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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Applecarclay and Android Auto with the Bloomberg Business App.

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: Tesla shareholders approved Elon Musk one trillion dollar pay package,

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Speaker 2: and we had some comments from Tesla General counsel Brandon Earhart.

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Speaker 1: Let's take a listen.

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Speaker 3: Six.

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Speaker 4: Then finally on the twenty twenty five CEO Performance Award

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Speaker 4: to our founder and CEO Elon Musk, with over seventy

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Speaker 4: five percent voting in favor.

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Speaker 5: Approved.

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Speaker 2: All right, that's a good date for Elon Musk. That

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Speaker 2: was Tesla General counsel Brandon Earhart to see what this

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Speaker 2: means for the company, for the stock. That's checking with

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Speaker 2: Stephen Man. He's Global Autos and Industrials research channels for

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Speaker 2: Bloomberg Intelligence. So Steve, a good day for Elon Musk.

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Speaker 2: What does it mean for the company here to get

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Speaker 2: this pay package through?

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Speaker 5: Yeah, he did seem pretty upbeat last night at the

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Speaker 5: shareholder meeting, you know he was, I mean, he was

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Speaker 5: talking a lot about what the future looks like it

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Speaker 5: almost feel like I'm watching like a Star Trek episode

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Speaker 5: when he talked about robots. I think it's it's a

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Speaker 5: it's a big relief for the company as well as

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Speaker 5: the shareholders. Looks like a lot of shareholders. Given that

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Speaker 5: about seventy five percent voted for the pay package. I

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Speaker 5: think now the company and he can actually start focusing

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Speaker 5: on delivering those metrics, which is, you know, eight and

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Speaker 5: a half trillion dollar market cap in ten years, you know,

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Speaker 5: four hundred billion ebitda during that time. So there's a

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Speaker 5: lot of things he needs to do.

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Speaker 6: So those are the very specific financial metrics that he

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Speaker 6: needs to achieve if he wants to get paid what

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Speaker 6: shareholders have approved. But in terms of actually getting there,

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Speaker 6: Musk made some big promises. Human annoid robots will be

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Speaker 6: doing a lot of beyond human precision surgery, for instance,

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Speaker 6: and robots will play big role in setting up basis

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Speaker 6: on the Moon and in Mars, and what of the

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Speaker 6: which of the predictions that he make sound reasonable at

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Speaker 6: this point.

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Speaker 5: I mean, robotics is an evolution. I think there is

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Speaker 5: still a lot of technical challenges to make the humanoid

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Speaker 5: work just as well as a human so we're you know,

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Speaker 5: at BI we think humanoid robots are actually a little

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Speaker 5: bit ways off. But what was really interesting and kind

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Speaker 5: of you know, caught my attention was that he wanted

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Speaker 5: to build well, he's currently designing his own chips for autonomy,

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Speaker 5: but he also wants to build his own fab for autonomy.

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Speaker 5: And that's really a direct competition to companies like in

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Speaker 5: Nvidia and and some of the fab companies like TSMC. Now,

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Speaker 5: his his chips are a little bit different. It's a

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Speaker 5: special purpose chip where villas in videos. AI chips are

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Speaker 5: made to accommodate many AI applications, is specifically for autonomy

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Speaker 5: like robots and cars.

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Speaker 2: All Right, the math I do is, you know, in

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Speaker 2: order for mister Muff to achieve his full trillion dollars

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Speaker 2: in comp the market cap I have to get to

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Speaker 2: like eight and a half trillion. It's one and a

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Speaker 2: half trillion now, so that's incremental seven trillion dollars in

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Speaker 2: market cap he thinks he can create and if he

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Speaker 2: wants to take a billion of it, that's fine with me.

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Speaker 2: I'll take the rest. And that's I think that's kind

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Speaker 2: of what shareholders we're saying with seventy percent of them,

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Speaker 2: seventy five percent of them are propec Yeah for a trillion.

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Speaker 2: So I mean, you know, if he's going to mix

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Speaker 2: incremental you know, seven trillion dollars for shareholders, he can

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Speaker 2: have a trillion as far as he says.

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Speaker 5: But look good like Remember he's not taking the cap

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Speaker 5: A lot of it's stopped. Right at the end of

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Speaker 5: the day. He just wanted greater control over the company,

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Speaker 5: twenty five percent control of the company. But he has

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Speaker 5: to deliver, Yeah.

