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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. It

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Speaker 2: certainly is all about earnings and the focus is megacap tech.

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Speaker 2: After results from sk Heinex, Alphabet and Tesla, plus the

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Speaker 2: intrigue over President Chi Jinping's future will not cease. Bloomberg

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Speaker 2: opinion columnist Krishma Vaswani says it's the result of a

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Speaker 2: succession crisis of she's own making. We'll check in with

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Speaker 2: her momentarily, but as promised, we begin with those big

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Speaker 2: tech earnings. Early on Thursday, the Korean chip maker sk

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Speaker 2: Heinis reported record operating profit for the second quarter. The

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Speaker 2: six point seven billion dollar haul was driven by the

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Speaker 2: company's dominance in high bandwidth memory chips. Revenue sixteen point

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Speaker 2: one billion that was eight percent higher than projections here

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Speaker 2: in the States, Alphabet beat Wall Street expectations for second

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Speaker 2: quarter revenue. However, shares were down after the tech giant

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Speaker 2: warned of higher spending ahead. The Google parent posted sales

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Speaker 2: of eighty one point seven billion excluding partner payouts, but

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Speaker 2: capital expenditures are forecast hit eighty five billion dollars in

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Speaker 2: twenty twenty five. That would be up from seventy five

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Speaker 2: billion the company previously forecast. Mandeep saying is senior tech

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Speaker 2: analyst at Bloomberg Intelligence.

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Speaker 3: One third of their business is cloud and YouTube and

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Speaker 3: that's still growing north off twenty five percent. So to

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Speaker 3: my mind, they are showing ROI on all that AI spend,

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Speaker 3: and if they have more AI infrastructure capacity, the cloud

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Speaker 3: business would be growing even faster.

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Speaker 2: That is Mandeep saying from Bloomberg Intelligence. And last, but

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Speaker 2: not least, Tesla's second quarter results fell short of Wall

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Speaker 2: Street estimates. Revenue was down by twelve percent for the

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Speaker 2: quarter compared to last year, to twenty two and a

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Speaker 2: half billion. That is the sharpest sales decline for Tesla

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Speaker 2: in over a decade and facing the prospect of lost

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Speaker 2: incentives from the United States, CEO Elon Musk issued this

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Speaker 2: warning on the earnings call.

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Speaker 4: We probably could have a few rough quarters. I'm not

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Speaker 4: saying it will, but we could.

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Speaker 2: That is Elon Musk. And for a closer look at

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Speaker 2: the Tesla story, we heard from Michael Dunn, CEO at

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Speaker 2: Dun Insights. He spoke with Bloomberg TV host Cherry On

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Speaker 2: and Heidi Stroud.

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Speaker 5: Watts how much of one's view on Tesla and Elon Musk,

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Speaker 5: by extension, depends on whether you see this as a

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Speaker 5: straightforward auto company or an AI and robotics company. And

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Speaker 5: he's that sort of through different lens that you would

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Speaker 5: have seen these results plus the warning.

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Speaker 6: Yes, one hundred percent difference depending on how you see

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Speaker 6: the company. So a year ago Elon Musk was talking

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Speaker 6: about extreme capacity building twenty million evs a year. He

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Speaker 6: doesn't talk about that anymore. He looked down the road

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Speaker 6: at EV's and said, I don't want to try to

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Speaker 6: compete with the Chinese on EV's and price. I'm going

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Speaker 6: a different direction, wide open highway called robotaxis and autonomy.

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Speaker 6: That's where he's taken all of his chips and placed

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Speaker 6: him on that bet robotaxis today in Austin, very soon

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Speaker 6: in places like London, Sydney, Paris, Rome, Los Angeles.

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Speaker 4: So it's all about AI and robotics.

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Speaker 6: And you'll hear him talk less and less about batteries

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Speaker 6: and electric cars.

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Speaker 5: And you're still saying that there's very few that would

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Speaker 5: dare best against in La Masque. Even in this uncertain

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Speaker 5: leadership and regulatory environment, right, there's still plenty of concerns

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Speaker 5: recently revived. When it comes to how much sort of

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Speaker 5: political distraction he has at the moment.

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Speaker 6: When you think about it, it's almost amazing that Tesla

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Speaker 6: sold any cars in the most recent quarter. He's managed

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Speaker 6: to upset both Republicans and Democrats here in the United States.

