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Speaker 1: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 1: business stories impacting Wall Street and the global markets.
Speaker 3: Each and every week, we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries our analysts cover worldwide.
Speaker 1: Today, we'll look at a potential bank takeover that could
Speaker 1: reshape Europe's banking landscape.
Speaker 3: Plus we'll discuss why German automake are now sinking deeper
Speaker 3: into an industry wide crisis.
Speaker 1: For first, we dive into US politics, Vice President Kamala
Speaker 1: Harris and former President Donald Trump are in a closely
Speaker 1: contested race to be president, and we're now less than
Speaker 1: two months away from election day.
Speaker 3: Recently, Bloomberg Intelligence took another deep dive into the US
Speaker 3: presidential election. The research looked at how a potential Harris
Speaker 3: or Trump presidency could impact different sectors and policies in
Speaker 3: the US.
Speaker 1: For more on this, we were joined by Nathan Dean,
Speaker 1: Bloomberg Intelligence Senior policy analyst.
Speaker 3: We first asked Nathan to break down some of the
Speaker 3: sectors that could be impacted after the US election.
Speaker 5: In some of our key sectors to watch where we're
Speaker 5: like renewables tied to the Inflation Reduction Act. There's a
Speaker 5: lot of tax carrots, if you will, in there that
Speaker 5: are spurring renewable investment, especially in cap backs and a
Speaker 5: lot of up states. Others involved the banks, you know,
Speaker 5: the Basel three end game, a proposal that would increase
Speaker 5: capper requirements around nine percent for the investment banks.
Speaker 6: If President Trump wins, that may not go forward.
Speaker 5: Other things are global manufacturers due to the tax change's
Speaker 5: healthcare there are twenty five billion dollars in Obamacare subsidies
Speaker 5: that are up for renewal next year. Only big tech
Speaker 5: you know, whether if you be Kamala Harris, wins, are
Speaker 5: gonna have a continuation of the very stringent M and
Speaker 5: a anti trust authority that the Biden era regulators are
Speaker 5: putting on big tech.
Speaker 6: But if JD.
Speaker 5: Vance's idea of economic populism gets into the White House,
Speaker 5: you could see a Republican president.
Speaker 6: Also be very skeptical of big tech. So a lot
Speaker 6: of what ifs, but a lot of.
Speaker 5: You know, you know, scenarios in which those industries could
Speaker 5: be heavily impacted.
Speaker 1: You know, I listened to former President Trump's economic planeting
Speaker 1: Economic Club of New York. I don't know hard time
Speaker 1: making heads or tails out of it, but I guess
Speaker 1: it was lower taxes, higher tariffs. Is that kind of
Speaker 1: the basis of his economic I guess platform.
Speaker 6: Yeah.
Speaker 5: I think that's the really good point to point out,
Speaker 5: because I think it's almost like a phase one, phase
Speaker 5: two type of deal with President Trump.
Speaker 6: Wins.
Speaker 5: Phase one is tariffs. You know, this is something that
Speaker 5: he can do. The power of the presidency is a
Speaker 5: lot more powerful there, and so sorry the first half
Speaker 5: of twenty twenty five, you could see a lot more
Speaker 5: tariffs coming in.
Speaker 6: Now. I would argue that a lot.
Speaker 5: Of these tariffs are negotiation ploys. You know, if he
Speaker 5: holds up an execut order and says I'm going to
Speaker 5: sign a tariff, there's probably a language in that executive
Speaker 5: order saying two hundred and seventy days from now, it
Speaker 5: won't go into fruition until then, because you're gonna give
Speaker 5: the opposite side multiple times to negotiate. But it's certainly
Speaker 5: something that he's comfortable with and I think, you know,
Speaker 5: would easily put out if he feels that it's necessary.
Speaker 5: But then the tax reform debate is what's going to
Speaker 5: come next, because at the end of twenty twenty five,
Speaker 5: those Trump Ara tax cuts for individuals expire. Now President
Speaker 5: Trump has said fifteen percent corporate tax rate. I'm not
Speaker 5: sure he'll be able to get that. You know, he's
Speaker 5: gonna have to negotiate. We've seen a little bit of
Speaker 5: statements from House Republicans saying, yeah, maybe we should go
Speaker 5: down to twenty or nineteen or eighteen percent. But being
Speaker 5: able to pay for that fifteen percent it's going to
Speaker 5: be somewhat difficult for these deficit hawks. So but you know,
Speaker 5: there's a lot of provisions of the Trump are tax
Speaker 5: cuts that have already expired for industry, and I think
Speaker 5: President Trump is going to try and institute those though
Speaker 5: at a large level, think Trump two point zero is
Speaker 5: going to do another version of the same tax cut.
Speaker 3: I literally remember having the exact same conversation in twenty fifteen,
Speaker 3: twenty sixteen, like the phase to how you get it done,
Speaker 3: et cetera. So what's an interesting to me, though, is
Speaker 3: the lack of response though in say, high tax companies
Speaker 3: versus low tax companies, like the things that would make
Speaker 3: sense because those policies are so different, say on corporate taxes.
Speaker 3: Are we seeing that reflected within market moves?
Speaker 4: You know?
