Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller.
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Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: All right, let's check in with Gena Martin Adams because
Speaker 1: we just got through and we're getting through a week
Speaker 1: of a big, big time earnings here. Gina Martin Adams
Speaker 1: joins as she's the chief US chief strategist for calling
Speaker 1: all the markets equity markets for Bloomberg Intelligence. Gina again, another,
Speaker 1: a great first half of the year, a good July
Speaker 1: here for these markets. We're getting into earnings. As you
Speaker 1: step back a little bit, how do you think about
Speaker 1: these markets here?
Speaker 3: Yeah, I think the markets have largely followed along with
Speaker 3: earnings trends, believe it or not. Because when you exclude
Speaker 3: the energy sector from the S and P five hundred,
Speaker 3: it's important to keep in mind that energy is is
Speaker 3: an input cost for most of the rest of the sector.
Speaker 3: So we want to exclude the energy sector and what
Speaker 3: we find is earnings trends are actually improving pretty materially
Speaker 3: for the rest of the groups and the index, at
Speaker 3: least relative to where they were last year, and that
Speaker 3: improvement has been pretty continuous throughout twenty twenty three. At
Speaker 3: the very least, earnings are much less bad than anyone
Speaker 3: has anticipated for the groups that are outside of energy,
Speaker 3: and that seems to be powering a pretty significant market advance.
Speaker 4: And is that why to your point, powering this advance
Speaker 4: that we've seen, we're investors already looking ahead and seeing
Speaker 4: that improvement, especially when you were talking about Energy masking
Speaker 4: those improvements. I know that when you're looking at the
Speaker 4: earnings revision momentum data on your team. Michael Casper was
Speaker 4: talking to me about how, particularly when you're looking at
Speaker 4: discretionary in industrials, those were the two key groups that
Speaker 4: were leading those growth downturns at the beginning of last year.
Speaker 4: But now those are starting to be marked up highers,
Speaker 4: so more of those cyclically oriented corners of the market.
Speaker 4: Did investors already foresee that? And that's why we in
Speaker 4: part saw that big rebound at the beginning of this year.
Speaker 3: Yeah, I think what happened was by the end of
Speaker 3: last year, investors were largely pricing a pretty significant recession
Speaker 3: in earnings to continue throughout twenty twenty three. So remember
Speaker 3: X Energy, we did see earnings start to crash really
Speaker 3: throughout twenty twenty two. By the end of last year,
Speaker 3: really all hope for any kind of rebound was gone
Speaker 3: and investors were only anticipating that earnings would get worse.
Speaker 3: But what we've seen so far this year is the
Speaker 3: turn in inflation has been very, very consequential for turning
Speaker 3: around the sentiment towards select industries and most of the
Speaker 3: X energy industries in the S and S and P
Speaker 3: five hundred. Last year, remember when inflation was accelerating very rapidly,
Speaker 3: and producer prices in particular were accelerating extremely quickly relative
Speaker 3: to consumer prices. Most US companies were experiencing some degree
Speaker 3: of inflation distress. At the same time, it was very
Speaker 3: clear that tech and tech like industries were over hired,
Speaker 3: had too many employees relative to the haste of sales
Speaker 3: growth that they were experiencing, and needed to write size
Speaker 3: the ships. So we saw that occurred late last year.
Speaker 3: Early this year we started to see inflation pressures ease
Speaker 3: and the combination of those two things has resulted in
Speaker 3: much better performance across the space. Some of the segments that,
Speaker 3: as as you point out, are very sensitive to inflation,
Speaker 3: like some of the consumer discretionary's, consumer staples, industrials, communications,
Speaker 3: even healthcare companies, have experienced a great degree of inflation reprieve.
Speaker 3: The result of that is likely to show up in
Speaker 3: better earnings growth into later this year and into twenty
Speaker 3: twenty four, and I think that is starting to get
Speaker 3: embedded in prices. I would not say that this has
Speaker 3: been anticipated. I think that most investors are still quite
Speaker 3: skeptical with respect to the macro outlook. Most investors are
Speaker 3: looking at top line growth and very concerned about where
Speaker 3: the economy is headed. But what's happening beneath the top
Speaker 3: line is very very important and consequential their earnings trends.
Speaker 3: And I think that's been the lesson of twenty twenty three.
Speaker 1: Hey, Gina, I'm just looking at the SP five hundred
Speaker 1: and off of the October low. We're up almost twenty
Speaker 1: eight percent. Yeah, is that a bull market that I
Speaker 1: just haven't been talking about.
Speaker 3: Yeah, it's a great point. We actually did some work
Speaker 3: on this this week. That gain from the October low
Speaker 3: to date retraces seventy six more than seventy six percent
Speaker 3: of the peak to trap decline. When we look back
Speaker 3: in history and we look at all bear markets, that is,
Speaker 3: all times the S and P five hundred has dropped
Speaker 3: at least twenty percent, we look at those points in
Speaker 3: time in which the SMP started to recover, and a
Speaker 3: seventy six percent retracement of the peak to trough decline
Speaker 3: after every single bear market since history, in US history
Speaker 3: since nineteen twenty nine, suggests that that critical level never
Speaker 3: gets broken again.
Speaker 5: Right.
Speaker 3: What we actually find is over the next year, a
Speaker 3: role market continues. It is a critical marker for a
Speaker 3: continuation of the bull market. You just don't see a
Speaker 3: seventy six percent retracement and then a retest of new
Speaker 3: lows or retest of those foam or former lows within
Speaker 3: the next year. So, you know, our work would suggest
Speaker 3: very consistently the degree to which we've rebounded is a
Speaker 3: very bullish marker, at least historically. Now, you know, every
Speaker 3: time there's a chance that this time is different. The
Speaker 3: one thing that is different this time is the lack
Speaker 3: of recovery in small caps the other thing we've never
Speaker 3: seen in US history is small caps recover so little
Speaker 3: of their peak to trough decline while large caps are
Speaker 3: recovering so much. So we want to watch small caps
Speaker 3: really carefully because I do think that that is an
Speaker 3: area of risk in the market. If we can't get
Speaker 3: some participation from small caps, we can't get that positive
Speaker 3: signal out of small caps continuing to turn a bit higher,
Speaker 3: we could be in for a rocky road ahead.
Speaker 4: And Gina, you've written about recently about how this sort
Speaker 4: of gloom coming into this year about the economy is
Speaker 4: really a distraction when you're thinking about from the point
Speaker 4: of view from an equity perspective, in what it means
Speaker 4: when you're looking more towards what corporate America is signaling
Speaker 4: on the profit outlook. Why do you think this typically
Speaker 4: continues to happen when you look back at history and
Speaker 4: potentially even just be a losing strategy for investors if
Speaker 4: they're obsessing over what the timing could be on a
Speaker 4: recession when all of a sudden, especially like you were
Speaker 4: talking about energy excluded from s and P five hundred
Speaker 4: outlook really improving moving forward.
