WEBVTT - iPhone Sales Fall in China, Tesla Preview 0:00:02.920 --> 0:00:10.840 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.840 --> 0:00:14.960 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:15.040 --> 0:00:17.520 Eastern on Apple car Playing and broud Otto with the 0:00:17.520 --> 0:00:21.439 Bloomberg Business app. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:25.000 or watch us live on YouTube. 0:00:25.120 --> 0:00:29.400 Apple China iPhone sales dive nineteen percent in the worst 0:00:29.560 --> 0:00:33.200 quarter since twenty twenty. And this is a big issue 0:00:33.200 --> 0:00:36.519 because we know that China represents approximately twenty percent of 0:00:36.560 --> 0:00:40.240 the sales for Apple. It's obviously critical to their supply chain. 0:00:40.320 --> 0:00:42.360 So if there's one company that at least in my 0:00:42.479 --> 0:00:46.640 mind that has quote unquote China risk associated with it, 0:00:46.320 --> 0:00:49.000 it's it's Apple. Man Deep Singh joins us here. He's 0:00:49.000 --> 0:00:51.640 a senior technolog channels for Bloomberg Intelligence. He joins us 0:00:51.640 --> 0:00:55.640 here in our New York City studio. So mandeb Apple 0:00:56.040 --> 0:00:59.520 China iPhone sales dive nineteen percent in the first quarter, 0:00:59.600 --> 0:01:02.600 the worst twenty what's your takeaway there? 0:01:02.960 --> 0:01:06.120 I mean, it's not new news, so we knew this 0:01:06.360 --> 0:01:09.800 was coming. There was some counterpoint data I think last 0:01:09.840 --> 0:01:14.520 month that their March sales were pretty bad, so expected, 0:01:14.640 --> 0:01:18.000 but it kind of solid Desfies the point that you know, 0:01:18.240 --> 0:01:22.480 the China weakness is playing out much worse than what 0:01:22.680 --> 0:01:27.959 people expected, and the China revenue probably is gonna be 0:01:28.200 --> 0:01:32.280 like this for the foreseeable future unless something changes at 0:01:32.360 --> 0:01:36.280 the geopolitical level, or Apple launches a new device that 0:01:36.480 --> 0:01:39.800 everyone wants, that latest iPhone that everyone would want. But 0:01:39.880 --> 0:01:43.520 for now, Huawei and the domestic competitors seemed to be 0:01:43.640 --> 0:01:46.720 catching up in terms of features, and that's enough to 0:01:46.760 --> 0:01:48.400 take the share in the domestic market. 0:01:48.560 --> 0:01:53.240 So this is a story then of consumer shifting to competitors, 0:01:53.520 --> 0:01:56.680 or is it just that demand for phones is down 0:01:56.720 --> 0:01:59.960 because there's some macro weakness in the Chinese consumer. 0:02:00.000 --> 0:02:02.480 Think There is a policy element to it as well, 0:02:02.560 --> 0:02:06.720 so obviously a lot is kind of driven by what 0:02:07.040 --> 0:02:10.040 is done at the government level. First they banned the 0:02:10.160 --> 0:02:13.640 use of iPhones, and now they're making sure that the 0:02:13.720 --> 0:02:17.400 domestic vendors have a good chance of taking share. And 0:02:17.520 --> 0:02:21.120 because the phone is comparable in features, then I guess 0:02:21.160 --> 0:02:24.360 the Apple lock in that everyone thought was so strong 0:02:24.400 --> 0:02:27.440 that you just can't get out of your iOS isn't 0:02:27.520 --> 0:02:31.639 really helping or like in this case, and they are 0:02:31.720 --> 0:02:35.559 able to kind of move out of the iOS ecosystem 0:02:35.600 --> 0:02:37.120 and you start using this new phone. 0:02:37.520 --> 0:02:42.280 What's Apple say about their position in China? What they 0:02:42.400 --> 0:02:44.560 may need to do to regain momentum. Do they have 0:02:44.639 --> 0:02:46.920 any strategy they've articulated. 0:02:47.080 --> 0:02:49.239 I mean, look, they are having an event on May 0:02:49.320 --> 0:02:52.959 seventh where they're launching a new iPad lineup. There will 0:02:53.000 --> 0:02:56.520 be something very similar for the iPhone. They will launch 0:02:56.520 --> 0:02:59.919 a new device with AI capabilities. So their play is, 0:03:00.480 --> 0:03:03.880 we will launch a new phone, a new tablet with 0:03:04.080 --> 0:03:08.400 AI capabilities that everyone is looking for, and hopefully that 0:03:08.480 --> 0:03:09.800 drives the refreshed cycle. 