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Speaker 1: Today, we'll look at why Tesla's first quarter deliveries missed
Speaker 1: Wall Street expectations.
Speaker 4: Let's we'll look at why things are looking up for
Speaker 4: the shipping company ups.
Speaker 1: But first we begin with the Walt Disney Company. This
Speaker 1: week's shareholders handed CEO Bob Biger, a big vote of
Speaker 1: confidence at the company's annual meeting.
Speaker 3: The shareholders rejected activist investor Nelson Peltz's bid for a
Speaker 3: board seat and elected all of Disney's choices for the board.
Speaker 3: Peltz's Tree On Fund Management holds a Disney stake both
Speaker 3: more than three and a half billion dollars and has
Speaker 3: been pushing for seats to address lagging shareholder returns.
Speaker 1: Also, when the news, Paramount Global, the parent of CBS
Speaker 1: and MTV, is getting closer to a deal to merge
Speaker 1: with independent producer David Ellison's Skydance Media. For more and
Speaker 1: all of this, we were joined by Githa Rong and
Speaker 1: Nathan Bloomberg, intelligence analyst on media. We first asked Githa
Speaker 1: for her take on this week's news.
Speaker 5: Definitely a huge sigh of relief for both Bob Biger
Speaker 5: and the management team. I mean, it would have been,
Speaker 5: I think a very very publicly embarrassing thing for him
Speaker 5: if Pelts had had won. So this is definitely I
Speaker 5: think gives them some something to cheer about, at least
Speaker 5: in the near term. So I think it's really business
Speaker 5: as usual, right. They had their work cut out for them.
Speaker 5: They know exactly what they need to do, whether it's
Speaker 5: it's finding a proper good ESPN digital strategy, whether it's
Speaker 5: getting the streaming business to profits, and more importantly for
Speaker 5: the board, whether it's chalking out a really bullet proof
Speaker 5: succession plan this time around.
Speaker 1: And on that succession plan, is the expectation getha that
Speaker 1: they will hire from within or will they try to
Speaker 1: make a big splash by hiring an outsider.
Speaker 6: How do you think Disney would like to proceed?
Speaker 5: Disney has always kind of looked within, Paul, and you
Speaker 5: know this well. I mean the last time that they
Speaker 5: went external was back in nineteen eighty four. That's when
Speaker 5: they hired you know, Michael Eisner, right, the Barry Diller protege.
Speaker 5: But after that, it's always been internal, right, whether it's
Speaker 5: Bob Bieger, I mean it was Barb Biger after that
Speaker 5: for almost fifteen years, and then of course you had
Speaker 5: Bob Japek for a couple of years, and then you know,
Speaker 5: we have Bob Bieger two point zero back again. So
Speaker 5: they've always kind of had, you know more, they've always
Speaker 5: looked internal, and they do have four solid candidates, so
Speaker 5: all the division chiefs kind of emerge as potential successor candidates.
Speaker 5: It's just going to be up to how they groomed them.
Speaker 5: Is Barbiger going to do something very similar to what
Speaker 5: he did with you know, Tom's tags and Jay Rizzulo
Speaker 5: kind of have that coo position for somebody whom he's
Speaker 5: kind of looking to to elevate.
Speaker 4: What's the time frame here, KEITHA for this, it.
Speaker 5: Has to happen pretty quickly, Alex. I mean barb Biger's term,
Speaker 5: which was initially when he came back in November twenty
Speaker 5: twenty two, was supposed to be two years. They extended
Speaker 5: that out to four years, so we have until the
Speaker 5: end of twenty twenty six.
Speaker 1: Yeah, and he's been known to extend extend extent. I mean,
Speaker 1: he could do that because most shareholders are like Bob
Speaker 1: Biger's better than anybody else out there, will stick with that.
Speaker 1: All right, So things seem to be settling down a
Speaker 1: little bit of stability. Returning to Mickey Mouse, how about
Speaker 1: a Paramount Global?
Speaker 6: It's almost the opposite. Are they going to sell the.
Speaker 1: Entire company parts of the company super voting stock?
Speaker 6: What's going on there?
Speaker 5: Yeah, So it looks like now they have or they've
Speaker 5: entered this period of exclusive talks with Skydance Media, and
Speaker 5: Skydance Media has kind of been this on again, off
Speaker 5: again interested party in the Paramount company, but of course
Speaker 5: they didn't want to come out with a bid for
Speaker 5: the entire company at least up until this point. They
Speaker 5: always kind of wanted to do it in a slightly
Speaker 5: different way by kind of taking control of the voting
Speaker 5: stock with through National Amusements and the red Stone family.
Speaker 5: Now it looks like they're kind of going to engineer
Speaker 5: like a two step process where they first take control
Speaker 5: of National Amusements and then go about and merge sky
Speaker 5: Dance with the entire company with Paramount. So still, I mean,
Speaker 5: there's just more unknowns than knowns at this point. There
Speaker 5: seems to be some report out there suggesting that they
Speaker 5: would need to do an equity deal raise of at
Speaker 5: least three billion dollars. That's going to be really dilutive
Speaker 5: for the current shareholders. Again, we don't know exactly how
Speaker 5: much Sherry Redstone is demanding for her voting stock. There
Speaker 5: are rumors out there suggesting it's upwards of about two
Speaker 5: to two and a half billion dollars. She also owns
Speaker 5: about close to almost a billion dollars in economic stake
Speaker 5: in Paramount. So again, too many unknowns right now, Paul,
Speaker 5: But you know, we do definitely have concrete talks. That
Speaker 5: much is for sure.