Speaker 3: Yeah, And this is I think is so key for
Speaker 3: investors to really understand, and we were reminded of this
Speaker 3: all year this year. The economy and the earning stream
Speaker 3: are not the same thing, and stocks trade on earnings
Speaker 3: and the outlook for earnings. Very clearly, we've seen earnings
Speaker 3: growth come in much better than anticipated, like I said,
Speaker 3: less bad than anticipated, but frankly, earnings have improved considerably
Speaker 3: relative to what was priced in the equity market late
Speaker 3: last year. And that is really important because the economists
Speaker 3: are still thinking, well, we are going to we may
Speaker 3: scaze by without falling into recession, but there's still a
Speaker 3: lot of chatter about the macro outlook. Many people are
Speaker 3: still really wringing their hands over what's going to happened
Speaker 3: in the economy, and that really kind of misses the point,
Speaker 3: because there just is there are commonalities, certainly, and if
Speaker 3: the economy does fall into recession, there will be pain
Speaker 3: points in the earning stream that emerge. But for now,
Speaker 3: what is important is that margins appear to have formed
Speaker 3: a bottom. They're starting to improve a little bit here.
Speaker 3: We seem to be stable enough in the economy to
Speaker 3: create some stability in the top line revenue for the index.
Speaker 3: We're always on guard for something to change. But those
Speaker 3: earnings are what really drives stock prices, and I think
Speaker 3: this is so important. You know, the even the percentage
Speaker 3: share of industries impact on the equity market is so
Speaker 3: very different than the percentage share of those industries' impact
Speaker 3: on the economy at large that trying to use the
Speaker 3: economy as a forecasting tool for the market proves to
Speaker 3: be a really dicey business.
Speaker 1: All right, Gina, it looks like we're back in the
Speaker 1: business focusing on earnings, maybe a little bit less so
Speaker 1: on the FED. And that's a good thing because maybe
Speaker 1: we get some earnings momentum here, Gina. Martin Adams, chief
Speaker 1: equity strategist for Bloomberg Intelligence, joining us, giving us a
Speaker 1: great overview of the market as we kind of pour
Speaker 1: through these earnings, you know, really kicking in this week
Speaker 1: in size, including today and then well through the next
Speaker 1: couple of weeks.
Speaker 6: So maybe a.
Speaker 1: Little bit better than expected outlook on earnings, just what
Speaker 1: to see how comes in?
Speaker 4: And you brought up the Dow Jones industrial average actually
Speaker 4: heading in today. It had been up for eight consecutive sessions.
Speaker 4: It was as long as winning streak in about four years,
Speaker 4: and so heading for potentially a ninth consecutive session for
Speaker 4: also looking at more of those sickle co oriented and
Speaker 4: pores in the market.
Speaker 1: Yeah, I'd like to see that, And Gina suggested that's
Speaker 1: a good thing to see a little bit of a
Speaker 1: broadening out from the tech.
Speaker 7: So that's good. You're listening to the team. Ken's a
Speaker 7: live program Bloomberg Markets weekdays at ten am Eastern on
Speaker 7: Bloomberg dot com, the iHeartRadio app and the Bloomberg Business App,
Speaker 7: or listen on demand wherever you get your podcasts.
Speaker 1: Let's talk about earnings here, and let's talk about healthcare earnings.
Speaker 1: We can do that with Ann Hines. She's from a
Speaker 1: Zoo America's she's a managing director and senior healthcare services
Speaker 1: equity analysts there. And thanks so much for joining us
Speaker 1: via the phone here healthcare services, give us a sense
Speaker 1: of about how this group has traded over the last
Speaker 1: couple of years. Just give us a sense how investors
Speaker 1: and how you position the healthcare services providers out there
Speaker 1: to investors.
Speaker 6: Sure, I would say this group has traded.
Speaker 5: It's a tale of two groups mainly managed here in hospitals,
Speaker 5: and it's really based on utilization remember during COVID baseline
Speaker 5: utilization that's what everyone refers to. Healthcare utilization before COVID
Speaker 5: was really below pre pandemic levels. And if you even
Speaker 5: go even further, if you do it by payer mix,
Speaker 5: whether it's commercial, whether it's Medicare advantage, whether it's Medicaid.
Speaker 5: Definitely Medicare advantage, and Medicaid beneficiaries were not seeking care,
Speaker 5: they didn't want to.
Speaker 6: Go to the hospital.
Speaker 5: Now we get to twenty twenty three and it's probably
Speaker 5: the first year since the pandemic that trends and normal
Speaker 5: people are going back to get to the doctors.
Speaker 6: They're going back.
Speaker 5: To get elective procedures, hip proscedures, things that they really
Speaker 5: postponed during the pandemic. That's really good for any provider,
Speaker 5: so HGA, big hospital companies, Tenant, Universal Surgery Partners. You know,
Speaker 5: I don't came a medtech but meta companies, any company
Speaker 5: that provides healthcare. It's been a little bit more difficult
Speaker 5: for managed care companies this earning season, especially managed care
Speaker 5: companies that have exposure to Medicare because it's the Medicare beneficiaries,
Speaker 5: they tend to use the system more and they were
Speaker 5: the ones that really didn't want to go into the
Speaker 5: system during the pandemic, So we're seeing increased utilization which
Speaker 5: is really heard in the stocks here to date, whereas
Speaker 5: you have the hospital providers that are really outperforming.
Speaker 4: And to your point, I mean looking at stocks like
Speaker 4: Humanity ticker symbol HUM that's down about thirteen percent year
Speaker 4: to date. Also looking over at what's happening with un AH,
Speaker 4: also down about five percent, but the other side of
Speaker 4: that HCA Healthcare that's up about twenty percent, and then
Speaker 4: Tenant Healthcare looking at that ticker symbol THC up almost
Speaker 4: sixty percent. How much longer do you think when we're
Speaker 4: looking at those types of stocks like Tenant and then
Speaker 4: also when it comes to HCA, how long and how
Speaker 4: much more room it could have for those stocks to
Speaker 4: keep moving higher.
Speaker 5: I would argue there is room to move higher for
Speaker 5: two reasons. One earnings, and I like to prefer the
Speaker 5: baseline earnings pre pandemic ex COVID. They are still hampered
Speaker 5: because of labor costs. So to put it in perspective,
Speaker 5: before the pandemic, HDA has been about nine hundred and
Speaker 5: ninety million on temporary labor and at the height of
Speaker 5: the pandemic, the company has been two point five billion.
Speaker 5: That's a twelve percent EBITA headwind, a headwind to EBITA,
Speaker 5: and if you annualize the last quarter, it's still a
Speaker 5: two billion, so it's very elevated.
Speaker 6: So there's there's a lot of drivers for upside.
Speaker 5: For a company like HGA and Tenant because temporary labor
Speaker 5: is coming down slowly, but it's coming down. And then
Speaker 5: you also have this pent up demand utilization that's coming
Speaker 5: back to the system. And if you look at Medicare,
Speaker 5: they were I would say you have probably a two
Speaker 5: year window of people catching up with procedures that they
Speaker 5: didn't do during the pandemic.
Speaker 1: So as you talk to your institution, investor, clients, and
Speaker 1: what are the topics that come up the most, what
Speaker 1: do you find yourself explaining or you know, kind of
Speaker 1: discussing with your clients.
Speaker 6: I'm utilization.