0:03:10.480 --> 0:03:13.920 And how does the slumping demand in China compare to 0:03:14.680 --> 0:03:17.800 the US demand? Because I have to admit a lot 0:03:17.800 --> 0:03:20.880 of people feel very pure pressure to stay with an 0:03:20.919 --> 0:03:24.080 iPhone versus a different device, simply because if you're in 0:03:24.120 --> 0:03:27.160 a group chat and you have blue text messages like 0:03:27.440 --> 0:03:30.280 it seems like that's actually a really strong feature that 0:03:30.320 --> 0:03:33.320 can ramp up demand, at least in the US. So 0:03:33.560 --> 0:03:34.920 how does that compare it and how are you so? 0:03:35.560 --> 0:03:39.120 I will say, I think Apple is still gaining share 0:03:39.280 --> 0:03:44.520 in other markets US, India, other pockets as well outside 0:03:44.560 --> 0:03:47.880 of China, but that China revenue is almost twenty percent 0:03:47.920 --> 0:03:50.560 of their sales. And if it's going to be zero 0:03:50.760 --> 0:03:52.960 a couple of years from now. Then you have to 0:03:53.000 --> 0:03:57.000 ask yourself what makes for that revenue shortfall and for 0:03:57.040 --> 0:03:59.360 a variety of reasons, as we talked about, you know, 0:03:59.480 --> 0:04:03.200 related to China, But even if they are doing well 0:04:03.240 --> 0:04:06.480 in other regions, it's just pressure in terms of unit 0:04:06.520 --> 0:04:09.320 sales and what do you do. Do you keep raising 0:04:09.320 --> 0:04:11.280 the prices of the phone, which they may have to 0:04:11.360 --> 0:04:14.080 because they have to relocate the supply chains out of China. 0:04:14.440 --> 0:04:17.360 That's the other aspect of the cost pressures when it 0:04:17.360 --> 0:04:21.000 comes to making this phone. They will have a lot 0:04:21.040 --> 0:04:24.160 of that because they have to relocate those supply chains 0:04:24.200 --> 0:04:25.040 and it's not easy. 0:04:25.520 --> 0:04:30.320 I'm surprised they haven't take any more aggressive approach in India, 0:04:31.200 --> 0:04:35.240 like maybe a lower cost model to appeal to that marketplace. 0:04:35.480 --> 0:04:36.760 What's their India strategy? 0:04:37.240 --> 0:04:39.920 I mean, so far, I think they are catering to 0:04:39.960 --> 0:04:43.240 that premium segment and they have had success, you know, 0:04:43.400 --> 0:04:47.000 in terms of that one percent or two percent penetration 0:04:47.160 --> 0:04:50.240 that they have had, you know, in terms of the region. 0:04:50.320 --> 0:04:53.760 But a low cost phone it's hard in India simply 0:04:53.800 --> 0:04:56.960 because how low can you go? And Apple has tried 0:04:57.000 --> 0:05:00.320 that with different skews in the past, they haven't had 0:05:00.320 --> 0:05:04.120 a ton of success with low CON's phones because again, 0:05:04.520 --> 0:05:08.280 the competitors are quite fierce when it comes to you know, 0:05:08.560 --> 0:05:11.400 the feature said and the quality of the phones that 0:05:11.440 --> 0:05:14.960 they offer, and so it will be an interesting strategy 0:05:15.000 --> 0:05:18.159 if they decide to pursue that. But for now, I 0:05:18.200 --> 0:05:20.919 don't think anything can make up for that China revenue 0:05:20.920 --> 0:05:23.479 shortfall because it's declining at a very rapid pace. 0:05:23.800 --> 0:05:27.440 So their earnings aren't until May second. They have that 0:05:27.560 --> 0:05:29.720 launch event on May seventh, but we do have some 0:05:29.760 --> 0:05:32.320 other big tech earnings coming this week. Can you talk 0:05:32.320 --> 0:05:32.640 about that? 0:05:32.880 --> 0:05:36.839 Yeah, I mean, look, Meta, I think it's a company 0:05:36.880 --> 0:05:40.000 that has had a great turnaround story, and we know 0:05:40.200 --> 0:05:43.680 turnarounds are tough intech, but Meta has shown that, you know, 0:05:43.720 --> 0:05:47.320 it's a remarkable story when it comes to laying off 0:05:47.360 --> 0:05:50.320 twenty five percent people and then growing revenue twenty five 0:05:50.360 --> 0:05:53.560 percent in subsequent quarters. I mean, it just speaks for 0:05:54.200 --> 0:05:56.760 how well they have executed and now they are at 0:05:56.760 --> 0:05:58.799 the top of the game and it comes to having 0:05:58.839 --> 0:06:02.240 their own large a model, So that could make a 0:06:02.240 --> 0:06:04.839 difference in terms of, you know, the new revenue stream 0:06:04.880 --> 0:06:07.560 that everyone wants to see with meta and probably the 0:06:07.600 --> 0:06:11.760 metaverse may become a side show. I think another company 0:06:12.120 --> 0:06:16.120 that I feel is not very well understood and probably 0:06:16.160 --> 0:06:19.159 everyone thinks they're going to get disrupted is Google Alphabet, 0:06:19.560 --> 0:06:21.919 and that's where it would be interesting to see what 0:06:22.000 --> 0:06:25.080 they do around search because all the survey work that 0:06:25.120 --> 0:06:28.480 we have done, it shows that, you know, the new 0:06:28.520 --> 0:06:33.240 companies chat GPT, Perplexity, they have taken some share when 0:06:33.279 --> 0:06:36.760 it comes to the search queries. Now. Still, the counter 0:06:36.960 --> 0:06:40.239 argument is everyone still needs to go to Google Maps 0:06:40.640 --> 0:06:44.560 or Google Search to look at what chat GPT is 0:06:44.600 --> 0:06:48.320 generating because they're not sourcing the links. So in the end, 0:06:48.640 --> 0:06:52.839 Google is still getting the traffic, but obviously the search 0:06:52.920 --> 0:06:55.599 is starting somewhere else, and that's the key risk that 0:06:55.640 --> 0:06:56.560 they have to address. 0:06:56.760 --> 0:06:59.240 All right, so does does Google have an AI play 0:06:59.240 --> 0:06:59.920 per se? 0:07:00.040 --> 0:07:02.919 Yeah? So their Gemini large anglid model. I mean, we 0:07:03.000 --> 0:07:06.360 all know it wasn't a success initially, but now they 0:07:06.400 --> 0:07:09.040 have caught up in terms of features and look, Google 0:07:09.240 --> 0:07:12.800 doesn't want to integrate Gemini everywhere because that's going to 0:07:12.880 --> 0:07:15.840 hurt their ad revenue. So they're very careful with how 0:07:15.880 --> 0:07:18.240 they roll out and how they make those UI changes 0:07:18.280 --> 0:07:21.320 because it's going to be disruptive to their incumbent position. 0:07:21.520 --> 0:07:23.240 When it comes to digital. 0:07:22.840 --> 0:07:24.480 Ads market, do you use Gemini? 0:07:24.880 --> 0:07:28.080 I do, and I think for certain tasks like generating 0:07:28.160 --> 0:07:31.920 summaries and you know, video editing, that kind of stuff, 0:07:31.960 --> 0:07:35.520 image editing, it's great. But I don't use it for 0:07:35.560 --> 0:07:39.040 my search yet because when it comes to the traditional 0:07:39.040 --> 0:07:42.000 Google search, it's still the go to place. When I 0:07:42.040 --> 0:07:44.720 think about you know certain things to do, and that's 0:07:44.720 --> 0:07:45.640 the behavior I think. 0:07:45.960 --> 0:07:48.360 All right, you're a guy, Men Deep sing Senior techounts 0:07:48.400 --> 0:07:50.120 when you go. When you start using something, I'll start 0:07:50.200 --> 0:07:52.560 using it when men and when Anna Rock tells me 0:07:52.560 --> 0:07:54.560 to upgrade my phone, all upgrade my phone. That's how 0:07:54.600 --> 0:07:57.520 I roll Men Deep Seeing Senior Tech outs or Bloomberg Intelligence. 0:07:57.600 --> 0:08:01.280 Join us live here in our Bloomberg Interactive Brokers Studio 0:08:01.920 --> 0:08:05.760 iPhone China Apple. It's a big, big challenge for them, 0:08:05.760 --> 0:08:07.520 as many you've said, almost twenty percent of the revenue 0:08:07.520 --> 0:08:10.440 comes out of China. They need to figure that out. 0:08:12.000 --> 0:08:15.880 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:08:15.960 --> 0:08:19.480 weekdays at ten am Eastern on applecar Play and Android 0:08:19.520 --> 0:08:22.240 Auto with the Bloomberg Business app. You can also listen 0:08:22.400 --> 0:08:25.520 live on Amazon Alexa from our flagship New York station. 