Speaker 5: I think so, But you know a lot I've been
Speaker 5: talking to a lot of investors over the last few weeks,
Speaker 5: and a lot of folks come to me and they say,
Speaker 5: we just really don't know what's going to happen on
Speaker 5: tax until we know the makeup of Congress. And the
Speaker 5: reason being is is that if President Trump wins but
Speaker 5: the Democrats take the House, pretty much all of his
Speaker 5: tax vision, if you will, is going to be curtailed, negotiated,
Speaker 5: and a lot more restricted. Now, if he ends up
Speaker 5: winning the House and the Senate, they can use reconciliation
Speaker 5: to essentially bypass the Democrats, and they have a very
Speaker 5: broad net that they can cast. So a lot of
Speaker 5: people that I've been talking to you of saying, look,
Speaker 5: we understand the Trump era desires and we understand that
Speaker 5: these broads deficit inducing tax cuts potentially could be on
Speaker 5: the horizon, but we're not excited about it. Just yes,
Speaker 5: because we need to see how the House and Senate
Speaker 5: races play out.
Speaker 1: What is the thinking currently in Washington, Nathan about how
Speaker 1: that will play out in Congress?
Speaker 5: Well, look, I mean, you know, if you go to
Speaker 5: the function on the terminal WSL election, you can see
Speaker 5: all the data there. But I think you know when
Speaker 5: it comes to the Senate, that's going to be somewhat
Speaker 5: very difficult for the Democrats to control because right now
Speaker 5: it's fifty one to forty nine. You're gonna lose West
Speaker 5: Virginia because Senator Joe Manchin is retiring, So now you're
Speaker 5: at a fifty fifty and the Democrats essentially have to
Speaker 5: run the board just to keep that fifty to fifty.
Speaker 5: Think of Senator Shery Brown in Ohio, Senator John Tester,
Speaker 5: and Montana Senator Jackie Rose in Nevada. So assuming that
Speaker 5: if the Democrats lose one, the Republicans are most likely
Speaker 5: going to take the Senate. And if President Trump wins,
Speaker 5: then obviously allow him the ability to put in.
Speaker 6: Judges and his regulatory leadership when it comes to the House.
Speaker 6: I've seen pulling up both sides.
Speaker 5: But my general view, and this is just my personal view,
Speaker 5: is that whoever wins the President also wins the House.
Speaker 1: Our thanks to Nathan Dean, Bloomberg Intelligence Senior Policy Analyst.
Speaker 3: We next take a look at the coffee chains Starbucks.
Speaker 3: Starbucks CEO Brian Nicchol officially took office this week, and
Speaker 3: expectations for him are high.
Speaker 1: The company shares sort of eighteen percent after it named
Speaker 1: Nicol CEO, and this comes after two consecutive quarters of
Speaker 1: sales slumps. For more, we were joined by Michael Halen,
Speaker 1: Bloomberg Intelligence Senior Restaurant and Food service centerals.
Speaker 3: We first asked Michael just how long the market gives
Speaker 3: Nicol before judging him.
Speaker 7: It's tough to say, right, you know, I think really
Speaker 7: it's going to take some time. You know, you don't
Speaker 7: turn around an aircraft carrier on a dime, you know,
Speaker 7: Starbucks is a behemoth of a company, so I think
Speaker 7: the market gives him some time. He's got a phenomenal
Speaker 7: track record, right what he's done at Taco Bell and
Speaker 7: then Chipotle, obviously we're very impressive, you know, and he's
Speaker 7: really you know, the first thing he's going to do,
Speaker 7: I think is just try to change that culture, right,
Speaker 7: bringing in a culture of transparency, accountability. He's going to
Speaker 7: talk about hard work and compensating his employees for doing
Speaker 7: a good job, because you know, those are some of
Speaker 7: the things he talked about changing at Chipotle on his
Speaker 7: first earnings call there. So you know, all that stuff's
Speaker 7: going to take a little bit of time, and because
Speaker 7: of his track record he'll get he'll get a pretty
Speaker 7: long leash.
Speaker 1: I think, what are the challenges facing this company? Because
Speaker 1: just as a consumer, I mean the Starbucks and Route
Speaker 1: thirty five in Wall Township, New Jersey, they do a
Speaker 1: great job. People are great. It just works like a
Speaker 1: charm stores in great shape. The one in Summit's good,
Speaker 1: it's always packed. What do they need to do here?
Speaker 1: I don't think anything's broken.
Speaker 7: You know, it sounds like that location is doing pretty well.
Speaker 7: But they have of thousands and thousands of locations across
Speaker 7: the globe. I mean, you know, in the US, operations
Speaker 7: is a big issue. You know, drink orders have become
Speaker 7: more complicated. Digital orders have kind of changed the experience
Speaker 7: for the in cafe customer, right, Like it was it
Speaker 7: became popular because the briests new your name, right, and
Speaker 7: the level of service was phenomenal for a chain of
Speaker 7: that size, right, and through digital ordering and these very
Speaker 7: complicated orders, you know, they've lost some of that, right,
Speaker 7: and so so operations, you know, they're losing a lot
Speaker 7: of orders because people are trying to place them on
Speaker 7: the app and the wait times are are kind of
Speaker 7: obnoxious at times, right, And so I think operations is
Speaker 7: going to be his primary focus. Running the best cafes
Speaker 7: possible is really going to be job number one. But
Speaker 7: there's a bunch of different issues, you know, operations is
Speaker 7: just one of them. Politics has been an issue, right.
Speaker 7: Starbucks has always been a brand that kind of puts
Speaker 7: their politics in your face, and I think Brian Nichol
Speaker 7: is going to want to step back from that, right
Speaker 7: because you know, all the issues they've had with their
Speaker 7: customer base, right, people haven't been happy with you know,
Speaker 7: there's been some boycott talks online about their stance on
Speaker 7: the Israel Hamas War, about their stance and how they've
Speaker 7: handled the union negotiations. You know, So that's a big thing.