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Speaker 2: Ask to deliver. So how do we think about this?

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Speaker 2: Even the car business now, Steve, it's almost an afterthought

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Speaker 2: for this entire story. How do you how are investors

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Speaker 2: thinking about kind of what is the core business today?

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Speaker 5: Look, I think, yeah, you're right, a lot of people

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Speaker 5: think their thought, but I actually have a different view.

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Speaker 5: What he's really trying to achieve is physical AI. No

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Speaker 5: quite different than what you know, what Google is doing

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Speaker 5: on chat EPT is doing. He's actually you know, creating

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Speaker 5: AI through cars, mobile devices, cars and robots. So you know,

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Speaker 5: for him to proliferate proliferate autonomy physical AI, he still

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Speaker 5: needs to produce cars, right. I don't think he's going

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Speaker 5: to license the full cell driving to any other automakers.

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Speaker 5: So for him to proliferate autonomy, he does have to

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Speaker 5: produce cars. Look, and then that's why he's also very

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Speaker 5: focused on, you know, improving the design of the OPTIMUSM

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Speaker 5: robot so he can actually you know, build more and

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Speaker 5: sell more to the market. Yeah, cars is important still,

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Speaker 5: that's the understandable.

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Speaker 2: So important, like spin out the car business and just

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Speaker 2: have that happens and just have the rest of it

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Speaker 2: is kind of this is the this is Elon Inc.

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Speaker 2: If you want to buy into all the stuff about

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Speaker 2: Elon and then here's your way.

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Speaker 5: I'm so glad you bring that up.

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Speaker 6: Because there was also a proposal seven that was voted

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Speaker 6: on at the shareholders meeting Steve, where it was a

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Speaker 6: non binding request for the board to authorize an investment

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Speaker 6: in x Ai, which is essentially Elon Musk's side gig Right,

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Speaker 6: the company that holds x as well as the rock chatbot.

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Speaker 6: That gives the board the option to invent us Tesla's

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Speaker 6: money into x Ai. What does that tell us about

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Speaker 6: where Tesla's headed as a company.

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Speaker 5: That it's an interesting proposal, and look, they they are

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Speaker 5: gonna still probably take some time to think about that.

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Speaker 5: But it's all interrelated, right, A lot of the stuff

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Speaker 5: that he talked about last night about autonomy, optimist optimist

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Speaker 5: robots from Tesla and how those robots can be used

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Speaker 5: in Mars. Uh, they're all connected. All AI is connected,

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Speaker 5: so you know what you know, does it make sense

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Speaker 5: for it to for Tesla to invest in x Ai. Yeah.

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Speaker 5: I think there's a lot of technology that can actually

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Speaker 5: be shared between the different AI platforms. And you know,

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Speaker 5: right currently, if you know, Tesla vehicles do come with Grock,

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Speaker 5: which is part of x AI. So you know, if

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Speaker 5: if vehicles are autonomous, uh, you know, Rock with and

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Speaker 5: and and an other assistant would be very very useful

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Speaker 5: in a vehicle for the passenger.

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Speaker 6: We have a listener a question coming in Ryan from

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Speaker 6: New York City asks what's the likelihood Tessa can compete

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Speaker 6: on the global level versus Chinese robot companies?

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Speaker 7: Is it?

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Speaker 6: Maybe it's the leader in the US, but where does

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Speaker 6: it stand versus those in Asia?

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Speaker 5: Uh? Uh, you know, we we actually publish a report

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Speaker 5: on human our robots, but specifically going on in manufacturing.

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Speaker 5: What we've learned is that Chinese are very very far ahead. Uh.

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Speaker 5: They have a number of startups working on humanoid robotics,

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Speaker 5: you know, trying to improve dexterity, trying to improve the

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Speaker 5: technology stack. Uh, it will be. It will be interesting

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Speaker 5: to see. And uh, I think some people have written

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Speaker 5: out the Chinese, but the fact that they have a

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Speaker 5: lot of investment and a lot of startups looking at this, Uh,

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Speaker 5: there'll be there will be a formidable uh competitor.

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Speaker 7: Stay with us.