Speaker 5: So it's all about healthcare utilization, but also pricing what
Speaker 5: managed care companies price into their bids for twenty twenty
Speaker 5: four and did capture this utilization. I think all the
Speaker 5: companies expected utilization.
Speaker 6: To come back.
Speaker 5: I think they probably expected it to come back more
Speaker 5: over twenty twenty three twenty twenty four in twenty twenty five,
Speaker 5: and a reason for that is nursing is an issue.
Speaker 6: A lot of nurses left the field.
Speaker 5: It caused capacity constraints, and I think what we're seeing
Speaker 5: in twenty twenty three is more capacity opening that people
Speaker 5: probably expected. So I would think that's the main thing.
Speaker 5: And to your question, how long can the hospitals run?
Speaker 5: And I would argue companies that have earning upside, they
Speaker 5: usually go up and not down.
Speaker 1: So just so on the on the labor front, I
Speaker 1: mean at granted, I mean you just think back to
Speaker 1: the pandemic and the conditions under which all the healthcare
Speaker 1: providers had to operate. I mean they're just you know, saints,
Speaker 1: every one of them. But as you mentioned, a high
Speaker 1: toll on turnover in that space. So is this an
Speaker 1: industry that just chronically is short on nurses and maybe
Speaker 1: to lesser extent, doctors. Is that something that's kind of
Speaker 1: a chronic issue for the industry to a.
Speaker 5: Agree, But what happened during the pandemic is that you
Speaker 5: have what we have a permanent nurse, a permanent nurse
Speaker 5: that obvious works full time, and then you have nurse
Speaker 5: who like to travel they get paid a little bit
Speaker 5: a little bit more on an hour, but they tend
Speaker 5: to travel. And what happened during the pandemic there was
Speaker 5: such a high demand, you had this phenomena that permanent
Speaker 5: nurses went temporary to get the higher hourly rage. Like
Speaker 5: to primitent perspective, a nurse might make fifty dollars an hour,
Speaker 5: but at the height pandemic, they were making.
Speaker 6: Two hundred and fifty dollars an hour.
Speaker 5: I think what we're seeing is that some of these
Speaker 5: nurses that left their permanent position, they're coming back to
Speaker 5: full time positions in the workforce. But there's also a
Speaker 5: part that the average age of the nurses about fifty.
Speaker 5: Maybe that nurse is working less hours, less shifts.
Speaker 6: So it's a combination of both.
Speaker 4: And to Ball's point, because he was asking about some
Speaker 4: of the top questions you're getting, what about the top
Speaker 4: concerns among some of your clients as far as what
Speaker 4: this could mean as far as the outlook moving forward.
Speaker 5: I would say the top concerns, like get is on
Speaker 5: the managed care sector because they have a few headwinds
Speaker 5: coming up. There's some changes to Medicare reimbursement that would
Speaker 5: impact Medicare advantage plans, and the big thing is all
Speaker 5: also Medicaid we determinations because I'm sure you know the
Speaker 5: Medicaid rolls to well during the pandemic. Because of the
Speaker 5: public health emergency, states would not allow to redetermine anyone
Speaker 5: on Medicaid and that ended in April, and over the
Speaker 5: next twelve to fourteen months, states will be rolling.
Speaker 6: Beneficiary is off. And that just causes a.
Speaker 5: Lot of uncertainty with numbers because a lot of these
Speaker 5: companies didn't benefit benefit from the public health emergency.
Speaker 1: All right, and top picks, what are you talking to
Speaker 1: your clients about? What do you like right here going forward?
Speaker 5: So I would say a top pick on the managed
Speaker 5: care side are Signa and Elevance and singing that for
Speaker 5: two reasons. One, they don't have a lot of Medicare
Speaker 5: advantage exposure, so a lot of the changes to reimbursement's
Speaker 5: not going to impact them. And they also don't have
Speaker 5: a lot of Medicaid determined exposure. So the two biggest
Speaker 5: worries in the managecure sector they don't.
Speaker 6: Have a lot of exposure to.
Speaker 5: There is some risk with PBM legislation, but I would
Speaker 5: argue that's already based in valuation at about ten times
Speaker 5: twenty twenty four earnings.
Speaker 6: I also like.
Speaker 5: I still like HGA, just because despite the run, there
Speaker 5: is a lot of upside to earnings in my opinion
Speaker 5: for twenty twenty three and twenty twenty four.
Speaker 4: And when you're talking about legislation, are there anything in
Speaker 4: particular coming up on Capitol Hill that you think infesstors
Speaker 4: should keep their eyes on when it comes to potential
Speaker 4: maybe regulations that could affect some of these companies.
Speaker 5: Yes, so Congress wants to pass PPM legislation that has
Speaker 5: that will result in increased regulatory scrutiny on the PBM.
Speaker 5: So companies with the biggest exposure would be United Healthcare
Speaker 5: CBS and Signa that's pretty well known. But the question
Speaker 5: is that if there's going to be a legislative vehicle.
Speaker 5: I believe there will be a legislator vehicle in December.
Speaker 5: And I'm also a believer that this has been a
Speaker 5: headline of us for a long time, and I think
Speaker 5: any type of legislation that passes will have not going
Speaker 5: to walk to twenty twenty six, which will allow these
Speaker 5: PBMs to change language and their contracts. So when all
Speaker 5: of a sudden done. I actually don't think it will
Speaker 5: have a meaningful impact on EPs, and it should remove
Speaker 5: a headline risk and we should get more details on that,
Speaker 5: but not until December. But that's the major thing because
Speaker 5: typically in healthcare, when there's a balance of power in Washington,
Speaker 5: not a lot of healthcare legislation is passed.
Speaker 1: And just about thirty seconds here, drug distributors, you're neutral
Speaker 1: on that group? Why really?
Speaker 6: Valuation?
Speaker 5: They've had a great run for a long time and
Speaker 5: they're reaching their ten year highs. Earnings visibility is very good.
Speaker 5: But I do think it's a crowded sector. It's a
Speaker 5: sector that a lot of journalists went in over the
Speaker 5: past couple of years when there was a lot of
Speaker 5: uncertainty in the market. But they are great companies and
Speaker 5: it's more valuation anything.
Speaker 1: All right, And thanks so much for giving us some
Speaker 1: of your time. An Heinz's senior healthcare Services Equity. An
Speaker 1: she's a managinging director over at Mizuho.
Speaker 7: You're listening to the tape. Cat's are live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg Dot com and the Bloomberg Business App.
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Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 4: We want to switch things up for our next segment
Speaker 4: and do an energy outlook. And I'm excited because we
Speaker 4: do have in studio here Jonathan Maxwell, who's CEO at
Speaker 4: Sustainable Development Capital, who's joining us to discuss the outlook
Speaker 4: on oil and the renewable energy markets, particularly with the
Speaker 4: growth of tessel this year in the emergence of v evs.
Speaker 4: But before I actually get into that, I have to
Speaker 4: ask you about Ukraine. And we're seeing wheat prices soaring today.
Speaker 4: It's actually their three day gain is more than ten
Speaker 4: per after the US did warn that Russia has laid
Speaker 4: mines at Ukrainian grain ports. Now you've written a book
Speaker 4: recently tied to Ukraine. What's your take on this and
Speaker 4: how does this mean in what does it mean for
Speaker 4: the energy and commodity space.