Speaker 7: And then you know, we think eventually, once they have
Speaker 7: the stores running really really well, they're going to start
Speaker 7: spending some more money on marketing. Maybe not a ton
Speaker 7: of money, but we would expect them to start spending
Speaker 7: on marketing.
Speaker 1: You know.
Speaker 7: It's not something that that Starbucks has traditionally done. But
Speaker 7: it also wasn't something that Chipotle had traditionally done, and
Speaker 7: it's been paying them dividends now for a handful of years.
Speaker 3: So I think with Chipottle though, we just maybe Paul
Speaker 3: can attest. Is it like there's a menu and it's basic,
Speaker 3: like they're add ons, right, but like it's a basic menu.
Speaker 3: Starbucks menu is like explosive, Like they can't even have
Speaker 3: all the options up on the ordering board because they're
Speaker 3: just too many. So it is working with operations and
Speaker 3: getting that better. I mean, they have to pair back
Speaker 3: their menu and get back.
Speaker 8: To their base. Yeah.
Speaker 1: Probably.
Speaker 7: You know, we had been critical of the previous management
Speaker 7: team because they kept rolling out new menu platforms and
Speaker 7: then in the in the next breath talking about improving throughput.
Speaker 7: But you can't have baths, so we we fully expect
Speaker 7: them to pair back this menu, make it easier to
Speaker 7: execute in the cafes, right, make lie it's easier for
Speaker 7: their employees and get the orders out faster. So yeah,
Speaker 7: I think that's going to be a major part of
Speaker 7: what they do going forward.
Speaker 1: I mean, Bloomberg had a story from last in twenty
Speaker 1: twenty three where I mean the variations. If you add
Speaker 1: all the potential options, there's like billions of different types
Speaker 1: of drinks that could be oh yeah, yeah, you know.
Speaker 3: So it's just at it and there's like the cold drink,
Speaker 3: there's the tea, there's the refreshers. Then there's the frozen
Speaker 3: refreshers and the blended refreshers. And I know those because
Speaker 3: my daughter likes those things. But sometimes you get them
Speaker 3: frozen and sometimes they're not. It's very complicated.
Speaker 1: I know how they do it, and my power, you know,
Speaker 1: my hats off to them. All Right, let's step back
Speaker 1: and look at the restaurant space in general. Here, You've
Speaker 1: got some research out recently restaurant promotions marketing heat up.
Speaker 1: That's not what shareholders want to hear, do.
Speaker 7: They no, But restaurants are kind of desperate right now
Speaker 7: to get some traffic into their stores. Low income consumers
Speaker 7: spending has been very weak. This seems to be spreading
Speaker 7: to the middle income consumers, right, based on the industry
Speaker 7: data that we've seen, which showed an improvement you know,
Speaker 7: last month in August, but it was still negative at
Speaker 7: casual dining restaurants, at family dining restaurants, and at quick service, right,
Speaker 7: and so they bounce from that horrific July numbers that
Speaker 7: we saw, but still are negative. And so yeah, restaurants
Speaker 7: are trying to do whatever they can to bring you know,
Speaker 7: those low income consumers and middle income consumers back into
Speaker 7: their restaurants. You know, just for example, it was you know,
Speaker 7: I think it's thirty five out of the last thirty
Speaker 7: seven quarters quick service chains have had negative traffic, right,
Speaker 7: And so that's that's not a sustainable type of situation
Speaker 7: when you have same source sales rising because your prices
Speaker 7: are going up, but traffic can continues to decline. Eventually
Speaker 7: there's a tipping point, and that's what we've seen this year.
Speaker 3: So to that point, then, which ones are do you
Speaker 3: have faith that can maintain some kind of margin and
Speaker 3: also grow their top line.
Speaker 7: You know, it's some of these chains that have a
Speaker 7: big gas on pricing, you know, in terms of you know,
Speaker 7: they've been pricing less.
Speaker 9: Than their competitors.
Speaker 7: Right, So if you you're providing a lot of value,
Speaker 7: and value can be two ways. It can be a
Speaker 7: better price, but it also can be a lot more
Speaker 7: food for what you pay. But some of these companies
Speaker 7: that people see value at, you know, Winkstop, Chipotle, Texas Roadhouse,
Speaker 7: these are all of the chains that have been outperforming.
Speaker 7: These all of the chains that have been able to
Speaker 7: drive traffic, and a big part of it is being
Speaker 7: priced below competitors. You know, Winkstops raise prices about half
Speaker 7: as much as their competitors, and on their last earnings call,
Speaker 7: they credited that as a big reason for their phenomenal
Speaker 7: qorder our.
Speaker 1: Thanks to Michael Halen Bloomberg Intelligence, senior restaurant and food service.
Speaker 3: Centers coming up will break down Apples rise into the
Speaker 3: most valuable company in the world.
Speaker 1: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 1: depth research and data on two thousand companies in one
Speaker 1: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 1: b I go on the terminal on Paul.
Speaker 3: Sweeney and a Malex Steele. This is Bloomberg.
Speaker 2: This is Bloomberg Intelligence with now like Steele and Paul
Speaker 2: Sweeney on Bloomberg Radio.
Speaker 3: We look next at European banks. This week we heard
Speaker 3: that Unit Credit has built a nine percent stake in
Speaker 3: Commerce Bank and plans to enter into talks with the lender.