Speaker 3: So is the Apollo thing like off the table, right,
Speaker 3: because that would be more of a piecemeal approach to Paramount, right,
Speaker 3: even though the cash deal was better.
Speaker 5: So the Apollo thing was actually initially it was it
Speaker 5: was piecemeals. So, but they only was really interested in
Speaker 5: the film studio. They did not want the TV networks,
Speaker 5: They did not want the streaming asset. But it looks
Speaker 5: like when reports emerge about the Skydance deal, they said
Speaker 5: that Apollo actually had made a twenty six billion offer,
Speaker 5: an all cash deal for the entire company, which Sherry
Speaker 5: Redstone for some reason basically said note.
Speaker 1: To So, what's the future. I mean, this is the
Speaker 1: Paramount studio, geeth that this is one of the prize
Speaker 1: jewels in Hollywood. I mean, what happens to this company?
Speaker 1: I mean, is it can remain a publicly traded company?
Speaker 6: Is it going to be taken private?
Speaker 5: I think the most likely out come at this point, Paul,
Speaker 5: is that it still very much remains a public company.
Speaker 5: You know, we know that David Ellison is really only
Speaker 5: interested in the studio portion of the business, and you're
Speaker 5: absolutely right. It's an iconic studio, there's no doubt about it.
Speaker 5: They have a very, very valuable studio lot right in
Speaker 5: the heart of la that's worth maybe upwards of one
Speaker 5: point five two billion dollars. So obviously there's a lot
Speaker 5: of assets that he likes, but only with the studio business.
Speaker 5: So again the question is, yes, he can keep it
Speaker 5: a public company, but he might really kind of trim
Speaker 5: it down, try and find some buyers for the TV network,
Speaker 5: for probably the streaming platform, and just make this like
Speaker 5: a pure play kind of a film studio with production
Speaker 5: and licensing operations, very similar to what lions Gate is doing.
Speaker 1: Our thanks to Githa Ranganath and Bloomberg Intelligence senior annals
Speaker 1: covering media.
Speaker 3: Back in January, Bloomberg Intelligence came up with a list
Speaker 3: of fifty companies to watch in twenty twenty four, and
Speaker 3: now they're back with a list of ten companies specifically
Speaker 3: for the second quarter.
Speaker 1: This is based on scenarios from our bi analysts who
Speaker 1: sort of threw the barrel to find the good apples
Speaker 1: across sectors and regions.
Speaker 7: For more.
Speaker 1: We were join by Tim craigkh Heat, Bloomberg Intelligence Research
Speaker 1: Director for Content. We first asked him to talk about
Speaker 1: the companies on this list.
Speaker 7: A couple of things to keep in mind. We are
Speaker 7: top ten or two Q. These are part of a
Speaker 7: broader set of focus ideas that we've got. There's roughly
Speaker 7: seventy five to eighty of them right now, across sectors,
Speaker 7: across regions. These specifically have important catalysts coming up into
Speaker 7: Q that we think can bring the market around to
Speaker 7: our perspective. All of these focus ideas have really strong,
Speaker 7: high conviction fundamental views that we think are different from
Speaker 7: the market, and these catalysts should bring that awareness around.
Speaker 7: It's a group of US companies. There's four of them,
Speaker 7: there's three in Europe, three in Asia, and they span
Speaker 7: the gamut from healthcare, medtech products to big financials to tires.
Speaker 7: So interesting group.
Speaker 1: And Tim, one of the ones that you know, I've
Speaker 1: been kind of thinking about. I just think these Olympics
Speaker 1: in Parish are going to be just huge, and I'm
Speaker 1: thinking that ways to play it. You guys have one
Speaker 1: of them in the lodging space. Talk to us about
Speaker 1: that opportunity.
Speaker 7: Yeah, we do at Core. It's a big French hotel company.
Speaker 7: You might not know Akor, but you probably know some
Speaker 7: of their underlying brands. And you know, anybody who's made
Speaker 7: a hotel booking as of late knows that the prices
Speaker 7: seem to be really high. Surprisingly, so that's feeding Akor's
Speaker 7: rev par they're pricing, which is playing through into profit margins.
Speaker 7: And the catalyst for these guys is, in fact, Paris Olympics.
Speaker 7: We should start to see early booking data over the
Speaker 7: course of two Q heading into Summer Olympics. No, Paris
Speaker 7: is only one part of their portfolio. They're across Europe
Speaker 7: and Asia, and we're seeing a strong sustained travel recovery
Speaker 7: story that we think is better than consensus expects.
Speaker 4: But apparently they have to like clean out the send.
Speaker 3: Did you read that that there's so much to you,
Speaker 3: Like can you imagine being Olympic swimmer and like those
Speaker 3: garbage hitting you in the end. I mean they're working
Speaker 3: on it.
Speaker 6: They're definitely working on it.
Speaker 4: Okay, you your second one is in retail chow Tai fuk.
Speaker 3: No one's going to know this company here in the US,
Speaker 3: So tell us about it and why this makes the outlook.
Speaker 7: That and the next one on the list from an
Speaker 7: alphabetical perspective are both sort of interesting twists on the
Speaker 7: same underlying theme, and that's China. We all know that
Speaker 7: there's problems in China from the standpoint of the property market,
Speaker 7: and now that's playing through in terms of sentiment, the
Speaker 7: wealth effect on spending plans, et cetera. Chautai Fuk is
Speaker 7: arguably the best known Chinese retailer when it comes to jewelry,
Speaker 7: and it's a big market historically for tourists and travelers
Speaker 7: coming into Hong Kong and to make those purchases. In fact,
Speaker 7: what we're seeing right now is Hong kongers are going
Speaker 7: out of Hong Kong across the border in the mainland
Speaker 7: China to shop for pretty much everything because it's cheaper.