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Speaker 2: More from Bloomberg Intelligence come.

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Speaker 8: Up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: Are you a gamer child?

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Speaker 6: No, but my children are, and that irritates me to no.

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Speaker 7: End, does it?

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Speaker 2: So?

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Speaker 5: Are they like are they on their phone?

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Speaker 6: On their phone?

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Speaker 2: Usually?

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Speaker 5: Okay?

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Speaker 2: So this grand theft Auto thing for people, I guess

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Speaker 2: it's a piece of news.

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Speaker 6: Right, Yeah, No, it's a big deal because this is

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Speaker 6: something they've been working on for a long time. And

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Speaker 6: this is the sixth part of the franchise, the sixth

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Speaker 6: iteration of it, and it's supposed to take place in Miami.

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Speaker 6: But a fictional version of Miami, and it's supposed to

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Speaker 6: be like the Hot Game when it eventually comes out.

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Speaker 5: That's the issue.

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Speaker 6: We don't know whether they're going to meet their deadline,

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Speaker 6: and they've delayed it twice.

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Speaker 2: All right, let's talk to somebody who knows the stuff

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Speaker 2: for a living. I guess that's the best we can

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Speaker 2: do here, Nathan Natu Technology Research Channels for Bloomberg Intelligency

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Speaker 2: Joints is here. Grand Theft Auto postponed again.

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Speaker 5: Take two.

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Speaker 2: The stock is down almost nine percent on this news here, Nathan,

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Speaker 2: what do you make of it?

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Speaker 3: Yeah, so that's a good point on the GTA or

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Speaker 3: Grand Theft Auto six iteration being a big factor actually

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Speaker 3: in today's sell off. And I think you know, GTA six,

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Speaker 3: let's call it in toort has been the prospects of

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Speaker 3: it rather has been priced into Take two shares. And

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Speaker 3: last I check, you know, Take two is trading at

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Speaker 3: about sixty percent premium to the only other big US publishers,

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Speaker 3: Electronic Arts. And that's sixty percent premium and even higher

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Speaker 3: compared to an average of about ten peers. And so

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Speaker 3: you know, valuations and expectations were high up until that point.

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Speaker 3: So Obviously, valuations were going to be a bit sensitive

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Speaker 3: to any sort of downside risk, and as we have

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Speaker 3: seen today is the delay of GTA six. But I

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Speaker 3: don't think this second delay officially is necessarily going to

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Speaker 3: do any more impact than the first delay, because the

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Speaker 3: first delay actually skipped the holiday season. This time round,

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Speaker 3: it pulls the launch timing closer to the holiday season

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Speaker 3: and actually a season that usually see a lot more

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Speaker 3: activity on the player's side.

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Speaker 6: Okay, Yeah, to your point, the original release state was

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Speaker 6: back in Fall twenty twenty five, then it was delayed

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Speaker 6: until May twenty twenty six, and now it's been delayed

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Speaker 6: by another six months to November twenty twenty six. Nathan,

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Speaker 6: I'm going to ask the dumb question. If they delayed

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Speaker 6: it twice, they might delay it again. Why are they

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Speaker 6: delaying this game? What's what's proving to be difficult or

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Speaker 6: problematic about this?

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Speaker 5: Yeah.

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Speaker 3: So, according to the words by the company themselves, they

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Speaker 3: want to give the publisher the developers rather a bit

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Speaker 3: more time to polish the game.

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Speaker 8: Game like GTA, GTA to take a step back.

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Speaker 3: Grand Theft also is easily the top five selling games

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Speaker 3: franchise of all time globally, so this game has quite

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Speaker 3: a bit of a cult following.

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Speaker 8: You know, he has sold.

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Speaker 3: More than four hundred and fifteen million units, right, and

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Speaker 3: so I think it doesn't make a big difference whether

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Speaker 3: it's delayed, you know, in this round of delay, because

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Speaker 3: you know, this game, regardless of when this launch is gonna,

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Speaker 3: it's going to bring back those core Lawyer fan base.

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Speaker 3: And we're talking about fifteen to twenty millions of people

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Speaker 3: playing GTA five, the current version, every month.

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Speaker 8: So you know that that proves my point.