Speaker 1: This raises the possibility of a full takeover that could
Speaker 1: reshape Europe's banking landscape for more. We were joined by
Speaker 1: Philip Richards, Bloomberg Intelligence, senior analysts for European banks.
Speaker 3: We first asked Philip to break down the possibility Commerce
Speaker 3: Bank will actually be taken over.
Speaker 10: It's an interesting one. As you say, this is not
Speaker 10: a new boombed deal. It's been going on for literally
Speaker 10: well over a decade now in terms of big cross
Speaker 10: bordered deals. But the simple case of mains, any big
Speaker 10: cross border transaction among European banks so hasn't happened in
Speaker 10: the last fifteen years since the clasis. Will it happen now? Yes,
Speaker 10: it's possibility, but there's still a lot of hurdles on
Speaker 10: left in terms of the German government allow and specifically
Speaker 10: when it would flag. The German market is very different
Speaker 10: to all the other European markets, very big cooperative or
Speaker 10: mutual society. They've got the Sparcasm and the Landers banks.
Speaker 10: So actually the private banks Deutsche Bank and Commerce Bank
Speaker 10: are a much smaller part of the overall market. And
Speaker 10: therefore could they take out the second biggest germin Bank?
Speaker 10: I think it is possible on our front.
Speaker 1: Would it be a good deal for Unit Credit? I
Speaker 1: guess what I'm asking is how good of a management team,
Speaker 1: how good of a franchise is UniCredit?
Speaker 4: Well?
Speaker 10: Is it a good deal? I mean that will come
Speaker 10: down to the price. And one good thing about Commerce
Speaker 10: Bank is is pricing is a low level in terms
Speaker 10: of what you get for it. Yes, the earnings have
Speaker 10: been very very weak for the last fifteen years, one
Speaker 10: of the lowest return and equity of all banks in Europe,
Speaker 10: but they have increased massively with rate risers across Europe.
Speaker 10: But of course the flip tide to that, of course,
Speaker 10: is interest rates now going down. So the question becomes
Speaker 10: what will happen to Commerce Bank's earning is going forward?
Speaker 10: And frankly they're probably going to be going down and
Speaker 10: therefore that's where the pressure on them will lie. So
Speaker 10: are they getting a good deal or they're paying almost
Speaker 10: at the top in terms of their earning potential?
Speaker 3: What company would that make UniCredit like, would this be
Speaker 3: a gient investment bank and a giant retail bank.
Speaker 10: Well, they will become the third largest European bank if
Speaker 10: they did the deal in terms of a market cap basis.
Speaker 10: Obviously Commerce Bank is almost entirely now a retail and
Speaker 10: commercial bank is sold or the investment banking operations that
Speaker 10: had after the financial crisis, So this is amount of
Speaker 10: the case of expanding in terms of that retail commercial space.
Speaker 10: UniCredit have a big presence in Germany already through hyper
Speaker 10: Variant Bank, so one of the attractions to sort of
Speaker 10: deal for them would be combining that so Commerce Bank
Speaker 10: and hyper viands and therefore trying to get the constand
Speaker 10: news out of them. But say, it's veryment on a
Speaker 10: commercial retail side rather than investment banking.
Speaker 1: So Philip talk to us about I mean, just the
Speaker 1: German banking market. Does there need to be consolidation.
Speaker 10: Does they? Yes? I mean it's probably the least consolidated
Speaker 10: market in Europe in terms of as you said, you've
Speaker 10: got this huge number of coopertive banks or sparkasms, et cetera.
Speaker 10: So it is a very difficult and diluted market. But
Speaker 10: the fact is, you know, Commerce Bank itself has got
Speaker 10: a sub ten percent market share. So even if you
Speaker 10: got it, did buy it and combined hyper virans with it,
Speaker 10: they're still probably just getting over about that ten percent mark.
Speaker 10: So will it change the dial in Germany not at all,
Speaker 10: you know, because we're only talking in a thirty percent subsector.
Speaker 10: In terms of the private banks, we're seventy percent or
Speaker 10: so off the market you know, is in this mutual side.
Speaker 3: So you were talking earlier that this has been rumored
Speaker 3: for ten years. I remember talking about this at least
Speaker 3: six plus years ago. Also, why do you think that
Speaker 3: now could be actually the moment.
Speaker 10: Well, you asked us about you know, what they get
Speaker 10: in terms of the Commerce Bank. We heard your CEO
Speaker 10: of Commerce Bank said he will not renew a tenor
Speaker 10: which I missed fires at the end of next year.
Speaker 10: So you know that does open a hole at the
Speaker 10: top of the bank would obviously be in traction for them.
Speaker 10: There's one potential way of doing it. Who would have
Speaker 10: bought Commerce Bank given the excessive risks they had, say
Speaker 10: three or four years ago, where we had the commercial
Speaker 10: real estate risks, we had the bank trading at point
Speaker 10: three times book value. We had earnings are very very low.
Speaker 10: So in a way the risk has gone away a
Speaker 10: lot of Commerce Bank because simply because the earnings are
Speaker 10: much stronger now because of those rate rises. Also, the
Speaker 10: German government took a big stake in the bank, so
Speaker 10: as they sell that than further down. That's part of
Speaker 10: the way Unichledate built their state. Today that obviously becomes
Speaker 10: more and more attractive because it comes more into the private sector.
Speaker 10: So there are numbers more reasons why it could happen,
Speaker 10: but doesn't mean anything will happen then, No, is.