Speaker 7: So you combine that with negative sentiment, we think Hong
Speaker 7: Kong retail sales are going to disappoint and Chautai Fuk
Speaker 7: is a poster child. The other one, CSC Financial is
Speaker 7: one of the largest Chinese brokerages you know good old fashion,
Speaker 7: you know wealth management, and they are the investment banking business.
Speaker 7: We think is set for disappointment because IPOs and other
Speaker 7: new stock listings are way underwater. You know, we think
Speaker 7: you're going to see investment banking revenue disappoint You.
Speaker 1: Know, I was looking through the list here, Tim, and
Speaker 1: I was looking for a name from Michael Dean and
Speaker 1: the European Autos team, and I think I found one
Speaker 1: in Perelli Tires.
Speaker 7: Yes, indeed, I started to say, if you're an F
Speaker 7: one fan, but that's more from a European perspective than
Speaker 7: NASCAR in the US. But Perelli is a well known
Speaker 7: tire maker and what they're doing is twofold number one
Speaker 7: upgrading their mix.
Speaker 6: They're getting rid.
Speaker 7: Of some of their lower end products. And number two,
Speaker 7: they've taken on a pretty big initiative to shift production
Speaker 7: from core Europe to places like Romania over here in
Speaker 7: Mexico over there, all of which is driving better margins.
Speaker 7: And we think that this is going to continue more
Speaker 7: than what consensus currently he bakes in.
Speaker 1: Plus, it's from one of my favorite analysts over in
Speaker 1: our London office, Gillian Davis, doing some good work there,
Speaker 1: so good stuff.
Speaker 4: Home building Taylor Morrison made the list.
Speaker 3: That's not normally the company you think of when you
Speaker 3: think of like a homebuilder, right you're thinking lenar KB homes,
Speaker 3: et cetera. How does one make a list.
Speaker 7: They're continuing to expand, specifically in some larger developments in
Speaker 7: Florida and Texas, and it just seems to be a
Speaker 7: case of good old fashioned running the numbers with those
Speaker 7: expansion plans feeding through and their order book coming through
Speaker 7: better than anticipated, where we think their positive surprises ad
Speaker 7: but it is a classic story from the standpoint of
Speaker 7: expanding order books, expanding volumes.
Speaker 1: You know one name that's on here that surprising, but
Speaker 1: I think it's a potential rule opportunity is Tencent talks
Speaker 1: about that big Chinese e commerce because for a lot
Speaker 1: of people, Tim as you well know, China's kind of
Speaker 1: taboot right now.
Speaker 6: From an investment perspective.
Speaker 7: It is, especially when it comes to technology and regulat
Speaker 7: where he concerns and you know, Beijing focusing in on
Speaker 7: you know what the big tech companies are doing. You know,
Speaker 7: historically these have ten cents driven by online gaming and
Speaker 7: that growth rate is still somewhat muted, but there's more
Speaker 7: video that's coming through. There's AI assisted advertising that is growing.
Speaker 7: Both of those are drivers of their income statement that
Speaker 7: we think are underappreciated. We think it's mid team's growth
Speaker 7: going forward, but if you do the math, the market
Speaker 7: seems to be discounting basically static to maybe low single
Speaker 7: digit growth rates. And so there it's just a it's
Speaker 7: just a case where we think the market doesn't realize
Speaker 7: that they're back to having good, solid forward growth.
Speaker 1: Our thanks to Tim Craik, he had Bloomberg Intelligence Research
Speaker 1: director for content.
Speaker 3: All right, coming up, we're going to discuss with Tesla's
Speaker 3: first quarter delivery mis means for the EV space.
Speaker 1: Listening to Bloomberg Intelligence on Bloomberg Radio, providing end up
Speaker 1: research and data on two thousand and companies and one.
Speaker 6: Hundred and thirty industries.
Speaker 1: You can access Bloomberg Intelligence via big on the terminal.
Speaker 4: I'm Paul Sweeney and I'm Alex Steele, and.
Speaker 3: This is Bloomberg.
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 4: We look next at the EVS space.
Speaker 3: So this week Tesla reported first quarter vehicle deliveries it
Speaker 3: felt fourteen percent short of analyst expectations, and this also
Speaker 3: represented Tesla's first year over year decline and delivery since
Speaker 3: twenty twenty.
Speaker 6: This comes to us to EV maker.
Speaker 1: Rivian reported that it delivered more EV's last quarter than
Speaker 1: Wall Street expected. For more on all of this, we
Speaker 1: were joined by Steve Man, Global Autos and Industrials Research analysts.
Speaker 1: We first asked Steve what Tesla's miss means for the
Speaker 1: company going forward.
Speaker 8: I mean, it's a bad time. You know, they just
Speaker 8: actually raise prices on their cars, puts in the question
Speaker 8: about that strategy. There's a lot of questions out there,
Speaker 8: you know, with you know, the end market, the consumer
Speaker 8: hesitating a bit on buying evs. So what's going to
Speaker 8: be for Tesla going forward? Definitely their one point million
Speaker 8: target sales target for the year is definitely at risk.
Speaker 4: Do we know why?
Speaker 3: Like, what's the why behind it? They're going to talk
Speaker 3: about production misses in terms of supply chain issues, et cetera.