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Speaker 3: And also, like you know, you know, launching in November,

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Speaker 3: which is the high sales season for any sort of

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Speaker 3: video games or any sort of products rather is actually

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Speaker 3: a better timing. And in my work in GTA six

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Speaker 3: favor In the end, I think, all.

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Speaker 2: Right, Nathan, in your world of online gaming, can you

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Speaker 2: size out how big this business is, because I think

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Speaker 2: a lot of people don't have a good idea just

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Speaker 2: how big the game?

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Speaker 6: It gets bigger than Hollywood?

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Speaker 5: Yeah, right, so how movie business?

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Speaker 2: Exactly how big is it? And kind of what's the

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Speaker 2: growth parameters for this industry?

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Speaker 8: Yeah?

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Speaker 3: So you know, the overall video game market is inching

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Speaker 3: towards like one hundred and eighty billion US dollars in

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Speaker 3: sales last year, and you know that is actually bigger

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Speaker 3: than films and you know other easily right, other entertainment

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Speaker 3: forms and GTA.

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Speaker 8: You know, if we assume that.

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Speaker 3: We assume that the GTA six cells about thirty five

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Speaker 3: to forty five million units, that's about two to three

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Speaker 3: billion US dollars in upfront revenue to the company.

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Speaker 8: And that's just one game.

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Speaker 6: Man eighteen to forty nine. Oh my god, it's just

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Speaker 6: the advertisers stream, is I guess?

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Speaker 7: Yeah?

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Speaker 2: Yeah, I mean I punk this pong count.

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Speaker 6: Sorry, no one's monetizing off pong anymore. Nathan, Do you

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Speaker 6: know what pong is?

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Speaker 8: Yeah? You mean like age cohort?

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Speaker 6: No, okay, so when we're showing our age.

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Speaker 2: Now, all right, So Nathan, for Take two, what's the

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Speaker 2: is it? Is that just really a play on Grand

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Speaker 2: Theft Auto? Is it that dependent on that game?

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Speaker 8: Yeah?

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Speaker 3: So Take two actually has a few other big franchises

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Speaker 3: under it spelt like red that Redemption for example, and

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Speaker 3: Take two is also big in sports game whether that's football,

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Speaker 3: uh and and so GT is that certainly the biggest game,

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Speaker 3: but it's not the only pieces of the parcel in

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Speaker 3: terms of how it is driving take to top top

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Speaker 3: line as well as bottom line. But it is certainly

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Speaker 3: going to be the biggest biggest game launch next year,

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Speaker 3: and that's coming from Take two.

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Speaker 8: And given the.

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Speaker 3: Game is actually in house, meaning it generates a lot

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Speaker 3: more to bottom line than games that are based on

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Speaker 3: third party intellectual property where a royalty payment is involved,

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Speaker 3: So you know, we can expect similar significant boost to

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Speaker 3: take to profits as well next year. And actually the

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Speaker 3: company is expecting to you know, generate positive free cash

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Speaker 3: flow again because they're currently running on negative.

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Speaker 6: Okay, I have a question here because usually when we

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Speaker 6: talk about Take two, I look at how the other

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Speaker 6: video game publishers are performing, and right away I thought,

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Speaker 6: oh check EA.

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Speaker 5: EA is barely moving.

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Speaker 6: But that's also because e A is going to be

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Speaker 6: bought out by private equity. Is take to a candidate

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Speaker 6: for a buyout.

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Speaker 3: So Take two is certainly a good candidate, and it

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Speaker 3: is actually the it would only be it would be

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Speaker 3: the only surviving US game publisher of scale if Take

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Speaker 3: two if the EA deal actually complete and goes through,

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Speaker 3: and EA is expecting that deal to close in the

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Speaker 3: April to June period next year, and EA is a

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Speaker 3: good candidate because he has a robust brought franchises and

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Speaker 3: obviously Grand Theft Auto is a game that has survived

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Speaker 3: more than two decades and it continued to attracts millions

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Speaker 3: of players. Actually, you know about fifteen and up million

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Speaker 3: of players every month, so you know, with attention increasingly

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Speaker 3: being scars, you know, games that continue to perform well

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Speaker 3: actually are games that were published six year or earlier.