Speaker 8: I think it has a huge story around resources and
Speaker 8: conflict over resources. Ukraine was really the conduit prior to
Speaker 8: the Russia Ukraine crisis for Russia's exports of oil and
Speaker 8: sorry of gas. Into Europe its pipe. It was piped
Speaker 8: through Ukraine. Europe needed to get forty percent of its
Speaker 8: gas from Russia. That's over. We saw energy prices skyrocket
Speaker 8: last year. We saw energy in Europe. We saw energy
Speaker 8: security become front page news in a way that it
Speaker 8: never had before. So the link between Ukraine and resources
Speaker 8: was the big headline last year was energy. Now, there
Speaker 8: was a deal struck which kept grain exports and other
Speaker 8: really critical resource exports going out of Ukraine. But Ukraine
Speaker 8: is one of the most important resource stories in the world.
Speaker 8: After America became energy independent in twenty nineteen, really this
Speaker 8: resource arena has shifted now into eastern Europe. You know,
Speaker 8: Russia and Ukraine are really the nexus for the balancing
Speaker 8: demand around or supply and demand around oil and gas
Speaker 8: on the one hand, another resources like grain on the other.
Speaker 8: So what we're seeing is a conflict which is partly
Speaker 8: driven by conflict over resources, but also it's having a
Speaker 8: dramatic impact on pricing.
Speaker 1: All right, So, as sustainable development capital, you guys look
Speaker 1: at kind of I guess this challenge about being sustainable,
Speaker 1: being eco friendly a little bit differently. Talk to us
Speaker 1: about the types of investments you make there. What do
Speaker 1: you like to what do you think you can add value?
Speaker 6: Right?
Speaker 8: Well, you know, one of the major responses that came
Speaker 8: up telling it back to Russia Ukraine. One of the
Speaker 8: major responses happened last year is given the fact that
Speaker 8: energy was being constrained in Europe, what should we do
Speaker 8: about it?
Speaker 4: So what?
Speaker 8: So there was a huge response build more energy, add
Speaker 8: more into the system, mostly renewable energy, until until it
Speaker 8: became clear how long that would take and how much
Speaker 8: money that would take, and the fact that that wasn't
Speaker 8: going to address energy security in the short term. In fact,
Speaker 8: there was an echo of the European Commissioner for Energy's
Speaker 8: response from the twenty fourteen invasion, which was really important
Speaker 8: in Europe last year. They said, for every every unit
Speaker 8: of gas that we don't use, is two point six
Speaker 8: units of gas we don't need to buy from Russia.
Speaker 8: So the implication was, actually, we're wasting so much energy,
Speaker 8: and about seventy percent of energy gets lost somewhere between
Speaker 8: getting extracted and used. But if you can stop, that's
Speaker 8: the number.
Speaker 7: I like.
Speaker 1: That's because I remember that from last time.
Speaker 7: One more time slowly for the Yeah.
Speaker 8: So in the United States, the Lawrence Livermore National Laboratory
Speaker 8: has charts each year produced everything year that show how
Speaker 8: much energy gets lost from the point of extraction to
Speaker 8: end use. About ten percent gets lost extracting and converting it.
Speaker 8: About fifty percent gets lost in heat because energy is
Speaker 8: generated typically in one place and used in a very
Speaker 8: different place, and you can't do anything with the heat.
Speaker 8: And then another ten percent gets lost in transmission and distribution.
Speaker 8: This is the basic fact of the way that we've
Speaker 8: done energies centralized energy systems, not just in the US,
Speaker 8: but in the UK, Europe, everywhere, and that is the
Speaker 8: part of the problem that needs to be solved.
Speaker 7: Here.
Speaker 8: We are trying to add more energy into the system,
Speaker 8: but the system's broken. It's unbelievably inefficient. And if we
Speaker 8: can generate energy close to or at the point that's
Speaker 8: needed and stop wasting so much at the point of use,
Speaker 8: ten twenty percent plus is typically wasted at the point
Speaker 8: of use, that's one of the most important largest sources
Speaker 8: of productivity economic gain, let alone carbon emission reductions available
Speaker 8: and worth.
Speaker 4: So then what is the key to reducing energy ways
Speaker 4: to meet climate goals?
Speaker 6: Ultimately?
Speaker 8: So I think the first point is generate energy were
Speaker 8: it close to or at the point of view. So
Speaker 8: let's look at the big problems.
Speaker 7: Right.
Speaker 8: Electricity is being greened, which is great, but it gets
Speaker 8: used mostly a residential context. If you look at industry,
Speaker 8: eighty five percent of industry is driven by fossil fuels,
Speaker 8: ninety eight percent of transports. So what can you do
Speaker 8: about that? You can generate the energy close to the
Speaker 8: point of use. So if you even if you're using
Speaker 8: natural gas, capture the heat and use it for heat
Speaker 8: processing an industry. If you can do that by recycling
Speaker 8: waste gases. On one of our funds, we earn a
Speaker 8: huge recycling project up in Indiana, Gary, Indiana where we
Speaker 8: recycle flue gases and use that to power the steel mills.
Speaker 8: So these sorts of a solar on site, solar on
Speaker 8: site storage, it's a massive part of the solution. The
Speaker 8: second part is actually just stopping wasting so much inside
Speaker 8: of buildings, motors, controls, lighting. You know, these are heating, ventilation,
Speaker 8: air conditioning, cool as the warm weather heats up the world.
Speaker 8: So these are the things that are going to make
Speaker 8: a tremendous difference and can be done quickly. It takes
Speaker 8: years to build a new renewable power system. We need
Speaker 8: to do as much of that as possible, but it
Speaker 8: takes months, maybe a couple of years to do any
Speaker 8: of the things that I'm discussing in terms of generating
Speaker 8: energy on site or indeed reducing demand.
Speaker 1: For So, what's a recent investment that your funds have
Speaker 1: made that you're very excited about.
Speaker 8: So I was in Upstate New York yesterday. We've owned
Speaker 8: one of the largest district energy systems in the United States,
Speaker 8: and that provides energy on site to one hundred and
Speaker 8: twenty customers in Rochester Business Park. We own an investment
Speaker 8: in a company here in Manhattan which is called Onyx Renewables,
Speaker 8: which does solar and storage nationwide, and that produces on
Speaker 8: site generation on people's rooftops, car ports, or in the ground,
Speaker 8: but were connected directly to buildings producing low carbon, low
Speaker 8: cost energy solutions. On the electric vehicle side, this is
Speaker 8: a huge opportunity electric vehicles around eighty percent efficient versus
Speaker 8: about thirty percent efficient.
Speaker 1: Efficient versus thirty percent efficient for internal combustion. Yeah, so
Speaker 1: do you how do you define that? Like, what's what's efficient?
Speaker 7: Right?
Speaker 8: So, if you track the energy, the primary energy coming
Speaker 8: out of a well what they call well to wheel,
Speaker 8: and you sort of you track the journey of the
Speaker 8: molecule to exactly what survives through the engine get lost
Speaker 8: through the generation, transmission, et cetera. It's roughly thirty percent.