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Speaker 6: Germans I talked to in Europe, No, we're done with Tesla.

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Speaker 6: In China, he's surrounded by formidable competitors like Shall me Lee,

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Speaker 6: Auto Neo and others XPUM, So he's definitely the company's

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Speaker 6: definitely under pressure and he's done the company no favors

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Speaker 6: on the public relations front. But never underestimate Tesla's ability

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Speaker 6: to surprise to the upside through AI, through technology breakthroughs.

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Speaker 6: Customers are still buying the cars despite all of this friction.

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Speaker 1: When it comes to capital free cash flow, when it

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Speaker 1: comes to really the performance and just metrics, how much

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Speaker 1: of a dent will it make that the incentives like

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Speaker 1: the EV tax credits are expected to go away.

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Speaker 4: This hurts, no doubt about it.

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Speaker 6: And if Elon Musk says differently, well, we'd have to

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Speaker 6: discount those words because number one, on terrorist there's a

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Speaker 6: three hundred million dollar hit and number two EV tax

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Speaker 6: credits are definitely an incentive, especially here in the United States,

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Speaker 6: for people too who are on the fence to say, yeah,

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Speaker 6: let me try an EV because I'm going to get

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Speaker 6: the tax credit that's going away, and that hurts Tesla,

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Speaker 6: but by extension, it also it hurts all other automakers

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Speaker 6: in the space. So for that reason, one has to

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Speaker 6: remain still slightly optimistic about Tesla's chances, just because Elon

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Speaker 6: Musk is a once in a million years kind of entrepreneur,

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Speaker 6: and he's in SpaceX and he's in Xai.

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Speaker 4: He's doing a lot of things, and it feels like

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Speaker 4: he's a few steps ahead of us. So that's why

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Speaker 4: the stock is.

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Speaker 6: Still valued up around a trillion dollars, much higher than

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Speaker 6: any other automaker, including Toyota, which makes amazing profits the

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Speaker 6: dwarf Teslas today. So investors are still holding their ground, saying, yeah,

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Speaker 6: we're going to give Elon benefit of the doubt, even

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Speaker 6: though current sales outlook is not strong.

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Speaker 1: You mentioned Toyota, the stock did phenomenally well after we

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Speaker 1: saw that fifteen percent a tariff agreement with the United States.

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Speaker 1: How much of a difference does this make for Japanese carmakers,

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Speaker 1: especially when it comes to relative competitive edge against other

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Speaker 1: carmakers in other regions.

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Speaker 6: Yeah, Toyota and others are popping the champagne today in

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Speaker 6: Japan because they're just delighted with the outcome. You know,

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Speaker 6: keep in mind, Japan sells millions of cars into the

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Speaker 6: United States every year. The US sells a few thousand

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Speaker 6: back into Japan, So the Japanese negotiators would have been worried,

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Speaker 6: are they going to slam the door shut? Are they

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Speaker 6: going to hit us with super high tariffs? That was

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Speaker 6: not the outcome, and as a result, Toyota and Honda

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Speaker 6: and other Japanese automakers are feeling really good today.

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Speaker 1: Welcome don Really good to have you with a CEO

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Speaker 1: of Done Insight.

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Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Doug Chrisner.

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Speaker 2: It's time to check in with Bloomberg opinion columnist Krishma

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Speaker 2: Vaswani has been writing about how the rumors in China

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Speaker 2: about the political elite are not dying. I'm pleased to

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Speaker 2: say she joins us now, Kirishima, It's always a pleasure.

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Speaker 2: Thank you so very much for making the time to

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Speaker 2: chat with me and I know that this is an

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Speaker 2: extremely sensitive topic. What is the most important thing to

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Speaker 2: bear in mind when discussing the ruling class in China?

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Speaker 7: Well, I think the most important thing to bear in

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Speaker 7: mind when we have a discussion about China's political elite

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Speaker 7: is that historically, hearsay about how the politbureau, the inner

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Speaker 7: workings of the pollt bureau, there's been a long tradition

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Speaker 7: of that being wholly inaccurate. You know, we've had rumors

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Speaker 7: come out from time to time predicting X, Y and

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Speaker 7: z about the future of certain political figures within the

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Speaker 7: Chinese Communist Party, and for the most part, you know,

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Speaker 7: ninety nine percent of the time they've been wrong. And

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Speaker 7: one really striking example comes to mind back in twenty

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Speaker 7: eleven when a Hong Kong TV station reported mistakenly that

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Speaker 7: the former Chinese president Youngsomen had died, and that was

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Speaker 7: actually eleven years before his actual death in twenty twenty two.

