with lithium.
Speaker 1: Right.
Speaker 9: But despite the oversupply issue, the lithium industry isn't really
Speaker 9: at the cusp of a paradigm shift in technology innovation. Right.
Speaker 9: There's this thing called direct lithium instraction technology where you take.
Speaker 2: The direct lithium extraction.
Speaker 9: Yes, direct lithium distraction technology. So there's two routes where
Speaker 9: you could extract lithium. There's mainly a hard rock with
Speaker 9: theium where you take the spodi up, you mind it
Speaker 9: at the rock and you process it. All The process
Speaker 9: is brian. You take you take the Brian and you
Speaker 9: exchect the lithium out of it.
Speaker 2: But butter think water, yeah, okay, but.
Speaker 9: Using evaporating metive so you basically you're using something like
Speaker 9: to evaporate the water out of it and extract lithium
Speaker 9: and that takes two years. Now d l E or
Speaker 9: dark lithium extraction process, that's gonna bring that lead time
Speaker 9: down to two weeks instead of two years. So main
Speaker 9: competition versus you know, hard rock that is right now,
Speaker 9: that's going to be a you know, game changer for
Speaker 9: the industry where it's gonna actually lower the cost card.
Speaker 9: Right it may load the cost card. It's been too
Speaker 9: early to tell right now, but at the you know,
Speaker 9: at the cost of commercialization of this technology, it may
Speaker 9: loader the cost card and it may you know, change
Speaker 9: the industry forever.
Speaker 3: Our thanks to Sun Choi, Bloomberg, Andy, app Metals, and
Speaker 3: mining Analysts.
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