Speaker 1: Good morning.
Speaker 2: I'm Brian Curtis and I'm Doug Krisner. Here are the
Speaker 2: stories we're following today.
Speaker 1: A lot of movement here around Boeing seven thirty seven
Speaker 1: Max nine today. Let's get to head bax to with
Speaker 1: that story and more from the nine to sixty news
Speaker 1: room in San Francisco.
Speaker 3: And yeah, so let's go through it. Brian, Number one,
Speaker 3: FA is halting all Boeing Max production expansion, including the
Speaker 3: seven thirty seven nine. And this while Boeing CEO Dave
Speaker 3: Calhoun is on Capitol Hill today meeting with Senators answering
Speaker 3: questions about or trying to answer questions about safety of
Speaker 3: the Max. Calhoun is standing by his product, we don't
Speaker 3: put airplanes in the air that we don't have one
Speaker 3: hundred percent confidence in.
Speaker 1: I'm here today in the spirit of transparencies.
Speaker 3: Yeah, but this comes with the public knowledge of the
Speaker 3: panel blowout on Alaska plane mid flight, as well as
Speaker 3: Alaska's CEO saying it found multiple loose bolts on many planes.
Speaker 3: So Bloomberg's Abigail Doolittle says, consumers and investors are trying
Speaker 3: to make some kind of sense of all of it.
Speaker 4: The idea that you're hearing the CEO of a major
Speaker 4: airline manufacturer saying we fly safeplans. That's just something that
Speaker 4: you take for granted. But after the two trategies in
Speaker 4: twenty eighteen, twenty nineteen, the rudder issue last year, the
Speaker 4: door plug blowing out. Last Saturday, a wheel fell off,
Speaker 4: I mean, they really have a situations.
Speaker 3: And again the Alaska air says it'll bring back it's
Speaker 3: first seven thirty seven nine. On Friday, President Joe Biden
Speaker 3: is securing the endorsement of the United Autoworkers' Union Union
Speaker 3: president Sean Fain, saying, the issue of the president's age
Speaker 3: is bs and.
Speaker 5: If we're going to grow our union and organize the
Speaker 5: unorganized and help the working class, we have to have
Speaker 5: the right people in power.
Speaker 3: And he says the other guy, Donald Trump, is a
Speaker 3: scab and Biden wall Street didn't go to America. The
Speaker 3: moon class built America, and Union's built the moon class,
Speaker 3: and Biden would have a very tough fight without a twin.
Speaker 3: Fane says that he has earned that endorsement. Nikki Haley
Speaker 3: reinforcing today she's still in and she's still attracting some
Speaker 3: wealthy donors who are definitely keeping the campaign afloat.
Speaker 4: My parents came here fifty years ago to an America
Speaker 4: that was strong and proud and full of opportunities.
Speaker 6: I want them to know that country again.
Speaker 3: And Reuters reporting that Donald Trump is furious, saying she
Speaker 3: needs to get out so he can focus on Biden,
Speaker 3: but former House Speaker Kevin McCarthy says he should do
Speaker 3: it anyway. He was on Bloomberg Surveillance today saying that
Speaker 3: he doesn't think Haley will risk losing her home state
Speaker 3: of South Carolina next month. He says Trump just needs
Speaker 3: to go ahead and focus now on Biden.
Speaker 6: So if I was Trump, I would start pulling Biden out.
Speaker 6: I would make the issue. But remember, a re election
Speaker 6: is a report card. Your first election is aspirational. What
Speaker 6: are you going to do now? There's going to be
Speaker 6: a report card what you did now?
Speaker 3: The latest a Real Clear Politics polling average puts Haley
Speaker 3: about thirty points at this point behind Donald Trump. And
Speaker 3: let's get a lightning bolt for Jim Harbaugh, should we.
Speaker 3: We're hearing that the Harbaugh's returning to the NFL. Washington
Speaker 3: Post reporting that he is finalizing a deal with the
Speaker 3: LA Chargers and that borrowing any last minut of hang
Speaker 3: ups that he will have a deal in San Francisco.
Speaker 3: I'm at Baxter and this is Bloomberg gar Brian all.