Speaker 3: But then Ruvian kind of crushed it, So so what's
Speaker 3: the real reason here?
Speaker 8: Yeah, they actually you know, TESTA attributed to the RESC hostilities,
Speaker 8: and you know that's that's partly right, because a lot
Speaker 8: of their Model three and Model why they're most the
Speaker 8: best selling vehicles actually come from China. And you know,
Speaker 8: you know, you would assume a lot of these vehicles
Speaker 8: are shipped through the Pacific Ocean, avoiding the Red Sea.
Speaker 8: But we'll give them benefit of the doubt that it
Speaker 8: had some impact. Maybe it's not necessarily the shipment of vehicles.
Speaker 8: Maybe the shipment of parts right through the Red Sea
Speaker 8: that's impacted the production in China. And remember they actually
Speaker 8: cut some of the some production in China recently as well,
Speaker 8: so you know that could be the reason. But like
Speaker 8: you said, Rivian sales have gone up. You know, is
Speaker 8: there anything specific to Tesla? I don't. I don't really
Speaker 8: think so.
Speaker 9: One.
Speaker 8: You know, one quarter is not gonna tell us the
Speaker 8: trend for the long term. I think Tesla vehicles are
Speaker 8: still you know, liked by a lot of consumer. We
Speaker 8: just did a survey actually recently, a buying intention survey.
Speaker 8: You know, Tesla has the greatest rand loyalty still amongst
Speaker 8: all brands in the in the auto industry.
Speaker 1: Yes, the big question on investors' minds is what is
Speaker 1: the real demand for evs in general?
Speaker 6: And Tesla in particular.
Speaker 1: Look in I guess the near and intermediate term.
Speaker 6: Do you have a view on that.
Speaker 8: Yeah, I mean I've always thought that not only Tesla,
Speaker 8: but the entire eating market is going through a rough
Speaker 8: patch this year and likely into the next year. My
Speaker 8: long term view is still optimistic about EV's. I think
Speaker 8: there's enough policies out there to push greener vehicles, more
Speaker 8: greener vehicles on the road. I think the issue today
Speaker 8: is aboutffordability. There's actually not enough affordable EV's out there
Speaker 8: for the masses currently. A lot of vehicles are expensive.
Speaker 8: They're over fifty thousand dollars. A lot of people can
Speaker 8: buy them, especially during high interest rate environments.
Speaker 3: That has been the rhetoric really for a bit, and
Speaker 3: Elon Musk seems to say, Okay, we're going to do
Speaker 3: the lower cost, but give us a second.
Speaker 2: Right.
Speaker 3: We had this wave of Model Y, Model three, et cetera,
Speaker 3: and now we're going to have another wave of.
Speaker 4: More affordable EV's. Well, when does that wave happen.
Speaker 8: A lot of it actually comes online at the end
Speaker 8: of twenty twenty five. Starts coming online at at the
Speaker 8: end of twenty twenty five. That's when you have a
Speaker 8: Model two. GM is also relaunching the more affordable Bolt.
Speaker 8: All of them are you know, thirty thousand or less.
Speaker 8: And then you have you know, GM will continue to
Speaker 8: roll out cheaper vehicles, and you have Rivian also launching
Speaker 8: the R two and R three, you know, in twenty
Speaker 8: twenty six and twenty twenty seven.
Speaker 3: So it doesn't want a car Nambar two by the way,
Speaker 3: total side note, I mean everyone, but go ahead.
Speaker 8: Yeah, but you know, a lot a lot of more
Speaker 8: affordable EV's coming in and the hope is that, you know,
Speaker 8: the addressable market for the EV, market for the EV
Speaker 8: industry expands as the cheaper cars come on the road
Speaker 8: and are available to consumers.
Speaker 1: If I were an investor in this company, I'd be saying, Okay,
Speaker 1: you need to bring in a cheaper priced car for
Speaker 1: the mash market, but I'm not sure you can convince
Speaker 1: me that you could do it at a profit.
Speaker 6: What's the expectation of.
Speaker 1: Their ability to turn out lower price models on a
Speaker 1: per unit profitable basis.
Speaker 8: That That's a very good question. I think scale is
Speaker 8: the most important thing. I mean, this is a scale
Speaker 8: volume game in the auto industry has has been like
Speaker 8: that for one hundred years. So the question is are
Speaker 8: the cheaper vehicles going to resonate as you push more
Speaker 8: production through an assembly plant. In the auto industry, the
Speaker 8: unicost does fall significantly in a logarithmic kind of trend,
Speaker 8: so we're hoping that it will cut. But specifically to Tesla,
Speaker 8: I would have also mention that they've done a really
Speaker 8: good job in vertically integrating their processes throughout the whole
Speaker 8: value chain, right, and that actually does cut costs, especially
Speaker 8: in newer tech like this. You know, if I look
Speaker 8: at over one hundred years ago, Henry Ford basically did
Speaker 8: the same thing. You know, switching everybody from horse carriages
Speaker 8: to automobiles actually required vertical required Ford to be to
Speaker 8: vertically integrate and able to manage costs and manage design
Speaker 8: and be nimble and flexible to react to consumers.
Speaker 1: Our thanks to Steve Man Global Autos and Industrial Research Jonalysts.
Speaker 3: Earlier in the week, we were joined by Matt Winkler,
Speaker 3: Editor in chief Emeritus at Bloomberg News. He's also been
Speaker 3: writing a series of opinion pieces on key swing states
Speaker 3: in the US.