Speaker 8: And an internal combustion engine what they call wind to wheel,
Speaker 8: that is taking the electricity out of a renewable power
Speaker 8: plant and the electricity broadly survives to get into the
Speaker 8: car and then that is then converted into power that
Speaker 8: actually goes along and moves this vehicle along. So it's
Speaker 8: it's very efficient. It's also frankly, yes, it will help
Speaker 8: reduce demand hopefully and displace fossil fuel use, but it
Speaker 8: also cuts pollution in town. So even even if you're
Speaker 8: not into the climate and you're ailing too and you
Speaker 8: don't like greenwashing or green hushing, then surely you don't
Speaker 8: want your kids to grow up in cities there were
Speaker 8: three or four times the level considered safe by the
Speaker 8: World Health Organization, like my hometown of London because of
Speaker 8: the cars to Texas and buses. So it's those sorts
Speaker 8: of things where you've got efficiency combined with better outcomes
Speaker 8: for people.
Speaker 1: We're having you back the next time you're in New York.
Speaker 1: I know you said you're back here a lot and
Speaker 1: back in New Orkrin get continue this conversation. Jonathan Maxwell's CEO,
Speaker 1: co founder Sustainable Development Capital.
Speaker 4: I like the Capital book out in the US and December.
Speaker 7: You're listening to the Team Can't Live program Bloomberg Markets
Speaker 7: weekdays at ten am Eastern on Bloomberg dot Com, the
Speaker 7: iHeartRadio app, and the Bloomberg Business App, or listen on
Speaker 7: demand wherever you get your podcasts.
Speaker 1: So let's head down to Washington, DC. Joe Matthew, radio
Speaker 1: and TV host Bloomberg's sound on in Bloomberg's Balance of
Speaker 1: Power joins us. Joe, You and Anne Marie Hordern interviewed
Speaker 1: Chris Christie on Bounce of Power last night. Here's a
Speaker 1: clip of your discussion.
Speaker 9: At our nation's secrets hanging out at Marvaco and at
Speaker 9: his Bedminster golf club. Think about the risk that that
Speaker 9: puts our men and women in uniform and our intelligence
Speaker 9: officers ad.
Speaker 1: That was a new Former New Jersey Governor Chris Christie's
Speaker 1: also at presidential hopeful for twenty four. Joe talked to
Speaker 1: us about kind of some of the highlights from your
Speaker 1: discussion with mister Christy.
Speaker 10: Well, we tried to take a different approach, as you
Speaker 10: might have noticed, because every time I see Chris Christy
Speaker 10: or hear Chris Christy in an interview, the entire thing
Speaker 10: is about Donald Trump, and of course you have to
Speaker 10: ask him about the front runner. But we tried to
Speaker 10: be a little bit different here for our audience on
Speaker 10: Luberg and actually talk about a couple of issues. I've
Speaker 10: never heard him be asked about the economy, about inflation,
Speaker 10: his thoughts on J. Powell, his thoughts on geopolitics, how
Speaker 10: he would handle China, his thoughts on Taiwan. A lot
Speaker 10: of things that we frankly learned for the first time
Speaker 10: in that conversation last evening, and we you've got to
Speaker 10: take a pretty deep dive with him on a number
Speaker 10: of issues here. So yeah, when it comes to Donald Trump, look,
Speaker 10: he's a former prosecutor and his view is that we
Speaker 10: have already seen what could be the most damaging case
Speaker 10: against him. That cut that you just played, he's talking
Speaker 10: about the classified documents case, and he sees that as
Speaker 10: the most damning legal action that the president former president
Speaker 10: is facing right now, even as we wait for yet
Speaker 10: another indictment likely to drop according to Donald Trump in
Speaker 10: the next few days.
Speaker 4: How do you think this shapes up for the race
Speaker 4: for the election, especially when you're looking at this latest
Speaker 4: poll from Warders where it has Trump up about forty
Speaker 4: seven percent of support him on Republicans, and then you
Speaker 4: look at Desanta's at abound nineteen percent, and kind of
Speaker 4: what you think this could mean as far as from
Speaker 4: a sentiment perspective.
Speaker 10: Well, you know, first of all, I would just caution
Speaker 10: everybody to throw a little bit of salt at you know,
Speaker 10: more than one grain at any national poll right now,
Speaker 10: because you know, if I bring you back to where
Speaker 10: we were in the race in twenty sixteen, right now,
Speaker 10: you'd be asking me when Jeb Bush was going to
Speaker 10: move into the White House. You'd be asking me when
Speaker 10: Scott Walker might be doing the same thing. Donald Trump,
Speaker 10: I believe was around four percent at that point. Now
Speaker 10: we cannot argue with this remarkable lead, this powerful lead
Speaker 10: that Donald Trump has at the moment. You're asking the
Speaker 10: right question about number two though, and we're watching Ron
Speaker 10: DeSantis attempt to relaunch reset his campaign. He actually laid
Speaker 10: off some workers, found himself spending too much money and
Speaker 10: hard to rationalize a polling data set that's been dropping
Speaker 10: essentially since he announced officially that he was coming into
Speaker 10: the campaign. So Ron DeSantis is dealing with an identity
Speaker 10: issue right now. He's trying to go out there and
Speaker 10: do more mainstream media talk to people other than those
Speaker 10: who agree with him, and it's really, frankly unclear. He's
Speaker 10: got a massive apparatus in a lot of money, but
Speaker 10: it's unclear that he can catch up to Donald Trump
Speaker 10: at this stage of the race. It's going to require
Speaker 10: an event, and I'll remind everybody's a big one next month,
Speaker 10: and that's the debate, the first Republican debate that'll be
Speaker 10: in Milwaukee that the RNC is running. And by the way,
Speaker 10: the aforementioned Chris Christy is among candidates who made the
Speaker 10: cut to go on that stage, but so far has
Speaker 10: not taken the pledge as the RNC is asking everyone
Speaker 10: to support the eventual nominee, because if you're Chris Christy,
Speaker 10: you can't say you're going to vote for Donald Trump
Speaker 10: if he does this again.
Speaker 7: Right?
Speaker 1: Interesting, All right, So, Joe, based upon your discussions with
Speaker 1: Amory and the governor last night, what do you think
Speaker 1: Governor Christy views as maybe his strategy going into the selection.
Speaker 1: A lot of folks are just suggesting he's nothing more
Speaker 1: than someone to just beat up on Donald Trump. But
Speaker 1: what did you live last night?
Speaker 10: I'm glad you asked that. It's the first question that
Speaker 10: I asked him. You know, everyone knows that you're here
Speaker 10: to be that you're the guy who's here to punch
Speaker 10: Donald Trump in the nose rhetorically, that's your brand. And
Speaker 10: many would argue, by the way, there would never have
Speaker 10: been at Donald Trump without Chris Christie. You remember he
Speaker 10: was to tell it like it is candy. Now he's
Speaker 10: facing somebody who actually became president on that idea. But
Speaker 10: there needs to be more than that. And when I
Speaker 10: asked him about what is it that you know beyond
Speaker 10: anti Trump? What is your brand? He said one word truth.