Speaker 1: Right, ed, thanks very much. This is Bloomberg, Debreak, Asia,
Speaker 1: Brian Curtis and Dead Chrisner. And we've been talking about Boeing. Well,
Speaker 1: today we actually have another hurdle for Boeing in the
Speaker 1: wake of the ongoing quality control issues. Today, the US
Speaker 1: Federal Aviation Administration said it would not approve production expansions
Speaker 1: for Boeing seven thirty seven Max. The move Race's questions
Speaker 1: about Boeing's plan to open a fourth production line for
Speaker 1: the seven thirty seven later this year. Bloomberg's Danny Lee
Speaker 1: breaks down what this means for Boeing's bottom line.
Speaker 7: What's key here is that Boeing It's critical Semphy seven
Speaker 7: mex cash Cow plane. Ultimately it was producing thirty eight
Speaker 7: planes a month, and it was going to add a
Speaker 7: fourth production line in Seattle, which means could go up
Speaker 7: to fifty planes a month. And you think about the
Speaker 7: millions of billions of dollars it would ultimately generate once
Speaker 7: this comes to fruition over the next couple of years.
Speaker 1: Bloom breaks Danny Lee. The FAA says it will not
Speaker 1: be back to business as usual for Boeing until quality
Speaker 1: control issues are resolved. At the same time, the FAA
Speaker 1: has approved inspection procedures that airlines must carry out in
Speaker 1: order to resume seven thirty seven MAX flights, so there
Speaker 1: is a path there. Alaska Airlines says that it will
Speaker 1: bring its first Max nine back into service on January
Speaker 1: twenty sixth.
Speaker 2: Let's go to China next. The Central Bank saying that
Speaker 2: it will cut the reserve requirement ratio for banks by
Speaker 2: fifty basis points on February fifth. Story Now from Bloomberg's
Speaker 2: Joan Wong In Hong.
Speaker 8: Kong, PBOC Governor Pangong Chan said the cut will provide
Speaker 8: one hundred and thirty nine billion dollars in the liquidity
Speaker 8: to the market. Pahn also hinted at old measures to come.
Speaker 8: After the announcement, regulators added more measures to bolster this
Speaker 8: slumping property and stock markets. Measures include roddening the use
Speaker 8: of commercial property loans and boost in China and Hong
Speaker 8: Kong equities. The changes seem to show mounting urgency in
Speaker 8: China to shore up the economy. In Hong Kong joined
Speaker 8: Wong Bloomberg Radio.
Speaker 1: Tesla's fourth quarter earnings fell short of expectations. Today, the
Speaker 1: automaker spent much of last year's slashing prices around its
Speaker 1: lineup Wloomberg. Red Brown says that that choice could have
Speaker 1: made an impact on the bottom line.
Speaker 9: It does raise some questions about this strategy of continuing
Speaker 9: to lower prices. They lowered prices just last week again
Speaker 9: in Europe, so it seems like that is going to
Speaker 9: be the strategy going forward. But it doesn't seem to
Speaker 9: be kind of paying dividends in the company's view going forward.
Speaker 9: In terms of actually selling cars.
Speaker 1: Still, Tesla told shareholders to expect weaker sales growth in
Speaker 1: twenty twenty four as it builds its next generation vehicle.
Speaker 1: The carmaker has yet to offer a specific delivery target
Speaker 1: for that vehicle. Let's get to our guests. Gene Munster
Speaker 1: joins just managing partner at Deepwater Asset Management to take
Speaker 1: a closer look at Tesla's earnings. You should mention first,
Speaker 1: Tesla traded down in after hours about five percent, so
Speaker 1: investors were a little disappointed here, Gene. It leaves things
Speaker 1: up in the air about what's coming next with Tesla's
Speaker 1: next generation vehicle.
Speaker 5: Indeed disappointment. I think that the disappointment will probably increase tomorrow.
Speaker 5: I expect this stock to actually drift lower because the
Speaker 5: guidance in the outlook was sobering and something that I
Speaker 5: haven't seen. And I believe that this company is in
Speaker 5: a great position longer term. I think they're making all
Speaker 5: of the right moves by investing into the future, where
Speaker 5: other automakers are pulling back on that investment. But that
Speaker 5: doesn't change the reality of how investors are feeling tonight,
Speaker 5: which is this outlook where they talked about a notable
Speaker 5: acceleration in their growth rate, and I'm going to decode
Speaker 5: that that means that growth is going to go from
Speaker 5: nineteen percent in twenty twenty three to probably ten percent
Speaker 5: this year, and maybe step up to twenty percent next
Speaker 5: year and then really get going in twenty six and
Speaker 5: so kind of pushing back that what a lot of
Speaker 5: investors had hoped for was kind of a reacceleration. And
Speaker 5: the reason for this slow down is that they made
Speaker 5: a move that I did not expect them to make.