0:08:25.880 --> 0:08:28.640 Just say Alexa play Bloomberg eleven thirty. 0:08:30.000 --> 0:08:32.520 Emily Grafao, Paul Swen, you're live here in the Bloomberg 0:08:32.520 --> 0:08:36.400 INTERACTI Broker Studio or streaming live on YouTube as well. 0:08:36.720 --> 0:08:40.200 Emily Grafao a proud graduate of the University of Richmond. 0:08:40.400 --> 0:08:43.559 I'm sorry University of Virginia. Sorry slip slip. As is 0:08:43.600 --> 0:08:46.520 our next guest, Garrett Nelson, Vice president and Senior equity 0:08:46.520 --> 0:08:50.080 analyst at cfr A Research. Garrett, my notes here, say 0:08:50.600 --> 0:08:55.600 you're in Richmond, Virginia. How'd you work that scam? 0:08:55.640 --> 0:09:00.640 That's right, only only an hour from Charlottesville. So as 0:09:00.679 --> 0:09:05.280 a as a proud who, very happy living so close 0:09:05.400 --> 0:09:06.760 to the album. 0:09:06.760 --> 0:09:09.880 Marler, all right, very good. I'm surrounded by UVA folks. Hey, 0:09:09.920 --> 0:09:13.760 Garrett Elon Musk, let's talk Tesla. You're the auto dude 0:09:13.800 --> 0:09:17.400 at CFRA. What does he have to do on the 0:09:17.400 --> 0:09:20.000 conference call today? It seems like he's got to pull 0:09:20.040 --> 0:09:21.680 a rabbit out of some kind of hat here to 0:09:22.000 --> 0:09:24.559 reverse the bad mojo around the stock. 0:09:25.920 --> 0:09:26.280 Yeah. 0:09:26.360 --> 0:09:30.200 Look, there's no question the stakes are extremely high heading 0:09:30.200 --> 0:09:33.360 into this earnings release. The stock is down more than 0:09:33.400 --> 0:09:36.200 forty year to date, coming off a year in which 0:09:36.240 --> 0:09:42.600 shares more than doubled. Tesla's earnings execution also hasn't been great. 0:09:42.720 --> 0:09:45.800 They've missed on the bottom line each of the last 0:09:45.800 --> 0:09:50.400 two quarters, you know, but we think the challenges they 0:09:50.440 --> 0:09:54.520 face at this point are well understood by investors. They're 0:09:54.559 --> 0:09:58.080 having issues with the ramp up of production of the 0:09:58.120 --> 0:10:03.680 cyber truck. The TV market overall is oversaturated and growth 0:10:03.720 --> 0:10:09.000 rates have slowed tremendously. And you know, there's some uncertainty 0:10:09.080 --> 0:10:12.640 regarding the future product pipeline when they might bring to 0:10:12.679 --> 0:10:17.280 market the mass market ev or ROBOTAXI. You know, that's 0:10:17.320 --> 0:10:20.200 not really clear right now. So certainly a lot to 0:10:20.240 --> 0:10:24.080 look for. There's always a lot on the line. Tesla 0:10:24.120 --> 0:10:27.120 is one of the most anticipated earnings releases every quarter, 0:10:27.200 --> 0:10:29.400 but even more so this quarter. 0:10:30.960 --> 0:10:34.240 Yeah. Can you talk a little bit about Tesla's efforts 0:10:34.360 --> 0:10:38.280 to cut prices on their vehicles and how that is 0:10:38.320 --> 0:10:40.240 going to play into the earnings. I see a lot 0:10:40.240 --> 0:10:44.000 of headlines about cutting costs. They recently slashed prices I 0:10:44.040 --> 0:10:47.320 think two weeks ago on most of their models. Is 0:10:47.320 --> 0:10:50.199 that something that investors should be watching for? Even more 0:10:51.120 --> 0:10:52.000 today in the earnings. 0:10:53.400 --> 0:10:53.600 Yeah. 0:10:53.640 --> 0:10:57.160 So Tesla's been cutting prices steadily for over a year now. 0:10:57.240 --> 0:11:01.360 Remember just after the New year twenty twenty three, they 0:11:01.440 --> 0:11:04.320 announced a price cut, a series of price cuts, and 0:11:04.640 --> 0:11:08.720 there have been, you know, several price cut announcements since then. 0:11:08.840 --> 0:11:13.080 So it's going to impact both the top line and 0:11:13.200 --> 0:11:14.960 the bottom line. You're really going to see it in 0:11:15.000 --> 0:11:19.840 the gross margins that they report. So but you know, 0:11:20.080 --> 0:11:23.640 also Tesla's at a point where they opened two new 