Speaker 10: I'm the only guy up there who will tell you
Speaker 10: the truth. Now, when you put that against some of
Speaker 10: the policy positions that we discussed, you might actually have
Speaker 10: a package there that a voter could consider. But when
Speaker 10: you're looking at him, between six and eight percent of
Speaker 10: the polls right now, he has yet to connect the
Speaker 10: dots with voters in that way.
Speaker 4: Have we heard from the Biden administration about Trump's legal
Speaker 4: woes right now.
Speaker 10: They're really careful to not talk about it. They don't
Speaker 10: want anyone to think that there's any contact between the
Speaker 10: President and Merrick Garland at the DOJ, never mind the
Speaker 10: Special Council. These degrees of separation are really important to
Speaker 10: the White House here because they're being accused of weaponizing
Speaker 10: the Department of Justice. Even the Speaker of the House
Speaker 10: said that the only reason it happened, he said, is
Speaker 10: because Donald Trump's poll numbers are higher, which is a
Speaker 10: little bit ridiculous because this investigation has been going on
Speaker 10: for a lot longer than Donald Trump had this lead
Speaker 10: in the polls. So for the White House, you know what,
Speaker 10: they treat it just like they do the FED. They differ.
Speaker 1: Joe, you're in Washington, DC, you're based in DC. You
Speaker 1: talk to everybody here. What is your sense at this
Speaker 1: early stage and what the Republican Party would like to see,
Speaker 1: How would they like to see things develop, Who would
Speaker 1: they like their nominee to be?
Speaker 7: Do you think.
Speaker 10: Impossible to answer because it's such a splintered party right now,
Speaker 10: and that's really a challenge. If you're running the RNC,
Speaker 10: you're trying to figure this out exactly, because thirty percent
Speaker 10: are just hard locked behind Donald Trump. Even if he
Speaker 10: does shoot somebody on Fifth Avenue, as he says, we're
Speaker 10: starting to believe him there that they will not budge.
Speaker 10: So now you're dealing with roughly seventy percent of the electorate,
Speaker 10: and the more candidates jump in this thing, they're splintering
Speaker 10: it along the way. I'm not sure anyone is resonating
Speaker 10: other than Donald Trump in a significant way that you
Speaker 10: could see them actually becoming the nominee. Yet, we have
Speaker 10: to get some debates under our belt. We need something
Speaker 10: to happen here. And I would also challenge the conventional
Speaker 10: wisdom on the idea of another indictment for Donald Trump.
Speaker 10: Well that may help him in the near term raise
Speaker 10: money and lift his polls, we could be looking at
Speaker 10: a very different dynamic with him walking into a re
Speaker 10: election cycle if we call it that for him, as
Speaker 10: a former president carrying four or five indictments, it would
Speaker 10: be historic and there's no historical measure to how that
Speaker 10: might impact the electorate.
Speaker 1: And just from the same question from the Democratic side,
Speaker 1: is a Democratic Party united behind President Biden making another
Speaker 1: run here?
Speaker 10: You know, as much as it's going to be, there's
Speaker 10: no clear alternative. And while some have asked, if you know,
Speaker 10: the president should drop out here and bring in a
Speaker 10: younger Democrat, no one exactly is raising their hands for
Speaker 10: that right now. So I think as long as he
Speaker 10: wants to do this, it's probably his. But if you
Speaker 10: look at the poll yesterday from Quinnipiac University, it found
Speaker 10: that nearly half I believe it was forty seven percent
Speaker 10: of voters from both parties would like to see somebody
Speaker 10: other than not only the names we're talking about, Paul,
Speaker 10: but they want to see a third party candidate, and
Speaker 10: that brings us to this whole idea of the No
Speaker 10: Labels Party. They held a big event in New Hampshire
Speaker 10: this week with Joe Manchin, and that's the one thing
Speaker 10: that upsets Democrats when you ask them about a third party,
Speaker 10: they say that is the most surefireway to reelect Donald Trump.
Speaker 10: That is what would keep Joe Biden out of the
Speaker 10: White House.
Speaker 1: All right, Joe, great, great analysis as always Joe Matthew.
Speaker 1: He is host of Bloomberg Sound On and Bloomberg's Balance
Speaker 1: of Power, Bounce of Power on Television, Sound On on Radio.
Speaker 1: So Joe Matthew is our multimedia Washington, DC source, and
Speaker 1: he and Annry Hordern last evening spoke with the presidential candidate,
Speaker 1: Chris Christi, former governor of my home state New Jersey.
Speaker 1: So lots to talk about there. It's going to be
Speaker 1: a fascinating run into the twenty twenty four election.
Speaker 6: It definitely is.
Speaker 4: And then him calling out how those classified documents case
Speaker 4: is the worst of the Trump charges at this point.
Speaker 1: Yeah, that's me to going to see how that plays.
Speaker 1: I will have obviously full coverage going forward.
Speaker 7: You're listening to the tape. Can's are live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Speaker 1: Jess meant Paul Sweeney here in the Bloomberg Interactive Brokers studio.
Speaker 1: We are streaming on YouTube. You can just go over
Speaker 1: to YouTube and just search Bloomberg Global News and that
Speaker 1: I'll bring you right to the feed. In this hour,
Speaker 1: we are joined in studio with Barry Riodholts. He's a
Speaker 1: host of Masters in Business, little podcast he does with
Speaker 1: the good folks at Bloomberg. Has also got a day
Speaker 1: job with Ridholt's wealth management. Barry, thanks so much for
Speaker 1: joining us here.
Speaker 11: My pleasure. Always a blast to be here.
Speaker 1: All right, let's kick it off real quick here because
Speaker 1: one of the names that Charlie was just mentioning, and
Speaker 1: that thing was Netflix. After the closed last night reported
Speaker 1: some numbers stock us off nine percent. The revenue guidance
Speaker 1: missed here, So that's kind of the big issue, and
Speaker 1: it just kind of calls into question the whole profitability
Speaker 1: of the streaming business. And we want to bring in
Speaker 1: somebody who really knows this business well, Mark Douglass. He's
Speaker 1: a president and CEO of Mountain. He joins us via
Speaker 1: zoom here. So, Mark, what did you take away from
Speaker 1: what we heard from the company last night and what
Speaker 1: we saw on their results.
Speaker 12: Migration of building mode in terms of password sharing. The
Speaker 12: way I think of the password sharing, it's like a
Speaker 12: revenue backlock for Netflix that they can tap into. I
Speaker 12: don't think they're likely pushing one hundred percent on ending
Speaker 12: password sharing. They have an incentive to do it slowly
Speaker 12: and then have like essentially it's backlock. The app business
Speaker 12: still has some effort to ramp up, but I think
Speaker 12: the fact that they missed revenue hit earnings is an
Speaker 12: indication that you're going to see increased earnings at Netflix
Speaker 12: because the new consume, the new consumers have paying that
Speaker 12: they're coming off the password sharing, They have no increased costs,
Speaker 12: they have very little increased costs with the app business,
Speaker 12: that all of that revenue is going to go straight
Speaker 12: to the bottom line.
Speaker 11: So let's put some flesh on the bones. What are
Speaker 11: Netflix estimates of how many households are sharing passwords and
Speaker 11: how many potential new subscribers does this layout What sort
Speaker 11: of revenue bump could we say?