Speaker 1: And that's latest piece. His research focused on Georgia. His
Speaker 1: economy has been booming over the last few decades. We
Speaker 1: began our conversation with Matt by asking him to discuss
Speaker 1: his findings in Georgia.
Speaker 10: Georgia population of more than eleven million makes it the
Speaker 10: eighth largest state, and it's booming right now like it
Speaker 10: never did before Joe Biden became the forty sixth president.
Speaker 10: And we know this because not since data was initially
Speaker 10: collected in nineteen ninety has there been a three year
Speaker 10: period when growth in the Peach States manufacturing payrolls came
Speaker 10: close to matching the eleven point nine percent increase in
Speaker 10: jobs since twenty twenty one, or its rate of employment
Speaker 10: gains compared with the US overall. And that's according to
Speaker 10: data compiled by Bloomberg. So we are seeing a man
Speaker 10: manufacturing boom, job boom in Georgia the likes of which
Speaker 10: Georgia has never seen. And by the way, this is
Speaker 10: counter to the trend in the twenty first century. Every
Speaker 10: presidency in the New century except Biden's has seen a
Speaker 10: decline in manufacturing jobs. So this is a departure.
Speaker 3: So how much of that do you attribute to the
Speaker 3: Chips Act and the Inflation Reduction Act, Because something that
Speaker 3: gets lost in all this messaging is with the IRA
Speaker 3: for example, so much of that money is actually going
Speaker 3: to Red States because they have the space to build stuff.
Speaker 10: Well, there's no question that actually Red states are a
Speaker 10: big beneficiary. But it's not just the American Rescue Act
Speaker 10: of twenty twenty one. It's also the Infrastructure Investment Jobs Act,
Speaker 10: the Chips and Science Act again, the Inflation Reduction Act,
Speaker 10: all of which have helped Biden make a legitimate claim,
Speaker 10: which is he created close to eight hundred thousand manufacturing
Speaker 10: jobs since he took office. And we know this is
Speaker 10: not an idle boast because those very careful fact checkers
Speaker 10: called PolitiFact actually took a look at this claim and
Speaker 10: they showed that the nation's manufacturing rebound is the strongest
Speaker 10: at this point after a recession since nineteen fifty one.
Speaker 1: Is Georgia per se doing anything right versus I mean,
Speaker 1: is this all just the largest of the federal government
Speaker 1: met or does Georgia have just better incentives better tax incentives?
Speaker 6: Are they doing something maybe some other states aren't doing well.
Speaker 10: Well, there's no question that some of the credit has
Speaker 10: to go to, as I said, these acts, because the
Speaker 10: investments include, for example, South Korea's Hanwa Solutions Corp. Expansion
Speaker 10: of solar panel and manufacturing. They were already there. They
Speaker 10: got incentives to do a lot more than what they
Speaker 10: were doing. The same thing with Hyundai with EV vehicles,
Speaker 10: they're already there doing more. And then there's this battery
Speaker 10: company from Norway, freyer Or Battery, which is going to
Speaker 10: make clean battery manufacturing in Coueda County in Georgia. So
Speaker 10: those things are definitely tied to the incentives that come
Speaker 10: out of these acts. There's no question state and local
Speaker 10: officials have been supportive. But interestingly enough, the governor of
Speaker 10: Georgia voted against or would have voted against, the Inflation
Speaker 10: Reduction Act. All of the Republicans in Congress voted against
Speaker 10: the Inflation Reduction Act, which is a big part of
Speaker 10: why Georgia is doing well. But they're not ready to
Speaker 10: give the money back. Of course, they're very happy that
Speaker 10: it's all happening.
Speaker 3: We have seen with some of these acts that we
Speaker 3: get all excited about the money that's being spent, but
Speaker 3: then getting the shovel in the ground and actually doing
Speaker 3: the hiring in the manufacturing gets delayed a little bit
Speaker 3: and gets pushed out or the plans get scaled back
Speaker 3: a bit. Are we seeing any this in Georgia or
Speaker 3: is the outlook particularly rosy.
Speaker 10: It's more of the latter, you know. And then again
Speaker 10: the proof of that is that if you look at
Speaker 10: the unemployment rate in Georgia, it actually declined most recently
Speaker 10: and is several percentage points, you know, less than the
Speaker 10: national average. So you know, unemployment in the US actually
Speaker 10: has ticked up a bit. In Georgia, it's gone the
Speaker 10: other way. And that's an example that the boom is
Speaker 10: very much underway and shows no signs of abating.
Speaker 1: You know, you have to remind yourself, I mean, how
Speaker 1: the economy in the South has really changed from you know,
Speaker 1: agricultural textiles, you know, very low technology touch types of
Speaker 1: industries to now it seems like every new autoplant that
Speaker 1: you know, international automakers, they want to build them in
Speaker 1: the movie studios. So much investments going to the Southeast.
Speaker 1: And that's again been a twenty third thirty year story.
Speaker 1: What's next on your state?
Speaker 2: Yeah?
Speaker 6: What state is? Next year?
Speaker 10: We'll probably get to Nevada. So we've done Pennsylvania, Michigan,
Speaker 10: now Georgia, and we're working through the list.
Speaker 1: So if you were advising President Biden his campaign about
Speaker 1: the messaging here, what would you say in terms of
Speaker 1: because I would argue that the messaging has not been effective,
Speaker 1: that this message of economic success has not been told.
Speaker 10: Well, I'd say, actually, their messaging has been pretty good.