Speaker 5: They announced that they are going to be coming out
Speaker 5: with a lower price vehicle. They did not give the price,
Speaker 5: but it's probably thirty k in line with like a
Speaker 5: Honda Cord. They're going to move to that lower vehicle.
Speaker 5: And when you start talking about that, immediately people who
Speaker 5: are thinking about getting a Model three or a Model
Speaker 5: Y are going to say, let's just hold off and
Speaker 5: see what that compact car looks like. And so you
Speaker 5: get this pullback and demand in the near term, and
Speaker 5: that's what's really causing some anxiety here in the near
Speaker 5: term related to their guidance.
Speaker 2: So Cheane, when you look at the demand side, is
Speaker 2: price the biggest function? Do you think right now? And
Speaker 2: that's what must cast to kind of deal with, which
Speaker 2: is why this next generation vehicle will be low cost.
Speaker 5: Price is the biggest issue. I mean, there's still a
Speaker 5: lot of cars that are sold every year in the
Speaker 5: US called fifteen million cars. Tesla sells will sell about
Speaker 5: just over a million cars this year in the US,
Speaker 5: and so price is one of the biggest inhibitors. There's
Speaker 5: other reasons why people don't buy an EV, whether it's charging, rains,
Speaker 5: anxiety tend to be at the top of the list,
Speaker 5: but price is the biggest reason. Average EV is right
Speaker 5: around fifty five thousand. The average price of a car
Speaker 5: on the US is forty eight thousand, and if they
Speaker 5: want to get to the sweet spot of the growth market,
Speaker 5: they got to push more towards the Honda Cord, the
Speaker 5: Honda Civic than some of these maybe Volvo XC ninety.
Speaker 1: So lower prices pretty much across the board, that hurts
Speaker 1: your margins generally. And if you're talking about I think
Speaker 1: Musk once talked about a twenty five thousand dollars Tesla model.
Speaker 1: You mentioned thirty thousand ers, so that probably means lower
Speaker 1: margins as well. Does that have a big impact on Well,
Speaker 1: let's let's ask you, Gene, what has been happening with margins.
Speaker 5: So margins surprisingly took a step up in the December quarter.
Speaker 5: They finished at seventeen point two percent. That was up
Speaker 5: from sixteen point two in the previous quarter. That's the
Speaker 5: first time in a year that they've shown some improvement.
Speaker 5: But the commentary on the call from their CFO was
Speaker 5: that their current their current production lines don't really support
Speaker 5: much margin expansion here and so they've got to get
Speaker 5: this next line up and go in this next gen
Speaker 5: line and Elon talked a lot about how efficient that
Speaker 5: line is, and so this what it means is that
Speaker 5: margins are probably going to be going down in twenty
Speaker 5: twenty four, and that's that. Traditionally is the typical caretical
Speaker 5: metric on Tesla earnings is the margin, and it's probably
Speaker 5: won't be until late twenty five before they start to improve.
Speaker 5: I do believe that they will improve. I think that
Speaker 5: Tessa does have a long term cost advantage. But that's
Speaker 5: what's going on with margins, is that they showed a
Speaker 5: little bit of improvement, but the commentary is to expect
Speaker 5: them to decline in the next year.
Speaker 2: One of the most interesting things that I read about
Speaker 2: what happened on the call was Musk addressing the size
Speaker 2: of his stake in the company, which as I understand
Speaker 2: it is about thirteen percent. He's obviously the biggest and
Speaker 2: most influential shareholder, but he said that he doesn't want
Speaker 2: to control the company, but he has so little influence
Speaker 2: that he risk being voted out. Is that even a
Speaker 2: possibility to imagine an activist investor coming in and pushing
Speaker 2: Musk out of the C suite.
Speaker 5: As long as it's mathematically possible, which it is right now.
Speaker 5: Elon doesn't want that risk on the table, and what
Speaker 5: he's asking for is something that's unprecedent, and he's going
Speaker 5: to get because investors know, whether you're part of the
Speaker 5: religious investors around this or part of the more level headed,
Speaker 5: know that Elon is critical to the success of the
Speaker 5: company and that he has been successful at generating wealth
Speaker 5: in the past, and they should give him that leverage
Speaker 5: to have an outsized impact on the decisions and the
Speaker 5: strategy of the company. And so I think that it's unprecedented.