Speaker 12: I don't offhand know the exact numbers. I know it's
Speaker 12: a very significant portion of the users that use Netflix,
Speaker 12: you know or doing password sharing. I remember a few
Speaker 12: years ago there was a meme when one of their
Speaker 12: shows went viral right before Christmas, and it was like,
Speaker 12: how did fifty million people watch that movie with only
Speaker 12: ten you know, Netflix passwords? So I think, you know,
Speaker 12: everyone is sharing and Netflix is going to essentially do
Speaker 12: a migration over time from password sharing to fully paid
Speaker 12: subscriptions and do it now with that supported likely being
Speaker 12: right in the mix, which generates even more revenue for
Speaker 12: them and thus more profit.
Speaker 11: I honest understand, I'm watching Drive to Survive in the den.
Speaker 11: My wife puts something on in the bedroom and I
Speaker 11: get kicked out on Netflix. Yet everybody else seems to
Speaker 11: be seems to be sharing this. So how long do
Speaker 11: you think it'll take for them to migrate a substantial
Speaker 11: number of these people onto the platform as paying customers.
Speaker 12: I think they could do it in three months, but
Speaker 12: I think if I were them, I'd take three years
Speaker 12: and just always have this additional revenue stream. It sounds
Speaker 12: like your household has been identified as one with no
Speaker 12: password sharing a lot top.
Speaker 7: Of the list.
Speaker 12: I would have made it exactly.
Speaker 4: If you look at this stock Tickerson Ball nf Lex,
Speaker 4: it's been up more than one hundred percent of the
Speaker 4: past twelve months. If to Paul's point, you look at
Speaker 4: it today down nine percent, this would be its worst
Speaker 4: percentage decline of this year, and the worse since April
Speaker 4: of twenty twenty two. How much of this is also
Speaker 4: it's had such a huge run, would you expect it
Speaker 4: to see it pull back like this on a day
Speaker 4: like today after it got it turned its results.
Speaker 12: Yeah, I mean absolutely, And I think last year was
Speaker 12: an overreaction and that you know, the part of the
Speaker 12: reason they had such a big run up is because
Speaker 12: they fell off. The stock fell off at clift nine
Speaker 12: percent is not falling off a clift. It's a decline.
Speaker 12: And I honestly, I think you're going to see people
Speaker 12: buying into the stock. I personally am going to buy
Speaker 12: into the stock. I think it's I just expect this
Speaker 12: to start a new era of increased earnings and Netflix
Speaker 12: because of the profitability of the password sharing subscribers and
Speaker 12: the advertise and the advertising business.
Speaker 7: So I think you're going.
Speaker 12: To see, you know, this be a temporary blip and
Speaker 12: then they start to you see the stock price start
Speaker 12: to increase.
Speaker 4: What about other streaming platforms and those types of stocks.
Speaker 4: We're not gonna have Disney's earnings results until August ninth,
Speaker 4: but obviously when you're thinking about some of its rivals,
Speaker 4: maybe Roku, what about those particular types of stocks and
Speaker 4: are those potentially ones that you're buying or maybe selling.
Speaker 12: I think Netflix is kind of kind of uniquely positioned.
Speaker 12: I think there's opportunity obviously at Disney Plus, but then
Speaker 12: you're also buying in the Disney parks and all these
Speaker 12: Disney films, and there's a lot of complexity and a
Speaker 12: lot of issues there. Netflix is best when they operate
Speaker 12: like a tech company and not a Hollywood studio. And
Speaker 12: so the password sharing, the advertise, these are things that
Speaker 12: they are really led out of Mountain View, you know,
Speaker 12: in the tech side of Netflix. And whenever they do that,
Speaker 12: they lead the industry and innovation and then start to
Speaker 12: lead the industry in terms of growth. And that's happening
Speaker 12: now and that's I think that one statement is what
Speaker 12: I think makes Netflix, you know, like above their peers.
Speaker 12: So they say, and why I like the company.
Speaker 1: Hey, Mark, you're one of the really thought leaders in
Speaker 1: the digital advertising space. Give us a sense of just
Speaker 1: how you think this streaming advertising business is going to
Speaker 1: play out.
Speaker 12: Yeah, I think it's been very challenging. There's lots of
Speaker 12: demand to advertise on Netflix, but they have to navigate
Speaker 12: do they have rights on all the shows? And then
Speaker 12: there are a lot of big agencies involved, the big
Speaker 12: holding companies like WPP and Nomniicom, and so you know,
Speaker 12: they're they're underway. The content is very attractive the consumers
Speaker 12: that you know, the ads almost become like a new
Speaker 12: show because you're still not used to sing an ad
Speaker 12: on Netflix. So I think it's going to take roughly
Speaker 12: eighteen months from when they started let in Q four
Speaker 12: to like really truly ramp that up as they navigate
Speaker 12: kind of those relationships. But they're off to a good starter,
Speaker 12: and I think they have a lot of headroom that
Speaker 12: actually creates headwinds for everyone else. If Netflix gains share
Speaker 12: and advertising, another network is going to lose share. The
Speaker 12: overall brand advertising industry is actually not growing, and so
Speaker 12: they're gonna not The industry as a whole is going
Speaker 12: to have to find new customers in order to make
Speaker 12: up for increased competition.
Speaker 1: All right, Mark, great some of your time. Really appreciate
Speaker 1: getting your perspective, your analysis. Mark Douglas, he's a president
Speaker 1: and CEO of Mountain. He joined us via Zoom. Always
Speaker 1: appreciate getting his thoughts.
Speaker 7: You're listening to the tape. Catch a live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: Tune It Up, Bloomberg dot Com, and the Bloomberg You
Speaker 7: can also listen live on Amazon Alexa from our flagship
Speaker 7: New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: Let's switch gears to the other big earning story of
Speaker 1: the day. Tesla stocks off six point six percent, a
Speaker 1: little bit of some margin challenges there for Elon Musk.
Speaker 1: Let's put it in perspective here, folks. The stock is
Speaker 1: up one hundred and twenty percent year to date, so
Speaker 1: giving back six percent is nothing. Let's bring in Kevin Tynan.
Speaker 1: He covers all the auto industry for Bloomberg Intelligence, joining
Speaker 1: us via Zoom from the Princeton HQ for Bloomberg Intelligence. Kevin,
Speaker 1: what was your takeaway here? I mean price wars they
Speaker 1: have repercussions, don't they?
Speaker 11: Sure?
Speaker 13: Yeah, And I think, look, that's been the deal in
Speaker 13: the auto industry for a century plus. And I think
Speaker 13: the problem with Tesla is that this makes them look
Speaker 13: like an automaker, which is probably their biggest fear. So
Speaker 13: I think what you're going to start to hear now
Speaker 13: is all this talk of AI and full self driving
Speaker 13: and autonomous being you know, the path in the future,
Speaker 13: because when you look at the results and the margins specifically,
Speaker 13: you know eighteen percent at the gross line, ten percent
Speaker 13: at the operating line. It's those are automaker margins.