Speaker 10: A lot of this data that we've compiled at Bloomberg
Speaker 10: is available in various announcements from either the White House
Speaker 10: or the Treasury. But the saying is, you know, you
Speaker 10: can lead a horse to water, but you can't get
Speaker 10: the horse to drink. The horse in this case is
Speaker 10: our profession, the media, and it's pretty much ignored what's
Speaker 10: in front of its nose, which are the facts. So
Speaker 10: unless reporters find this relevant, I do uh for it.
Speaker 10: You know, they'd rather focus on polls, and so that's
Speaker 10: perception not reality.
Speaker 1: Before we went on the area, you made a comment
Speaker 1: about California. How big is that economy now? Because I
Speaker 1: used to to me it was the seventh or y
Speaker 1: largest economy, it's number four.
Speaker 10: It's now numbers and it's poised to overtake Germany. And
Speaker 10: that's because you know, you keep talking about the Magnificent
Speaker 10: seven on this show. Ye if you look at Corporate California.
Speaker 10: Corporate California just dwarfs Corporate Anywhere, dwarfs Corporate Texas. It
Speaker 10: dwarfs Corporate Germany. Corporate California is still a juggernaut. And
Speaker 10: you know who those companies are. But it's not just
Speaker 10: the big companies. It's big and small companies alike in
Speaker 10: the Russell three thousand that make California unique.
Speaker 1: Our thanks to Matt Winkler, editor in Chief Emeritus at
Speaker 1: Bloomberg News.
Speaker 3: Coming up on the program, we're going to take a
Speaker 3: look at the expanded partnership between UPS and the United
Speaker 3: States Postal Service.
Speaker 1: You're listening to Bloomberg Intelligence on Bloomberg Radio, aidding into
Speaker 1: research and data. Are two thousand companies in one hundred
Speaker 1: and thirty industries. You can access Boomberg Intelligence b ab
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Speaker 4: We turn now to the logistics industry.
Speaker 3: UPS announced this week that it had been awarded a
Speaker 3: significant air cargo contract by the United States Postal Service.
Speaker 3: This comes after FedEx said its agreement to provide domestic
Speaker 3: transportation services for USPS we'll expire on September twenty ninth.
Speaker 1: For more, we were joined by Lee Classical Bloomberg Intelligence
Speaker 1: senior Transport, Logistics and shipping analysts. We first asked Lee
Speaker 1: for his reaction to UPS becoming the primary air cargo
Speaker 1: provider for USPS.
Speaker 11: This is somewhat of a surprise.
Speaker 12: I think most people were expecting the FedEx would lose
Speaker 12: maybe about half of that business, but they ended up
Speaker 12: losing all of it. It's about one point seven to
Speaker 12: one point nine billion dollars in revenue, makes up roughly
Speaker 12: around four to five percent of their express business, maybe
Speaker 12: two percent of their total business.
Speaker 9: So it's a.
Speaker 12: Big loss for fed X. And you know, while FedEx
Speaker 12: is losing, UPS is gaining. What's great about this is
Speaker 12: maybe not so much the revenue and the yields that
Speaker 12: it provides. It's the stability of the freight that it's
Speaker 12: going to be getting into its network, And when you
Speaker 12: have any sort of freight network, you want equilibrium. You
Speaker 12: want to be able to predict what you're going to
Speaker 12: need in terms of resources, and this provides a good
Speaker 12: level set of predictability for them and they can build
Speaker 12: density onto these routes where the US Postal Service will
Speaker 12: be leveraging.
Speaker 6: Why is the Postal Service making the switch?
Speaker 11: That's a great question. They were negotiating with fed X.
Speaker 12: I guess the two parties couldn't come to a conclusion
Speaker 12: in terms of an agreement, so therefore they just decided
Speaker 12: to part ways. You know, one would guess that this
Speaker 12: is maybe not the most high margin business for whether
Speaker 12: it's UPS or FedEx. But again, I think there is
Speaker 12: a benefit to having this because it does create a
Speaker 12: lot of density in their network.
Speaker 6: Let me ask a silly question.
Speaker 1: When I'm looking to mail package, the United States Postal
Speaker 1: Service does not even come into my mindset? Oh god, no, no,
Speaker 1: who still uses the US Postal Service versus FedEx? Or
Speaker 1: or you know a UPS store that's right next to
Speaker 1: the Starbucks in town. I can go, you know, get
Speaker 1: my cafe mocha there.
Speaker 6: I'm not going to the post office. Who uses a
Speaker 6: post office these days.
Speaker 11: I mean I do. I guess I'm you do, but
Speaker 11: I do sometimes. But but the reality is the postal service.
Speaker 12: You know, obviously you were not sending letters to Grandma anymore.
Speaker 11: But you know what we are doing is we're.
Speaker 12: Ordering stuff online and the US Postal Service provides a
Speaker 12: lot of the final mile delivery. So you might be
Speaker 12: ordering from a department store or a dot com etailer,
Speaker 12: and you know, they might be using UPS and FedEx
Speaker 12: for the line haul, but they might be leveraging the
Speaker 12: postal service for that final mile deliver because the postal
Speaker 12: service at the end of the day has to go
Speaker 12: to everyone's address, and it's a cheap way to do it.
Speaker 12: And as more and more people are willing maybe don't
Speaker 12: need that T shirt overnight, you can wait a couple
Speaker 12: of days, you know, injecting that freight into the postal
Speaker 12: service that makes sense. And Amazon's is a big user
Speaker 12: of that final mile delivery as well.
Speaker 4: My daughter does send letters to her grandmother. I'm just
Speaker 4: putting that.