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Speaker 3: So there's actually not a lot of room for brand

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Speaker 3: new games to grow in this market. In fact, new

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Speaker 3: Zoo actually mentioned that for brand new titles, only eight

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Speaker 3: percent of the gameplay hours are up for rep so

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Speaker 3: you know that just says like well established franchises with

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Speaker 3: a cup following certainly has its value. And we actually

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Speaker 3: saw ten cents investment in Ubisoft, you know, a French

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Speaker 3: game company in Tenson obviously needs to know. Introduction is

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Speaker 3: a tech giant in China and certainly a giant in gaming. Yeah,

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Speaker 3: they invested about you know, a few billion euros to

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Speaker 3: take a quarter of a subsidiary, subsidiary of Ubisoft that

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Speaker 3: actually owns you know, a quarter of ubisoft three most

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Speaker 3: value franchises. If you like Ninja's assasines. We're talking about

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Speaker 3: assassin crete here, we're talking about Tom Clancy and a

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Speaker 3: few shooter games. So there's definitely a general direction of

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Speaker 3: companies with resources eyeing companies with great ip if those

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Speaker 3: two do not currently exist together. And we certainly see

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Speaker 3: that a EA deals coming through kind of place into

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Speaker 3: the Saudi ambitions for esports and Saudi Prince, which is

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Speaker 3: you know, the chair of the sombern Will Fund there

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Speaker 3: is actually an avid gamer himself, and which I suspect

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Speaker 3: is one of the factors behind why.

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Speaker 8: EA is a good fit for the deal, because EA.

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Speaker 3: Has the most popular soccer game out there. Why I

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Speaker 3: say soccer because I'm in Europe right now, I need

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Speaker 3: to differentiate from football.

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Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business app. Listen on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 2: Wendy's I guess the way Bloomberg News is reporting it.

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Speaker 2: They reported better than feared three cute results. So there's

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Speaker 2: some concern out there about the consumer, particularly on the

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Speaker 2: lower end of the consumer, and how that's impacting various industries,

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Speaker 2: including the food industry, the restaurant business. And so we

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Speaker 2: want to get the latest on what's happening out there

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Speaker 2: in the world of food and restaurants. We go to

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Speaker 2: Mike Keayln he covers the restaurants for Bloomberg Intelligence. Mike

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Speaker 2: talk to us about Wendy's. What did they say on

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Speaker 2: their call, what did you learn with their results? And

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Speaker 2: by the way, I'm a big fan of the bacon

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Speaker 2: a or.

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Speaker 7: Yeah, baconator is great, Chicken's great.

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Speaker 9: You know, historically Wendy's has been known for great food,

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Speaker 9: but their food has suffered over especially in the last

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Speaker 9: year or two, mainly because the previous management team, who

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Speaker 9: I said in a previous interview, lit this company on

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Speaker 9: fire and then headed for the excess like George Costanza

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Speaker 9: and Seinfeld, knocking over women and children on the way.

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Speaker 9: And you know, what they did was just flood the

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Speaker 9: system with ltos and it didn't give people system with

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Speaker 9: what limited time offers ultos And every two weeks there

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Speaker 9: was a new offer, a new value meal, a new

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Speaker 9: food item, and it didn't give them ability to market

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Speaker 9: it correctly, and people would come in and thinking they

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Speaker 9: were going to be able to get one item and

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Speaker 9: they'd have to switch to something else, right, and it

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Speaker 9: led to complexity in the store, poor operations, which led

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Speaker 9: to poor food quality, poor customer service.

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Speaker 7: Down the line. You know. So this company had a

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Speaker 7: tough quarter. It's going to have a tough fourth quarter

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Speaker 7: as well, but a lot of it is self inflicted.

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Speaker 9: They did speak about, you know, their expectation for low

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Speaker 9: income consumers to continue to be pressure.

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Speaker 7: In these next two quarters.

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Speaker 2: So I know for McDonald's the vast, vast majority of

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Speaker 2: their stores are franchise is that is that the case

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Speaker 2: for Wendy's as well?

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Speaker 7: Yeah, that's the case for Wendy's.

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Speaker 9: One of the things that they mentioned on the call

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Speaker 9: is that they're going to be closing you know, roughly

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Speaker 9: five percent of their store base in the coming quarters

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Speaker 9: because excuse me, because franchisees have been have not been

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Speaker 9: performing very well. Right, sales have created and when there's

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Speaker 9: a lot of operating leverage in this model when you're

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Speaker 9: a franchise ee, so when your sales decline, your margins

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Speaker 9: decline even faster.