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Speaker 7: And I think the reason behind these kinds of I

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Speaker 7: make that point because of the fact that there is

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Speaker 7: so little that we do know about what's going on

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Speaker 7: in the inner workings of the Chinese Communist Party that

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Speaker 7: when these rumors come out, people are quick to sort of,

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Speaker 7: you know, circulate them. There's a lot of Chinese whispers,

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Speaker 7: forgive the pun, and there are a lot of conclusions

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Speaker 7: drawn about what is happening, but they've pretty much always

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Speaker 7: been inaccurate.

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Speaker 2: Can you help me understand how this speculation kind of

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Speaker 2: fits in with the notion that President Chi has been

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Speaker 2: for a while very involved in kind of anti corruption.

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Speaker 2: We know, the big campaign that was put in place

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Speaker 2: a couple of years back. I think it's continuing. Always

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Speaker 2: helped me understand the context.

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Speaker 7: Yeah, so, you know, the intrigue of a president sejen

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Speaker 7: Ping and what he does in China is no less speculative,

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Speaker 7: but there are a few things that we are able

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Speaker 7: to decipher. The other aspect of this, of course, is

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Speaker 7: the fact that there's no clear succession plan in place

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Speaker 7: as of now, and I think that also creates an

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Speaker 7: atmosphere of uncertainty which allows for more of these rumors

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Speaker 7: to circulate. But specifically to do with the anti corruption

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Speaker 7: drive that he's put in place during his tenure. I

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Speaker 7: think one of the things that really struck me was

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Speaker 7: the quick succession of the defense ministers that have fallen

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Speaker 7: foul of these new regulations or sort of new norms.

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Speaker 7: I think it would be a better way to describe that.

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Speaker 7: And we've seen stories about the trouble in the sort

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Speaker 7: of higher echelons of Chinese power, and the biggest consequence

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Speaker 7: of that is an indication that Sigenping's power has in

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Speaker 7: fact cemented because he is getting rid of people apparently,

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Speaker 7: at least from what we can see that he appears

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Speaker 7: to deem not productive or not consequential to the way

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Speaker 7: he wants to run the country and in particular the

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Speaker 7: defense forces. So I think what you can draw from

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Speaker 7: that is that his power is actually growing for the

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Speaker 7: most part, and I think that's a really important takeaway

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Speaker 7: from what we've seen in terms of the political ramifications

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Speaker 7: and consequences of the inner workings of the polypber.

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Speaker 2: So, back in March twenty eighteen, as you well know,

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Speaker 2: the National People's Congress approved the removal of that two

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Speaker 2: year term limit on the presidency, and that effectively allowed

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Speaker 2: presidency to remain in powerful life. Is that a part

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Speaker 2: of the story as well? Do you think?

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Speaker 4: Yes?

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Speaker 7: Absolutely?

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Speaker 4: And you know, at every.

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Speaker 7: Stage Jinping has defied convention to solidify his grip. Some

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Speaker 7: analysts that I've been speaking to long term China watches.

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Speaker 7: You know, there's a phrase that I thought was particularly

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Speaker 7: apt for this conversation, and that you know, the consensus

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Speaker 7: is that he will likely rule China until he goes

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Speaker 7: to meet Marx, which means basically until he meets his maker.

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Speaker 7: And what has been really evident is that he's been

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Speaker 7: successful in doing this, which goes to show that the

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Speaker 7: alliances that he's made or the people that he's removed

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Speaker 7: from power, at every stage, the strategy has appeared to

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Speaker 7: have worked. And that's despite the fact that, you know,

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Speaker 7: the economy has been in a weak spot. That's despite

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Speaker 7: the fact that he is fighting this trade war with

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Speaker 7: Donald Trump, and that you know, people in the country

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Speaker 7: are definitely feeling the impact of what highatariffs could mean

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Speaker 7: for them and their businesses. He seems to have consistently

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Speaker 7: just been able to cement and solidify his grip on power,

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Speaker 7: even going so far as to rule past the retirement

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Speaker 7: age of sixty eight, ignoring previous norms that have indicated

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Speaker 7: leaders of that age or olders should retire.