0:11:23.679 --> 0:11:26.280 factories just a couple of years ago, in Austin and 0:11:26.280 --> 0:11:29.480 in Berlin, and they're still in the process of ramping 0:11:29.520 --> 0:11:34.079 those plants up to full capacity. So you know, if 0:11:34.120 --> 0:11:39.160 they can do that cut prices and drive sales higher, 0:11:39.720 --> 0:11:42.880 they can drive down their unit costs by doing so. 0:11:43.000 --> 0:11:45.680 Auto manufacturing is a very high fixed cost business, so 0:11:45.760 --> 0:11:48.720 ultimately they want to run those plants at the highest 0:11:48.760 --> 0:11:53.200 possible capacity utilization rate without surrendering too much margin. 0:11:54.080 --> 0:11:58.800 So I guess to me, thank you blue Button, to me, Garrett, 0:11:59.480 --> 0:12:01.680 I think the most fundamental issue here, and I'm not 0:12:01.679 --> 0:12:04.440 sure Elon Musk can really address it, is what is 0:12:04.480 --> 0:12:10.599 the overall fundamental long term demand for EV's. You know, 0:12:10.679 --> 0:12:12.600 there's a lot of folks out there that are saying 0:12:12.640 --> 0:12:15.320 it's it's it's not great, it's not what maybe the 0:12:15.360 --> 0:12:17.400 industry once thought. What's your view on that. 0:12:19.000 --> 0:12:21.760 Yeah, I think that's a big reason behind the sell 0:12:21.800 --> 0:12:25.319 off in Tesla and other EV manufacturers. I mean, look 0:12:25.320 --> 0:12:29.320 at the stock price of Ribby and Lucid Fisker. Is 0:12:29.320 --> 0:12:33.720 that the growth rates have disappointed, you know, compared to 0:12:33.760 --> 0:12:37.160 what investors thought growth would look like just two or 0:12:37.160 --> 0:12:40.720 three years ago. So you know, it's been a disappointment. 0:12:41.000 --> 0:12:43.280 And one thing you can point to is that governments 0:12:43.320 --> 0:12:47.000 around the world are putting EV mandates in place, and so, 0:12:48.440 --> 0:12:50.640 you know, we think that's a big positive for Tesla. 0:12:50.679 --> 0:12:54.200 Obviously as an EV peer play. You're also seeing a 0:12:54.320 --> 0:12:58.640 number of traditional auto manufacturers really pull back on their 0:12:58.679 --> 0:13:01.720 planned EV investment. So over the longer term, there should 0:13:01.720 --> 0:13:04.840 be a lot less competition in the EV market for Tesla, 0:13:05.679 --> 0:13:08.199 which really opens up the market opportunity. 0:13:08.760 --> 0:13:14.280 What else makes Tesla different than other pure play EV manufacturers. 0:13:14.320 --> 0:13:17.760 If you read the Walter Isaacson biography of Elon Musk's, 0:13:17.840 --> 0:13:21.080 you kind of get a sense that Musk never wanted 0:13:21.120 --> 0:13:24.640 Tesla to just be an EV company, but thinks of 0:13:24.640 --> 0:13:27.760 it more as an AI company, a battery company. How 0:13:27.840 --> 0:13:30.480 much does that matter to investors right now when the 0:13:30.520 --> 0:13:33.840 stock is down, you know, forty percent year to date. 0:13:34.880 --> 0:13:37.200 We argue it should matter. I mean, look, they have 0:13:37.240 --> 0:13:42.440 an energy business, energy storage that if you look last year, 0:13:42.440 --> 0:13:45.160 it's been growing faster than the auto business. They hardly 0:13:45.600 --> 0:13:49.280 get any credit for that business, and so you know, 0:13:49.320 --> 0:13:52.359 we think it should matter. But really, the big distinguishing 0:13:52.400 --> 0:13:57.440 factor when you look at Tesla relative to to other 0:13:57.520 --> 0:14:00.360 competitors is its balance sheet. You know, this, this isn't 0:14:00.360 --> 0:14:02.880 the Tesla of three or four years ago that was 0:14:02.920 --> 0:14:06.480 just barely getting by. Tesla had today has an investment 0:14:06.520 --> 0:14:09.559 grade balance sheet. They're sitting on over twenty nine billion 0:14:09.640 --> 0:14:12.360 dollars of cash, They have some of the highest gross 0:14:12.440 --> 0:14:16.200 margins in the industry, and we think they have an 0:14:16.240 --> 0:14:20.240 attractive development pipeline. So you know, that's really