Speaker 1: This going to ignite maybe a little bit more discussion
Speaker 1: about more across M and A trades just broadly defined
Speaker 1: across Europe.
Speaker 10: Without any doubt it will trigger more emine spectation today,
Speaker 10: And I think the fact that you said they build
Speaker 10: a temperate stake and yet the share then rally twenty
Speaker 10: percent shows that the market doesn't think this is the
Speaker 10: end of the story and there's going to be more
Speaker 10: of a deal and the potential by bid for Commerce
Speaker 10: Bank is possible. That said, you know, why has there
Speaker 10: been no big m and A across the sector now
Speaker 10: for fifteen years? And because a number of the regularly
Speaker 10: hurdles are main You know, there's not a single rule
Speaker 10: book across Europe, government interference, people don't want to leave
Speaker 10: their biggest banks and be taken over by a foreign institution,
Speaker 10: et cetera. All these hurdles and nothing's actually changed on
Speaker 10: that front. So you know, no big deals have happened.
Speaker 10: Could this be the first, Yes, but it's by no
Speaker 10: means certain it will.
Speaker 3: Thirty seconds if the deal does happen. Would the bank
Speaker 3: be able to lend more and do stuff?
Speaker 10: I would have said yes three years ago just because
Speaker 10: of the week of financial position that Commerce Bank was in.
Speaker 10: I think because of the eaight hikes. Now is in
Speaker 10: a much stronger position. It's got a service capital position itself,
Speaker 10: so there's no real bowriers in terms of the supply side,
Speaker 10: their potential to lend more. What's restraining them from growing
Speaker 10: actually more the weaker Germany economy, and we're hearing more
Speaker 10: about that over the press, and that's what's being holding
Speaker 10: them back and Franklly, nothing changes with his unique credit
Speaker 10: deal there those heard will still remain. So no, I
Speaker 10: don't think this would really help in terms of the
Speaker 10: lending or the growth potential. It's much more I think
Speaker 10: about the synergies in terms of the cost takeout potential.
Speaker 6: All right.
Speaker 1: Thanks to Philip Richards, Bloomberg Intelligence Senior analyst for European Banks,
Speaker 1: we now.
Speaker 3: Turned to big tech and Apple. Apple was the subject
Speaker 3: of a Bloomberg Big Take piece this week titled How
Speaker 3: Apple Rules the World.
Speaker 1: It discussed how Apple ascended from a scrappy tech underdog
Speaker 1: to the most valuable company in the world.
Speaker 6: From More.
Speaker 1: We were joined by Austin Karr, Bloomberg News technology reporter.
Speaker 3: We first asked Austin to connect all the dots for
Speaker 3: Apple from the nineteen eighties until now.
Speaker 9: You want me to summarize forty years and can you
Speaker 9: go up?
Speaker 10: Okay?
Speaker 9: Well, well, really, what this story does is chart why
Speaker 9: and how Apple found in its position today, facing a
Speaker 9: big antitrust lawsuit in the US, a lot of regulatory
Speaker 9: pressure in Europe, as well as a lot of really
Speaker 9: just skepticism and criticism for a lot of the partners
Speaker 9: and developers that have depended on Apple over the years,
Speaker 9: and it charts out basically Apple has changed from that
Speaker 9: nineteen eighty four era when it released the Mac it
Speaker 9: was seen as this sort of disruptive force in the
Speaker 9: technology industry to twenty twenty four when a lot of
Speaker 9: people think that this is a sort of domineering force
Speaker 9: that needs to be disrupted. So we go through from
Speaker 9: the Mac to the iPod and iPhone up through present day,
Speaker 9: and it's just really just putting all the pieces together
Speaker 9: about how Apple finds itself in that position now.
Speaker 1: And Austin, along with Max Chafkin, you guys reported this
Speaker 1: story just fantastic work. But for me, Cameron Galley, he
Speaker 1: does all the illustration. It just made it really cool
Speaker 1: and really interactive, some awesome stuff as always. So Austin,
Speaker 1: where do you think Apple goes from here? Is it
Speaker 1: just new products? Is it maybe getting more ingrained in
Speaker 1: our daily lives if that's even possible. What do you
Speaker 1: think kind of a longer term vision is for the
Speaker 1: folks in Kupertino?
Speaker 9: Look, I mean, I think a really good question for
Speaker 9: listeners right now or even you guys, is just this
Speaker 9: new iPhone? If you guys are Apple users have you
Speaker 9: ever seriously considered switching to a different device, or is
Speaker 9: it just the default now that I'm going to upgrade
Speaker 9: to the iPhone sixteen, maybe at default, And so I
Speaker 9: think the question is how long can that last where
Speaker 9: it is just sort of the default. I mean, even
Speaker 9: their new features they are all about you know, AI
Speaker 9: and how that ties into some of its hardware, But
Speaker 9: in all honesty, they're two years late to AI. A
Speaker 9: lot of the features. Mark Kerman or Apple colleague is
Speaker 9: reporting that won't really release until twenty twenty five, at
Speaker 9: which point maybe you should just wait for the iPhone seventeen.
Speaker 9: And I just think there's a big question about you know,
Speaker 9: Apple's products are still good. They still make you know,
Speaker 9: the best laptop, the best you know watch and earbuds.
Speaker 9: I'm talking through my AirPods right now. But at the
Speaker 9: same time, when they don't face that type of pressure,
Speaker 9: does their products just become too incremental and too boring?