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Speaker 7: So you know they're going to be closing a bunch of.

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Speaker 9: Stores, but we think that could actually accelerate the turnaround, right,

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Speaker 9: so as they close underperforming stores, this should boost sales

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Speaker 9: at the surrounding locations.

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Speaker 7: Uh and management has a pretty good plan.

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Speaker 9: You know, there's not a whole lot of they still

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Speaker 9: don't have a permanent CEO and there's not a lot

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Speaker 9: of restaurant experience at the top. That the interim CEO

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Speaker 9: was the CFO who was who came from outside of

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Speaker 9: the restaurant industry.

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Speaker 7: But we think he's pushing the right buttons.

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Speaker 9: I think hiring Greg Creed, who was the previous CEO

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Speaker 9: of Taco Bell and then Young Brands, arguably the QSR

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Speaker 9: goat to do some consulting work, I think is a

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Speaker 9: really good move. I think that's really going to help

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Speaker 9: their marketing. And it's a great brand that has a

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Speaker 9: lot of things that can market from the past, like

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Speaker 9: where's the beef? You know, and they're they're doing a

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Speaker 9: lot less lt O s and they're gonna work on

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Speaker 9: fixing the operations.

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Speaker 7: They're spending money on training.

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Speaker 9: Doing things that we think can really make a difference

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Speaker 9: in twenty twenty six.

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Speaker 2: You know, the Hamburger business has changed a lot since

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Speaker 2: I was a kid, when it was basically you know McDonald's,

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Speaker 2: you know, Burger King. Then Wendy's came along and that

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Speaker 2: was kind of it. Now you've got all these I

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Speaker 2: don't know what you guys call them, specialty burgers like

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Speaker 2: smash Burger five guys, all that kind of stuff. Shakeshack.

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Speaker 2: How's the burger business these days?

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Speaker 7: Man?

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Speaker 9: People love burgers, but you're right there is it is

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Speaker 9: a saturated market with all of those burger better chains.

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Speaker 9: You know, I think it's good for the overall industry

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Speaker 9: that Wendy's is closing some stores. Jack in a Box

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Speaker 9: is going to be closing some stores, right Like to me,

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Speaker 9: this is this is a part of the restaurant business

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Speaker 9: that's oversupplied and it's been growing faster than population growth.

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Speaker 7: And so to see some chain start.

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Speaker 9: To close some stores, you know, we think that's healthy

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Speaker 9: and we think it's going to improve results in the future.

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Speaker 2: How's the burger business been impacted by the cost of beef.

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Speaker 2: I've been reading that. You know, beef costs have been

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Speaker 2: elevated for a while now, So how are they dealing

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Speaker 2: with that?

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Speaker 9: Beef costs are a killer, especially if you're not able

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Speaker 9: to drive you know, traffic into your restaurants. So for

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Speaker 9: Wendy's franchisees, it's been absolutely crushing for them, right, they're

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Speaker 9: more than ninety five percent franchise So the corporation is

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Speaker 9: going to take a hit on the five percent of

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Speaker 9: stores or so that it owns, but most of the

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Speaker 9: inflation and the margin compression is going to come on

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Speaker 9: the franchise z side, and they're the ones that are struggling,

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Speaker 9: and they're the ones that are going to be closing

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Speaker 9: the stores.

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Speaker 2: What'sh where's the best value in your universe of restaurants, Mike?

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Speaker 7: Are you talking about the stocksfuscation? Yeah, well, this one

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Speaker 7: is interesting.

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Speaker 9: Right now, it's trading at ten times twenty twenty six EPs, right,

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Speaker 9: and historically these these names trade at fifteen to thirty

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Speaker 9: times because being a franchise chain, you know, you have

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Speaker 9: very it's very easy to predict your earnings and your

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Speaker 9: cash flow, right, and they're insulated against inflation against inflation,

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Speaker 9: so historically fifteen to twenty. So we think at some point,

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Speaker 9: when you know, ahead of the sales inflection that we

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Speaker 9: think is likely in the first quarter, that investors could

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Speaker 9: could look more closely at this name.

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