you've seen 0:14:20.280 --> 0:14:23.320 a bifurcation in the market where you know, some of 0:14:23.360 --> 0:14:26.560 the smaller, newer ed players like the ones I mentioned, 0:14:27.440 --> 0:14:30.960 you know, some of them have either declared bankruptcy or 0:14:31.120 --> 0:14:34.560 are flirting with bankruptcy. So you know, Tesla is really 0:14:35.080 --> 0:14:38.720 in a much different position than those companies, and in fact, 0:14:38.720 --> 0:14:42.000 a lot of traditional automnifact and manufacturers don't even have 0:14:42.120 --> 0:14:44.560 investment grade balance sheets, so you know, they're in a 0:14:44.640 --> 0:14:48.120 better position than those companies in our opinion. 0:14:48.600 --> 0:14:53.400 Garrett has, do you have the confidence that Tesla can 0:14:54.320 --> 0:14:58.200 profitably make an EV at a thirty thirty five thousand 0:14:58.200 --> 0:14:58.960 dollars price point? 0:15:00.760 --> 0:15:03.800 Going to be difficult. So you know, when Elon Musk 0:15:03.840 --> 0:15:08.200 first started talking about this mass market EV years ago, 0:15:08.360 --> 0:15:10.320 it you know, it was a twenty five thousand dollars 0:15:10.600 --> 0:15:15.320 EV and that just isn't you know, with inflation that 0:15:15.360 --> 0:15:19.600 we've experienced since then and the economy continues to experience, 0:15:20.840 --> 0:15:23.760 we think, you know, if this happens, it's it's more 0:15:23.920 --> 0:15:26.640 likely to have a price point somewhere north of thirty thousand, 0:15:26.720 --> 0:15:30.000 maybe thirty or thirty five thousand, And that's really a 0:15:30.040 --> 0:15:32.840 price point that they're that they're going to need to 0:15:33.560 --> 0:15:36.320 produce it profitably in this environment. 0:15:37.600 --> 0:15:40.440 I have two questions. One quick question we talked about 0:15:40.440 --> 0:15:43.840 the balance sheet. Does Tesla still have bitcoin on their 0:15:43.880 --> 0:15:46.640 balance sheet? Remember when that news came out like two 0:15:46.720 --> 0:15:47.200 years ago? 0:15:49.080 --> 0:15:52.000 They do, And you know, that was a drag on 0:15:52.400 --> 0:15:55.680 on Tesla for a while. When bitcoin was falling. With 0:15:55.800 --> 0:15:59.840 bitcoin having rebounded, you know, they've divested some of the bitcoin, 0:15:59.880 --> 0:16:03.360 but they do have some amount on the balance sheet. 0:16:03.360 --> 0:16:04.920 I would have to check the ten K for the 0:16:04.960 --> 0:16:08.400 exact amount, but they do. They do still have some bitcoin. 0:16:08.760 --> 0:16:11.240 The other question I had was just when the earnings 0:16:11.280 --> 0:16:14.920 come out, you know, what are you looking for? Best 0:16:14.920 --> 0:16:17.080 case scenario? You know, what kind of headline would you 0:16:17.120 --> 0:16:20.600 have to see to you know, start buying more Tesla 0:16:20.880 --> 0:16:22.200 after the earnings. 0:16:25.160 --> 0:16:28.200 Really the biggest thing is we're looking for some certainty 0:16:28.240 --> 0:16:31.480 regarding the cyber truck. From as far as we can tell, 0:16:31.680 --> 0:16:34.240 from the time they made first deliveries of that vehicle 0:16:34.240 --> 0:16:38.120 in November, you know, through the end of March, they've 0:16:38.120 --> 0:16:43.040 only produced maybe a few thousand units of the cyber truck. 0:16:44.080 --> 0:16:47.240 Now the reservation count for that model is somewhere north 0:16:47.280 --> 0:16:50.560 of two million, So you have two million customers out 0:16:50.600 --> 0:16:53.640 there who are waiting delivery of their cyber truck. They're 0:16:53.640 --> 0:16:58.240 having difficulty ramping up production. There was a recall just announced, 0:16:59.320 --> 0:17:04.160 and so you know, we're looking for some certainty regarding 0:17:05.240 --> 0:17:09.000 when they might hit certain production milestones for the cyber truck, 0:17:09.680 --> 0:17:12.160 which is going to have an impact on their full 0:17:12.240 --> 0:17:16.920 year deliveries obviously, and then looking ahead into twenty twenty five. 0:17:17.040 --> 0:17:19.800 But you know, if you look across the street, Earning's 0:17:19.840 --> 0:17:23.679 estimates have come down massively for twenty twenty four, and 0:17:23.720 --> 0:17:25.720 so we think they're at a level which are much 0:17:25.720 --> 0:17:29.959 more achievable here, and so the really the story becomes 0:17:30.000 --> 0:17:34.119 more of a twenty twenty five and beyond story, which 0:17:34.160 --> 0:17:36.600 is what investors are looking for, you know, taking the 0:17:36.640 --> 0:17:40.200 longer view, but also they want to see better execution 0:17:40.359 --> 0:17:41.120 in the near term. 0:17:41.480 --> 0:17:43.199 All right, Garet, thanks so much for joining us. Really 0:17:43.280 --> 0:17:47.200 appreciate it. Garrett Nelson, Vice president's Senior Equity analytcfr A Research, 0:17:47.720 --> 0:17:52.080 A proud Wahoo from the University of Virginia, somehow working 0:17:52.119 --> 0:17:55.240 his scam from Richmond, Virginia, one of my favorite towns 0:17:55.320 --> 0:17:58.160 anywhere my twins are born. There a great city, great 0:17:58.160 --> 0:18:01.680 place to live. Garrett's got it figured out there doing 0:18:01.720 --> 0:18:04.400 the Wall Street thing from Richmond, Regina. Good for him, 0:18:04.960 --> 0:18:07.120 Tesla after the close, that's going to be big. 0:18:09.520 --> 0:18:13.400 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:18:13.480 --> 0:18:16.560 weekdays at ten am Eastern on Apple Car, playing Android 0:18:16.600 --> 0:18:19.680 otto with the Bloomberg Business app listen on demand wherever 0:18:19.760 --> 0:18:23.600 you get your podcasts, or watch us live on YouTube. 0:18:24.200 --> 0:18:26.600 One of the big names reporting today is UPS, big 0:18:26.640 --> 0:18:31.480 brown profit higher than analysts estimates, talking about headcount management, 0:18:31.520 --> 0:18:34.480 restructuring of its delivery rats are beginning to bear some fruit. 0:18:34.520 --> 0:18:37.280 Let's check in with the expert on all things transport 0:18:37.359 --> 0:18:39.879 and that would be one lead classical. He's a senior 0:18:39.920 --> 0:18:44.840 transportation's logistics analyst at Bloomberg Intelligence. He's safely a sconce 0:18:44.920 --> 0:18:47.520 down in our Princeton office and he joins us there 0:18:47.600 --> 0:18:51.760 via zoom. So, Lee, it looks like this UPS put 0:18:51.840 --> 0:18:54.360 us some good numbers. What are really the drivers here? 0:18:55.600 --> 0:18:57.080 Yeah, hey Paul, thanks for having me on. 0:18:57.480 --> 0:18:57.680 Yeah. 0:18:57.720 --> 0:19:00.080 I think it's really about what they're doing on the 0:19:00.119 --> 0:19:04.119 cost side. I think that's really the driver of the 0:19:04.119 --> 0:19:08.400 outperformance in EPs, because revenue did come in slightly lower 0:19:08.720 --> 0:19:12.560 than expectations on lower volumes. You know, they're dealing with 0:19:12.640 --> 0:19:18.199 lower volumes from last share last year when they you know, 0:19:18.240 --> 0:19:21.360 were negotiating their labor contract and a lot of shippers 0:19:21.440 --> 0:19:24.000 kind of try to find other alternatives in case there 0:19:24.040 --> 0:19:27.280 was an issue with their network, you know, from a strike. 0:19:27.359 --> 0:19:30.399 But obviously that didn't happen now they're being pretty busy 0:19:30.440 --> 0:19:33.720 trying to win back that share, so, you know, I 0:19:33.720 --> 0:19:37.240 think what they're all in all, it was a good quarter. 0:19:37.600 --> 0:19:41.280 I think if UPS is you know, meeting or beating expectations, 0:19:41.560 --> 0:19:43.840 that's a good thing. Because they've had a rough year, 0:19:44.680 --> 0:19:48.480 driven a lot by that labor negotiation, which increased costs 0:19:48.520 --> 0:19:52.640 considerably and resulted in a lost amount of volume, which 0:19:52.880 --> 0:19:55.919 you know, for a company like UPS, the deleveraging effect 0:19:56.040 --> 0:19:59.439 on margins is quite substantial. But there are definitely some 0:19:59.480 --> 0:20:02.879 good news in the report today that you know, we 0:20:02.920 --> 0:20:08.040 remain optimistic that they might be even looking to possibly increase, 0:20:08.200 --> 0:20:10.880 you know, their full year guidance for twenty twenty four, 0:20:11.359 --> 0:20:14.800 especially as the US postal service contract which they recently 0:20:15.000 --> 0:20:17.679 won from FedEx starts hitting their. 