Speaker 9: And I think that is when you're going to see
Speaker 9: a lot more disruptives trying to change the way computing
Speaker 9: works and work outside of the Apple ecosystem. But the
Speaker 9: problem for consumers like us is we're kind of stuck
Speaker 9: in it. I'm not going to switch anytime soon for sure.
Speaker 3: Well then to that point. But I found also interesting,
Speaker 3: and I didn't know in the piece that you wrote,
Speaker 3: was sort of Tim Cook's role in managing Apple supply chain,
Speaker 3: and you dug deep into Apple would have a supply
Speaker 3: chain partner and then in essence look to manufacture that
Speaker 3: in house, and then booed that company, which is really
Speaker 3: messed up tons of companies around the world. Can you
Speaker 3: give us some detail on that.
Speaker 4: Sure.
Speaker 9: The most infamous example actually goes back about a decade ago.
Speaker 9: Apple was developing these new sapphire screams that were going
Speaker 9: to be alter durable instead of the glass that they
Speaker 9: currently use, and they sort of outsourced it to a
Speaker 9: partner and then left that partner on the hook with
Speaker 9: all the liability when Apple decided not to go that
Speaker 9: route because the sapphire wasn't quite going as fast as
Speaker 9: they could develop it for the iPhone. And I think
Speaker 9: that we sort of position that a symbolic of what
Speaker 9: Apple has seen with a few of the partners they've
Speaker 9: worked with over the years, not just in the supply chain,
Speaker 9: but also on the software ecosystem side. It's really fascinating
Speaker 9: all this sort of trend that we see of a
Speaker 9: partner really excited to work with Apple in the beginning,
Speaker 9: like Goldman Sachs on the Apple card or even General
Speaker 9: Motors we sid as another example of working them on CarPlay,
Speaker 9: and then years go by and suddenly they're not so
Speaker 9: happy with the relationship with the Apple anymore. And I
Speaker 9: think that really has become our trend in recent years
Speaker 9: as the company has grown to this massive, multi trillion
Speaker 9: dollar force that essentially it's Apple's where or the highway.
Speaker 9: And I'm just curious how long that will last with
Speaker 9: partners before they say, you know what, enough is enough?
Speaker 1: And you know, Austin, I think for a lot of
Speaker 1: investors one of the longer term issues that's still always
Speaker 1: out there and is probably increasing in concern. It's just
Speaker 1: the regulatory risk for not just Apple but kind of
Speaker 1: big tech in general, but certainly for Apple given their
Speaker 1: marketing position. How do you think the companies kind of
Speaker 1: how do they react to that, and just in terms
Speaker 1: of a long term thread or headwind.
Speaker 9: Well, actually, I mean the DOJ case in the US.
Speaker 9: You know, they just released their their complaint in March.
Speaker 9: Apple is pushed to dismiss it just earlier in August.
Speaker 9: That's going to play out over the course of years.
Speaker 9: I think that, you know, the preceding cases with the
Speaker 9: DOJ and IBM or DJ and Microsoft. I mean this
Speaker 9: last many, many years, but we're already seeing sort of
Speaker 9: a precursor to that, and what's happening in Europe with
Speaker 9: the Digital Markets Act, which has already pushed Apple to
Speaker 9: change a ton In fact right now in Europe because
Speaker 9: of those regulatory changes, you can get an alternative marketplace,
Speaker 9: meaning you don't just have to rely on Apple's App store.
Speaker 9: You're you're actually able to delete a lot of native
Speaker 9: Apple apps that you can't delete the US. You can
Speaker 9: delete Safari, you can, You'll eventually be able to delete
Speaker 9: your phone app, your camera app, the app store and
Speaker 9: just use alternative products from the third party ecosystem. And
Speaker 9: so what you're seeing in Europe is this almost two
Speaker 9: track system where they have a lot more flexible sort
Speaker 9: of computing platform than anywhere else if you're an Apple user.
Speaker 9: So I think what they've sort of done is take
Speaker 9: this almost whack a mole approach to regulation the EU,
Speaker 9: and even in some of the pressure they've seen in
Speaker 9: the US, they've had to open up that walled garden that,
Speaker 9: as we refer to it, sort of their closed ecosystem
Speaker 9: a little bit more in a way that Apple doesn't
Speaker 9: like because they lose control. But for consumers in a
Speaker 9: lot of ways, it's a little bit interesting to watch
Speaker 9: this company have to change and not just have it
Speaker 9: the Apple approach. They're going to have to, at least
Speaker 9: in Europe so far, open up their wild garden a
Speaker 9: little bit allows some more players within their ecosystem to
Speaker 9: run some of those fundamental cards.
Speaker 4: All right.
Speaker 1: Thanks to Austin car Bloomberg News technology reporter.
Speaker 3: Coming up on the program, a look at why activity
Speaker 3: in the carbon capture industry is starting to slow in
Speaker 3: the US.
Speaker 1: They're listening to Bloomberg Intelligence on Bloomberg Radio, providing research
Speaker 1: and data on two thousand companies and one hundred and
Speaker 1: thirty industries. You can access Bloomberg Intelligence via bi go
Speaker 1: on the terminal.
Speaker 3: I'm Paul Sweeney an a Malex Steel, and this is Bloomberg.
Speaker 2: Your listening to Bloomberg Intelligence Nowlex Steel and Paul Sweenie
Speaker 2: on Bloomberg Radio.