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Speaker 2: So that's a great point. Do we need to consider

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Speaker 2: his age in this? And I'm wondering whether we need

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Speaker 2: to also consider what the aspirations are of the next generation.

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Speaker 4: It's hard to.

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Speaker 7: Say at this moment, given the fact that all of

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Speaker 7: these rumors are still circulating. One of the things that

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Speaker 7: I found really interesting in my research for this column

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Speaker 7: was the fact that there's been a revival of the

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Speaker 7: Cold War era practice of something called peaking ology, which

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Speaker 7: is effectively just reading the tea leaves from the parties

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Speaker 7: inner circle, and people that are based in China will

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Speaker 7: tell you as well that reporting on what's going on

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Speaker 7: there has become a bit of sort of a black

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Speaker 7: books because it's so hard to decipher or to get

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Speaker 7: concrete information about what's happening on the ground. But I

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Speaker 7: think what that shows is that we will continue to

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Speaker 7: have these sorts of rumors going forward, and for the

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Speaker 7: most part, none of them will be true.

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Speaker 2: Can you give me a sense of how this is

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Speaker 2: being presented to citizens in China visa vise state media?

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Speaker 7: Yeah?

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Speaker 1: Sure.

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Speaker 7: If you look at how sheetin Ping is presented in

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Speaker 7: state media. There is a cult of personality that is

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Speaker 7: obvious that they're trying to create around him, and it's

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Speaker 7: been very very effective, so much so that when he

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Speaker 7: starts to disappear or there's a perceived absence of his

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Speaker 7: on in state media. International media tends to draw conclusions

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Speaker 7: about that. But there's been an interesting study by the

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Speaker 7: China Media Project assessing whether or not he really had

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Speaker 7: been downplayed in government publications recently. And the answer actually

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Speaker 7: is that, according to their reporting, that not only does

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Speaker 7: he remain dominant, but there are no signs of advancement

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Speaker 7: by any member of the politbureau standing committee. And what

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Speaker 7: I think this shows is just how much of a

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Speaker 7: big figure he continues to remain in state media and

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Speaker 7: that cult of personality that I was talking about, which

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Speaker 7: is then parleyed to citizens in China.

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Speaker 2: One of the things that you touched on a moment

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Speaker 2: ago was the trade war that's going on right now

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Speaker 2: with the United States, and I'm wondering how this has

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Speaker 2: impacted the feeling of nationalism in China and whether that

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Speaker 2: is kind of intersecting a little bit with what we're

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Speaker 2: talking about.

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Speaker 7: Yeah, it is in a sense that it's been used

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Speaker 7: highly effectively, both in some of the rhetoric that you

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Speaker 7: hear from Siegenping but also other officials and in state

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Speaker 7: media when describing the trade war with the United States.

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Speaker 7: I think you know, the language has been pretty firm,

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Speaker 7: like we're not going to stand down. We're going to

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Speaker 7: defend our rights against what the United States has often

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Speaker 7: been called a bully in the state media and the

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Speaker 7: official language there. And I think what that does is

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Speaker 7: definitely create a sense of national pride on the part

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Speaker 7: of Chinese citizens because they and it's a familiar narrative, right,

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Speaker 7: the narrative that the United States is trying to keep

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Speaker 7: China down, that it's trying to stop its rise. That

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Speaker 7: feeds into what Siegenping has consistently said about how the

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Speaker 7: East is rising and the West is in decline. I

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Speaker 7: think that's a very useful narrative at a time when

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Speaker 7: the Chinese economy perhaps isn't in the strongest position or

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Speaker 7: as strong as it has been in the past. Everybody

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Speaker 7: always needs a bad guy, and in this situation, the

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Speaker 7: US is a very convenient bad guy.

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Speaker 2: Karishma will leave it there. Thank you so very much,

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Speaker 2: Bloomberg Opinion columnist Karishma Vaswani joining us here on the

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Speaker 2: Daybreak Asia podcast. Thanks for listening to today's episode of

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Speaker 2: the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look

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Speaker 2: at the story shaping markets finance and geopolitics in the

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Speaker 2: Bloomberg Podcast YouTube channel, or anywhere else you listen. Join

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Speaker 2: us again tomorrow for insight on the market moves from

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Speaker 2: Hong Kong to Singapore and Australia. I'm Doug Chrisner, and

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Speaker 2: this is Bloomberg