0:20:17.680 --> 0:20:18.080 P and L. 0:20:19.320 --> 0:20:22.560 When you talk about average daily package volume down, your 0:20:22.600 --> 0:20:26.000 over year revenue down year over year, how much of 0:20:26.080 --> 0:20:30.480 the softer demand for UPS is related to macro economic 0:20:30.600 --> 0:20:34.879 factors and maybe coming out of the pandemic consumers shipping less. 0:20:35.160 --> 0:20:36.240 Is that a factor here? 0:20:37.520 --> 0:20:42.040 Yeah, I think it's a you know, probably a trieffective things. 0:20:42.080 --> 0:20:49.080 It's probably a softer great outlook all together that coupled 0:20:49.080 --> 0:20:52.959 with tougher comparisons, and the fact that they are you know, 0:20:53.119 --> 0:20:55.280 are still trying to win back the share that they 0:20:55.320 --> 0:21:00.160 lost from their labor contract negotiation. So I think think 0:21:00.200 --> 0:21:04.120 those three things are kind of weighing on their their volumes, 0:21:04.240 --> 0:21:08.160 probably more than maybe their competitors like a FedEx or 0:21:08.200 --> 0:21:10.280 a DHL Hayley. 0:21:10.359 --> 0:21:13.280 I know, labor is a big deal with UPS and 0:21:13.480 --> 0:21:15.760 these companies here. I know UPS they had a new 0:21:15.960 --> 0:21:21.640 labor contract that really pushed up wages and benefits starting 0:21:21.680 --> 0:21:24.040 I guess this year. But then on the other side, 0:21:24.160 --> 0:21:28.240 they also cut twelve hundred or twelve thousand white collar jobs. 0:21:28.240 --> 0:21:32.000 That's like fourteen percent of the workforce here. So talk 0:21:32.000 --> 0:21:34.000 to us about the labor and component they're in the 0:21:34.040 --> 0:21:34.640 cost structure. 0:21:36.000 --> 0:21:38.520 Yeah, I mean that they're they're doing the right things. 0:21:39.280 --> 0:21:44.280 You know, the contract might have a you know, with 0:21:44.440 --> 0:21:47.680 the team serves, might have had a negative impact to margins, 0:21:47.720 --> 0:21:49.760 but you know, we are going to anniversary those in 0:21:49.760 --> 0:21:52.840 the second half of the year, so those comparisons won't 0:21:52.880 --> 0:21:56.040 be as bad. And also, you know, does provide them 0:21:56.080 --> 0:22:00.720 with a steady labor force, because you know, if your 0:22:00.760 --> 0:22:02.560 labor is happy, you're gonna have less turnover. You have 0:22:02.640 --> 0:22:05.600 less turnover, you probably have better service and better safety, 0:22:05.680 --> 0:22:09.800 and that usually yields better profits. So I think, like 0:22:09.880 --> 0:22:12.800 when you if you look longer term, beyond the initial 0:22:12.840 --> 0:22:15.840 shock of that new contract, which is very front loaded, 0:22:16.520 --> 0:22:19.000 you know, the increases aren't as bad. As we get 0:22:19.080 --> 0:22:21.560 to year two, it's not going to be as bad. 0:22:21.800 --> 0:22:24.440 And listen, you know UPS and FedEx and a lot of 0:22:24.480 --> 0:22:26.760 these companies, you know they did get a little on 0:22:27.080 --> 0:22:30.040 the fat side, if you will, on their corporate ranks, 0:22:30.040 --> 0:22:31.960 and I think they're both doing the right things and 0:22:32.040 --> 0:22:34.600 terming in terms of trimming it for the new normal 0:22:35.000 --> 0:22:38.840 of what their operating environment is today. 0:22:39.359 --> 0:22:42.040 How should investors be thinking about UPS? The stock is 0:22:42.119 --> 0:22:45.560 up one point five percent right now, but it's down 0:22:45.600 --> 0:22:49.320 about six percent year to date, underperforming the broader market. 0:22:50.040 --> 0:22:51.800 Yeah, and if you even look even further over the 0:22:51.880 --> 0:22:54.840