Speaker 4: And something I was curious about too, is when you're
Speaker 4: looking at Tesla's deliveries earlier this month, they did hit
Speaker 4: a record number after obviously those price cuts in the
Speaker 4: stock continue to go on a tear after it rose
Speaker 4: well above those February highs last month, and the next
Speaker 4: resistance level isn't until right over three hundred dollars. So
Speaker 4: does this make sense when you already saw a big
Speaker 4: run like that, especially after the deliveries and numbers came
Speaker 4: in better than expected, that you'd see another pullback like
Speaker 4: this in the stock. Yeah.
Speaker 13: Well, see what happens is he Elon Musk talks about
Speaker 13: sacrificing profitability for that volume growth. Obviously you see that
Speaker 13: coming right, This is for all automakers in the space
Speaker 13: now are going to be dealing with the same exact thing.
Speaker 13: So he sort of telegraphed the idea that they're doing
Speaker 13: this on purpose, right, we just want to maintain that
Speaker 13: fifty percent growth rate, which they probably won't hit, you know, so,
Speaker 13: so it's almost forgiven and telegraphed to the to the
Speaker 13: point of yeah, don't worry about margins. You know, we're
Speaker 13: going to direct your eye to this volume growth and look,
Speaker 13: record deliveries.
Speaker 6: For the quarter.
Speaker 13: But again, you know, all that does is make you
Speaker 13: an automaker that has no price power by giving up
Speaker 13: margin and puts you in the pack with pedestrian margins
Speaker 13: like everybody else. So I even I thought like, even
Speaker 13: if this quarter were worse in terms of margin and profitability,
Speaker 13: it would still be okay in the eyes of the
Speaker 13: market because he told you he was going to do
Speaker 13: that right, not that he had control of it, but
Speaker 13: he but he telegraphed it. He told you he was
Speaker 13: going to do it, and it and it's what happened,
Speaker 13: record deliveries in the quarter. And it's like, oh, look,
Speaker 13: executing right according to the plan. But it's really an
Speaker 13: issue now where now your margins are like everybody else,
Speaker 13: is where do you go from here? Do you keep
Speaker 13: cutting or do you stand on price and take the
Speaker 13: volume hit.
Speaker 11: Kevin Barry rittolts here. I was intrigued a couple of
Speaker 11: days ago, or maybe it's already a week or two ago,
Speaker 11: when Tesla announced they were opening up their network of
Speaker 11: superchargers to forward and gm evs. How big a deal
Speaker 11: is that and is that a potential revenue stream for
Speaker 11: Tesla in the future.
Speaker 13: Yeah, look, there's there's tax credits to Tesla for opening
Speaker 13: that up. Give that gives them some favorable treatment within
Speaker 13: Inflation Reduction Act to be able to do that. All
Speaker 13: the other automakers didn't have to invest in that technology.
Speaker 13: I'm just not sure how much profitability there is going
Speaker 13: forward in charging. And maybe it's not an Apple stapp comparison,
Speaker 13: but you know, we've heard it before. Nobody owns gasoline
Speaker 13: stations and there's actually no money in the pumping of
Speaker 13: the gas right and back in the day, those were
Speaker 13: the service bays that were connected to the gas station.
Speaker 13: Now it's the convenience store that sells Lotto tickets connected
Speaker 13: to the gasoline station. So you know, if there were
Speaker 13: to be this explosion in demand, I'm not sure how
Speaker 13: great a margin you would be getting at the actual pump.
Speaker 13: I think the value there is that you're going to
Speaker 13: have a captive audience for however much time forty five
Speaker 13: minutes to hours, and it may be the licensing of
Speaker 13: the retail space around the charge points that actually makes
Speaker 13: the money.
Speaker 4: I want to get your thoughts to switch things up
Speaker 4: a little bit. But also on Carvon, I'm looking at
Speaker 4: that ticker symbol CVNA. It was up more than about
Speaker 4: forty percent yesterday on that news that it will restruct
Speaker 4: your debt and sell stock in this comeback bit. It's
Speaker 4: one of those sort of pandemic type of really volatile
Speaker 4: stocks that we've seen. What's your outlook here when you're
Speaker 4: looking from an earnings perspective on a stock like A.
Speaker 13: Yeah, see, that's one that you know that business to
Speaker 13: me is just very focused. It's online only and it's
Speaker 13: pre owned only. So when you compare Carbon to the
Speaker 13: other full line dealerships, you know in Automation or Penske
Speaker 13: Auto Group or Group one or Lithia, you know, there's
Speaker 13: places that they can go when they use market is
Speaker 13: bad or when the new market is bad. You know,
Speaker 13: there's parts and service, there's finance and insurance. So there's
Speaker 13: a lot of revenue diversity for those companies that Carvana
Speaker 13: doesn't have. And this run up in the past couple
Speaker 13: of days. Ideally, I'm struggling to find the structural difference
Speaker 13: in the company today versus before this announcement, and I'm
Speaker 13: not sure it's there. And when you look at their
Speaker 13: you know, retail run rate unit sales, you know it's
Speaker 13: a it's about a three hundred thousand, a little bit
Speaker 13: more than three hundred thousand units, And they've talked about
Speaker 13: getting to two million and scaling, and that doesn't look
Speaker 13: like it's going to And that's in the ballpark of
Speaker 13: what CarMax does used only and it doesn't look like
Speaker 13: they're going to there anytime soon. So all these online
Speaker 13: used only vehicle retailers have really backed off the scale
Speaker 13: and growth for growth sake, to say, we need to
Speaker 13: focus a little bit on margin and profitability in the interim.
Speaker 11: So when we see the slew of new competitors, whether
Speaker 11: it's Mercedes or Hyundai or even some of the big
Speaker 11: Chinese manufacturers, is it unrealistic for anyone who's running a
Speaker 11: first mover EV company to expect to maintain just what's
Speaker 11: been a dominant market share. Isn't it inevitable that they
Speaker 11: have to become a smaller player tesla versus the rest
Speaker 11: of the world.
Speaker 13: Yeah, Look, I think that the issue is is that
Speaker 13: if there were profitability there, you know, like you said,
Speaker 13: the Mercedes, the Volkswagens, the Toyotas of the world would
Speaker 13: be there. The issue is that the mixshift that we've had,
Speaker 13: especially in the US the ten years, has been two
Speaker 13: truck from car, and that was profitable on the first day.
Speaker 13: Now automakers do need to figure out how to sell
Speaker 13: the same vehicles at higher prices because a lot of
Speaker 13: that mixshift truck from car is wrung out and it
Speaker 13: comes from technology, whether it's autonomous or electric. The problem
Speaker 13: is it's higher transaction prices, but the margins aren't as
Speaker 13: good or don't exist at all yet, So it's a
Speaker 13: very messy transition. At this point, everybody's being forced to
Speaker 13: go EV, but it doesn't carry the profitability that your
Speaker 13: existing legacy technology does, and that's why we're slow in
Speaker 13: this country.
Speaker 1: All right, Kevin, thanks so much. As always, we loved
Speaker 1: talking to Kevin Tyny getting the latest on the autobiz,
Speaker 1: including our good friends at Tessa. Kevin Tyny, senior automotive
Speaker 1: analysts for Bloomberg Intelligence, joining us from Princeton, New Jersey.
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