Speaker 3: Out there on the flip side, and I should point
Speaker 3: out they mentioned the margin part of it. So we
Speaker 3: talked to the UPS CEO last week on television and
Speaker 3: their whole pitch is that going forward, they want to
Speaker 3: focus on margin and pricing over volume. Does this fit
Speaker 3: into that strategy?
Speaker 12: Yes and no, so yes, because so what they're going
Speaker 12: to be focusing on are verticals like small to mid
Speaker 12: size shippers, and those shippers come with very high margins
Speaker 12: relative to you know, large enterprise companies that are out there,
Speaker 12: so they're going to be really focused on that type
Speaker 12: of business. But you know what the volumes from the
Speaker 12: postal service brings is a level of density that you
Speaker 12: can leverage because it's all about operational.
Speaker 9: Leverage, right.
Speaker 12: You know, no matter what you are in transportation, operational
Speaker 12: leverage is pretty high. Because you add like one more
Speaker 12: piece of freight, that piece of freight tends to have
Speaker 12: higher margins than the first twenty pieces of freight. And
Speaker 12: so what this will do is this will probably help
Speaker 12: them provide a base level of cost coverage and you
Speaker 12: know what a profitable cost coverage at that and then
Speaker 12: all these additional volumes that they're getting from higher margin
Speaker 12: might even carry higher incremental margins for ups. So long term,
Speaker 12: it could have a very positive impact on margins. Near term,
Speaker 12: it might have a negative mixshift, if you will, but
Speaker 12: you know, we think that it.
Speaker 11: Does make sense for them to take this volume.
Speaker 12: Other verticals also that they talked about during their analyst day,
Speaker 12: or the healthcare vertical, which tends to be highly profitable
Speaker 12: just because of the high touch nature and the high
Speaker 12: service level of that freight that goes through their network.
Speaker 1: So Lee looking at the air freight companies to the
Speaker 1: FedEx toups, how is business?
Speaker 6: How are volumes these days?
Speaker 1: Are they kind of peeled off from the pandemic or
Speaker 1: how is volume?
Speaker 12: Yeah, so you know, we're coming off those highs that
Speaker 12: we reached during the pandemic when everyone was sitting at
Speaker 12: home and ordering toilet paper online or at least trying
Speaker 12: to get some toilet paper online.
Speaker 11: You know, we're back to a more normalized level.
Speaker 12: You know, the reality is what the pandemic has done,
Speaker 12: is it really increased that e commerce penetration. Kind of
Speaker 12: brought the penetration forward by three to five years, which is.
Speaker 11: A net positive.
Speaker 12: But you know, we have to go back to this
Speaker 12: quote unquote normalization process, which feels like a negative, but
Speaker 12: it's really not. Because once we get this space, which
Speaker 12: I think we're building right now, you know, we should
Speaker 12: see positive growth from.
Speaker 3: Here on out O thanks to Lee Klaska, a Bloomberg
Speaker 3: Intelligence senior Transport, Logistics and shipping analysts.
Speaker 1: This week we took a look at the Big Take
Speaker 1: story Huber's at Hurts doomed its massive bet on one
Speaker 1: hundred thousand Teslas. It's about how two finance veterans bought
Speaker 1: Hertz out of bankruptcy to save it.
Speaker 3: The Big Take piece takes an inside look at how
Speaker 3: their big idea to go all in on EV's and
Speaker 3: Tesla went wrong in almost every way. We were joined
Speaker 3: by Eric Shasker, Bloomberg New Economy editorial director, who co
Speaker 3: wrote the Big Take piece, and we first asked Eric
Speaker 3: for some context.
Speaker 13: The experience of a Tesla owner is very different from
Speaker 13: the experience of a Tesla renter, and going into this
Speaker 13: big bet on one hundred thousand Tesla's they placed in
Speaker 13: order for one hundred thousand Teslas. In fact, back in
Speaker 13: twenty twenty one, the new owners at Hurtz didn't appreciate
Speaker 13: that there were no data to be fair on what
Speaker 13: it was like for our rental car company to have
Speaker 13: evs in the fleet, because none did. Hertz was going
Speaker 13: to be the first, and so they did look at
Speaker 13: the data how to Tesla's perform when they're owned by individuals,
Speaker 13: And generally speaking, Tesla's perform well. They don't require a
Speaker 13: lot of maintenance. Obviously, refueling the car, so to speak,
Speaker 13: is a matter of plugging it in. But if it's
Speaker 13: your Tesla, it probably sits in your garage, or it
Speaker 13: sits in your driveway, or maybe if you live in
Speaker 13: a city like New York, it's at a parking garage
Speaker 13: and you've had a charger put in. That's all fine,
Speaker 13: and these people tend not to get into a lot
Speaker 13: of accidents, and they don't have range anxiety because they
Speaker 13: own the car, they made the decision to buy it.
Speaker 13: It's a totally different story when you get off of
Speaker 13: a Red Eye flight and stroll up to the Hertz
Speaker 13: counter and are told that no, I'm sorry, the car
Speaker 13: you reserved is not available, but we're giving you a Tesla.
Speaker 13: If you've never been behind the wheel of an EV
Speaker 13: it can be a terrifying experience.
Speaker 9: You don't know.
Speaker 13: You don't want to have to find a charger in
Speaker 13: the wild. You don't know what this instantaneous breaking is like.
Speaker 4: Turn the car.
Speaker 13: You don't realize that it has rocket like acceleration, and
Speaker 13: as a result, Hurts with its Tesla fleet, started running
Speaker 13: into all kinds of problems. They were crashing and it's
Speaker 13: very expensive to repair a Tesla. In many cases they
Speaker 13: have to be junked because insurance companies are worried about
Speaker 13: the damage that might have.