Speaker 5: I think he's going to get it, and I think
Speaker 5: he probably should get it, just given what he's done
Speaker 5: for the company over the past decade.
Speaker 1: And we know that Tesla has been somewhat challenged in China,
Speaker 1: particularly with the rapid ascent of BYD. Did you hear
Speaker 1: much today about how the future looks for Tesla in China?
Speaker 5: They talked about the China market. There was a question
Speaker 5: that came up related to you, do they want to
Speaker 5: kind of double down in China, And the answer was
Speaker 5: not really. They want to build Giga Mexico, expand the
Speaker 5: production line in Austin, and do some more things in Europe.
Speaker 5: And so I think that Tesla sees China as an opportunity.
Speaker 5: It's obviously the largest EV market in the world, but
Speaker 5: I think they see their growth prospects in the US
Speaker 5: and potentially building some of these cheaper vehicles in Mexico
Speaker 5: and even exporting them to China.
Speaker 2: What's your take on the cyber truck. I think it
Speaker 2: debuted back in November. It's still in the process of
Speaker 2: rolling out. I think the pace has been described as measured.
Speaker 2: Are you impressed at all by this?
Speaker 5: It's I mean just from a peer specs of a vehicle,
Speaker 5: it's it is impressive. I made a reservation when I
Speaker 5: first saw the car back whenever that was twenty nineteen.
Speaker 5: I'm not going to at the current price. So there's
Speaker 5: I'm not going to buy the car. I mean, it's
Speaker 5: close to one hundred thousand dollars. I want a fifty
Speaker 5: thousand ARCR on one hundred thousand our car, And so
Speaker 5: I think that I'm impressed by the car, I'm not
Speaker 5: impressed by the price. And he said to expect around
Speaker 5: two hundred and fifty thousand units plus. I think that's
Speaker 5: probably in twenty twenty six. But when you kind of
Speaker 5: added up this, this is going to be a car
Speaker 5: that call it ten percent of their overall overall vehicle
Speaker 5: sales and is just still it's going to be more
Speaker 5: of a you know, that ten percent type of a car,
Speaker 5: not what model wire model three are at forty five
Speaker 5: percent of sales. It's not going to reach that kind
Speaker 5: of scale.
Speaker 1: Geene, you said you're pretty confident about the company's prospects
Speaker 1: longer term. But if we look at the stock price
Speaker 1: over the past two years, it's down pretty significantly from
Speaker 1: more than four hundred dollars down to right now about
Speaker 1: two hundred dollars. And if what we heard from Elon
Speaker 1: Musk is true and also from the CFO about lower
Speaker 1: margins going forward and worse performance in the coming year,
Speaker 1: the stock price, I mean, what's your target for the
Speaker 1: stock at the moment.
Speaker 5: So we don't do the kind of traditional sale side
Speaker 5: targets or investors. And in terms of where this plays out,
Speaker 5: is that I think that this year can be potentially
Speaker 5: be a difficult year. The first part of this year
Speaker 5: a difficult year for Tesla shares. I think tomorrow is
Speaker 5: going to be difficul But my question, I think the
Speaker 5: question about is this going to be more a higher
Speaker 5: value company in the future or a lower value comes
Speaker 5: down to a basic question is do you believe that
Speaker 5: electrification is going to impact automotive in the sense that
Speaker 5: in twenty years we're going to have more than sixty
Speaker 5: percent share of cars are electric. If you think we
Speaker 5: will be there in twenty years, we're at about four percent,
Speaker 5: five six percent.
Speaker 7: Now.
Speaker 5: If you think we're going to be above that sixty
Speaker 5: percent market mark in twenty years, then Tesla's doing all
Speaker 5: the right things to put traditional auto in a tight spot.
Speaker 5: And if you believe gas is just going to kind
Speaker 5: of hold on longer than most people think, then it's
Speaker 5: not going higher. And my sense is that cars are
Speaker 5: still stuck in a paradigm that's one hundred years old,
Speaker 5: and I think there's a massive opportunity for them to
Speaker 5: not only electrify them, but automate them on a lot
Speaker 5: of levels. I think that's important.
Speaker 1: All right, Gene, thanks very much for joining us here
Speaker 1: on Bloomberg Daybreak Asia. Gene Munster, Managing partner, Deepwater Asset Management.
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