Speaker 3: We move now to the auto industry and focus in
Speaker 3: on Europe. German carmakers are now sinking deeper into an
Speaker 3: industry wide crisis.
Speaker 1: This week, BMW warned their profits We'll get hit by
Speaker 1: a costly brake problem to Volkswagen scrap job protections that
Speaker 1: workers have enjoyed for three decades for more.
Speaker 3: We are joined by Michael Dean, Bloomberg Intelligence, Head of
Speaker 3: Global Autos, and we first asked Michael to dig deeper
Speaker 3: into YBMW lowered its expectations for the year.
Speaker 11: So BMW had a profit warning, and that was partly
Speaker 11: on the back of a warranty issue has with its
Speaker 11: breaks not on the xtreek.
Speaker 4: So you'll fine Paul Good, but they're going to have to.
Speaker 11: Recall one point five million vehicles and that's going to
Speaker 11: cost a high three digits million in terms of earnings
Speaker 11: for twenty twenty four. But that doesn't tell the whole
Speaker 11: story because they've downgraded their margin by about two hundred
Speaker 11: bases points, which is about two billion v bits. So
Speaker 11: the balance of that is coming from we could China sales,
Speaker 11: lower pricing in Europe, lower demanding you. So just the
Speaker 11: demand and pricing environment globally has been very difficult and
Speaker 11: that's part of the reason for the profit warning.
Speaker 3: Which then leads us to Volkswagen. So the latest news
Speaker 3: is that it's ending its job protections for autoworkers in
Speaker 3: Germany as part of its cost cutting push. There are
Speaker 3: several agreements that were linked to a three decades old
Speaker 3: pack that was supposed to safeguard employment un till twenty
Speaker 3: twenty nine, but now those guarantees are going to run
Speaker 3: out by the middle of next year.
Speaker 4: I mean, wow, yeah.
Speaker 11: So you know, Volkswagen was in the news last week
Speaker 11: because it said it needs to close half a million
Speaker 11: units of capacity in Germany. So that's very difficult because
Speaker 11: of workers' rights. And you know, worker's rights have been
Speaker 11: very one sided for Volkswagen in particular because you have
Speaker 11: VW law and this is where twenty percent of the
Speaker 11: ordinary shares, the voting shares are owned by the States
Speaker 11: of Lower Saxony, which is where Volkswagen's biggest battery is,
Speaker 11: and funnily enough, and they have the ability to block
Speaker 11: certain agreements. So workers rights are very strong for Volkswagen employees.
Speaker 11: And now I think management are saying, okay, hold on
Speaker 11: a minute. The automotive world is changing rapidly. We need
Speaker 11: to do something to reduce costs. And part of that
Speaker 11: is the close factories and reduce jobs.
Speaker 1: Michael, give us it just a thirty thousand foot view
Speaker 1: of kind of the global auto business here. I mean,
Speaker 1: the weakness that you're seeing in Europe, the weakness you're
Speaker 1: seeing in China. Is that just general economic weakness effect
Speaker 1: that we've seen in past cycles or is this something
Speaker 1: to do with this ongoing transition to electric vehicles.
Speaker 11: Yeah, it's a bit of both. So you know, you
Speaker 11: have the transition to battery electric vehicles. It's going much
Speaker 11: slower than expected in Western markets. Other markets probably going
Speaker 11: quicker than expected, such as China. But the problem Volkswagen
Speaker 11: has is that the competition is so intense and has
Speaker 11: overtaken them in China, such as BYD So. Volkswagen a
Speaker 11: couple of years ago was the market leader in China.
Speaker 11: Now byd within two years has overtaken Volkswagen. And really
Speaker 11: it's going to be a survival of the fittest in
Speaker 11: these markets.
Speaker 3: Well, I mean, these companies aren't going to go under
Speaker 3: or anything, right, So I guess I'm wondering when the
Speaker 3: trough is When do we know what is a trough
Speaker 3: actually going to look like?
Speaker 11: Well, you say, well, a lot of companies could could
Speaker 11: go under, particularly the pure play battery electric vehicles.
Speaker 3: And I mean I just meant that, like Germany is
Speaker 3: not gonna let Bolkswagon.
Speaker 4: Go bankrupt now, of course.
Speaker 11: And the interesting thing if you look at the valuation
Speaker 11: of Volkswagen today is valued at forty five billion euros.
Speaker 4: I've had a lot of clients talk to me about this.
Speaker 11: They have almost forty billion of cash on the balance sheet,
Speaker 11: there's seventy five percent stake in Porsche is worth forty
Speaker 11: five billion euros. They own Lamborghini brands, which has higher
Speaker 11: probability rates than Ferrari, which is currently valued at seventy
Speaker 11: seven billion. So we think Lamborghini's worth thirty billion to
Speaker 11: use a Ferrari valuation. So there's some of the parts
Speaker 11: of volksg is huge compared to the actual valuation at
Speaker 11: Volkswagen at the moment.
Speaker 1: So you highlight an area for me that just kind
Speaker 1: of feels like a long term issue, which is China.
Speaker 1: I mean, if you they spend decades they being any
Speaker 1: auto company Volkswagen, BMW, Mercedes, whatever, building brand value and
Speaker 1: brand loyalty in a market like China, and in a
Speaker 1: period of two years they've lost that. It seems like,
Speaker 1: I mean, is that the real barish case for some
Speaker 1: of these global auto companies.
Speaker 4: It's a it's a big case.