Speaker 9: Occurred to the battery.
Speaker 13: People didn't want to rent them, so the demand wasn't there,
Speaker 13: And then of course Elon Musk cut Tesla prices by
Speaker 13: thirty percent and kind of blew a hole into Hurts's
Speaker 13: balance sheet.
Speaker 1: Economic mod How did Hurts get into this position, It's
Speaker 1: a good question.
Speaker 13: This was a rental car company, the only major rental
Speaker 13: car company that went bankrupt in the early days of
Speaker 13: the pandemic.
Speaker 6: I'm a gold circle member of Hurts. By the way,
Speaker 6: I just strolled right up to my car, John.
Speaker 13: Some people have very good experiences with Hertz, including Paul Sweeney. Evidently,
Speaker 13: so Hurts went bankrupt. It was bought at a bankruptcy
Speaker 13: in June one by two professional investors.
Speaker 9: Tom Wagner runs Nighthead Capital and.
Speaker 13: Greg O'Hara is the founding partner at Satari's Management. They
Speaker 13: raised a billion and a half dollar fund. They wanted
Speaker 13: to find travel and leisure companies that had been crushed
Speaker 13: by the pandemic, but of course which in theory would
Speaker 13: soar once the economy reopened, and Hurts seemed like a
Speaker 13: great candidate. And actually that part of the thesis played
Speaker 13: out perfectly once the economy reopened. In fact, before the
Speaker 13: economy reopened, when people realized getting into a car and
Speaker 13: driving somewhere doesn't put me at risk of COVID at all,
Speaker 13: demand for rentals went sky high, and so coming out
Speaker 13: of this acquisition from bankruptcy, Hurts was crushing it. But
Speaker 13: they had a transformational plan to turn it into a
Speaker 13: largely electrified rental car company, and that's where everything went
Speaker 13: pear shaped. I talked about it, the demand, the damage,
Speaker 13: the price cuts, and we say it's a tale of hubris,
Speaker 13: because in many respects it is.
Speaker 9: Of course, everything looks clear.
Speaker 13: In hindsight, it did sound like an incredibly good idea
Speaker 13: of the time, and I think for the sake of
Speaker 13: the planet, it would be nice if you could electrify
Speaker 13: a rental car company and save you know, the environment
Speaker 13: from all the gasoline that gets poured into rental cars.
Speaker 13: But it just doesn't work in practice, and whether it's arrogance,
Speaker 13: whether it's hubris, whether it's blind optimism, it could be
Speaker 13: a combination of all those three. These new owners, these
Speaker 13: professional investors, one who runs a hedge fund, the other
Speaker 13: who runs a private equity firm, thought that they had
Speaker 13: an answer for this industry that the industry itself had
Speaker 13: ignored for years.
Speaker 9: And the truth of the matter is running any company in.
Speaker 13: The industry is tough, right, requires some experience maybe, And.
Speaker 3: The funny thing is, well, not for them, but is
Speaker 3: that they could be right just either a little earlier,
Speaker 3: a little late, depending on how you look at it.
Speaker 13: Like you know, whenever we talk about it early right,
Speaker 13: it's the broken clock thing, right, broken clock is right
Speaker 13: two times a day.
Speaker 9: And the case of being early.
Speaker 1: I thought it was a great strategy when I first
Speaker 1: heard it. Just sound to hit so many buttons there.
Speaker 1: But I guess it kind of goes to the bigger
Speaker 1: question which we asked the auto industry have we seen
Speaker 1: peak interest in evs?
Speaker 3: But this is why I found the article so interesting,
Speaker 3: because there were things that I didn't think about, in
Speaker 3: that they don't have dealerships, right, they don't have a
Speaker 3: relationship with dealerships. So like when my super retire gets,
Speaker 3: you know, messed up, I did just drive it in
Speaker 3: and then they fix it and then we drive out.
Speaker 3: Kind of thing.
Speaker 4: You can't do that with a Tesla.
Speaker 3: I never thought of that. For example, I never thought
Speaker 3: of how difficult it would be to all of a
Speaker 3: sudden get off a plane and go sit in a Tesla.
Speaker 3: It's weird enough getting in the morning to a Tesla
Speaker 3: and getting in the back seat. I can't imagine just
Speaker 3: being shoved into the front seat and having to drive
Speaker 3: it at the same time. And these little details I
Speaker 3: found to be very provocative.
Speaker 13: Well, they are, as you say, something of an indication
Speaker 13: as to why demand for EV's right now is slowing.
Speaker 9: Hurts.
Speaker 13: You know, we can play on the fact that it
Speaker 13: even has yellows. Part of its logo was the canary
Speaker 13: in the coal mine for the EV industry. True what
Speaker 13: began to happen it hurts is what the rest of
Speaker 13: the industry is beginning to wake up to that all
Speaker 13: of the evs that are being cranked out right now
Speaker 13: may not have a natural buyer because people aren't enough
Speaker 13: chargers out there. People haven't gotten over this idea that
Speaker 13: it's a different driving experience.
Speaker 9: People, as we all know.
Speaker 13: Are very personal about their cars. Right, It's an extension
Speaker 13: of themselves. And you don't want your arm to feel
Speaker 13: like it doesn't belong on your body, and that's in
Speaker 13: some respects how people feel about getting behind the wheel
Speaker 13: of an.
Speaker 9: EV all Right.
Speaker 3: Thanks Eric Shasker, Bloomberg New Economy Editorial Director.
Speaker 2: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
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