Speaker 11: So for the German auto makers, in the past few years,
Speaker 11: China was the most profitable market, accounted for thirty five
Speaker 11: of their profits. Now this year it could be as
Speaker 11: low as ten percent, and you know what the market's
Speaker 11: pricing is is that could be zero in the future.
Speaker 11: And that's because the technology changing and the way that
Speaker 11: startups in China are pushing through so quickly. They're really
Speaker 11: fighting for market share at the moment and their future.
Speaker 3: So then it goes back to my question, what does
Speaker 3: the bottom for either US car companies or for European
Speaker 3: car companies wind up looking? Like as the tariffs go
Speaker 3: into place, as China keeps producing those really CHEAPVS, as
Speaker 3: we have different restrictions here in the US, like what
Speaker 3: is that?
Speaker 11: Well, you look at what GM and Ford have done,
Speaker 11: I mean, in particulate, it's looked at different markets and
Speaker 11: if it's not profitable, it's pulled out of those markets.
Speaker 11: So China's one example, Europe's another example. So it's whether
Speaker 11: the German automakers take a view that can they be
Speaker 11: profitable in China in the future, and many foreign carmakers
Speaker 11: are saying no. Volksnagen at the moment is saying yes
Speaker 11: we can, and they've got this long term plan and
Speaker 11: they've invested in Xpeng so hopefully accelerate their transition. But
Speaker 11: it's going to be very, very difficult for foreign carmakers
Speaker 11: to continue to make profits in China.
Speaker 1: So I mean again it feels like is there an
Speaker 1: even discussion of whether they should be there at some point.
Speaker 11: Certainly within the markets, but for the company itself that
Speaker 11: they've invested heavily in China and they've got a plan
Speaker 11: now to try and catch up with local producers, to
Speaker 11: catch up with BYD, which is with this partnership with XPANG.
Speaker 11: So they think they've got an opportunity because they've got
Speaker 11: a good brand in China.
Speaker 4: But it's going to be very tough. I mean, pricing in.
Speaker 11: China is really really competitive at the moment, so the
Speaker 11: point where battery electric vehicles are actually priced below internal
Speaker 11: combustion in vehicles compared to that to Europe, where the
Speaker 11: average battery electric vehicle is thirty five percent higher than
Speaker 11: a ice vehicle, and they still can barely make a
Speaker 11: profit in Europe, so yeah, it's a very tough environment.
Speaker 1: Thanks to Michael Dean, Bloomberg Intelligence, Head of Global Autos.
Speaker 3: Each week we look at research from Bloomberg n EF
Speaker 3: previously known as New Energy Finance. The team in Bloomberg
Speaker 3: the tracks and analyzes the energy transition from commodities to power, transport, industries, buildings,
Speaker 3: and agricultural sectors.
Speaker 1: This week we looked at carbon capture. After two years
Speaker 1: of consecutive and dramatic growth, activity in the carbon capture
Speaker 1: industry is starting to slow in the US.
Speaker 3: For more, we are joined by Brenna Casey, Bloomberg BNEF
Speaker 3: carbon Capture Analyst.
Speaker 1: We first asked Brennet to define what carbon capture is.
Speaker 12: Basically simply CCUS carbon capture, utilization and storage. It's kind
Speaker 12: of just a way to abate emissions from heavy industry,
Speaker 12: so things like petrochemical refineries, integrated steel mills, hydrogen blue hydrogen.
Speaker 4: Okay.
Speaker 12: Natural gas processing is a huge historical and use sector.
Speaker 3: So basically there's some sectors that you cannot decarbonize you
Speaker 3: and they have to exist, like you need cement for example.
Speaker 3: So this is a way to kind of get them
Speaker 3: out of the air, and then the question is kind
Speaker 3: of what do you do with it? Do you reuse
Speaker 3: it somewhere, do you put it somewhere, do you store
Speaker 3: it in a rock or somewhere else. And it's been
Speaker 3: a huge focus for a lot of companies, energy companies
Speaker 3: and a like in oil companies for example, what has
Speaker 3: been the investment cycle like and.
Speaker 8: Where are we now in that cycle?
Speaker 12: Yeah, So if we're looking particularly to the US, following
Speaker 12: the Inflation Reduction Act, we saw this catalysis of not
Speaker 12: only project announcements, but kind of you know Series A,
Speaker 12: you know, lots of equity finance into that into the
Speaker 12: market right now, as you know, the IRS has still
Speaker 12: yet to address forty five Q. So that's the inflation
Speaker 12: reduction Yeah. Yeah, So the Inflation Reduction Act, which was
Speaker 12: signed into law you know, two years ago. Forty five
Speaker 12: Q is an investment tax credit that the government is
Speaker 12: proposing to you know, heavy emitters. They can if they
Speaker 12: meet X, y Z requirements, then they can take this
Speaker 12: credit and apply it to their tax burden. And you know,
Speaker 12: kind of helps to mitigate the cost of ccs because
Speaker 12: it's extremely capex intensive.
Speaker 3: So if you store your carbon er get it out
Speaker 3: of the air, you get a tax credit.
Speaker 12: Okay, Yeah, it's like eighty five dollars per ton if
Speaker 12: you store it, and then sixty if you reutilize it.
Speaker 8: Yeah, exactly.
Speaker 12: However, the IRS has yet to finalize the criteria, so
Speaker 12: developers don't know what actually constitutes as a project that
Speaker 12: can qualify for these sorts of credits, and so what
Speaker 12: we've actually seen is not only investment taper off, but
Speaker 12: just announcements of you.
Speaker 8: Know, future projects into the sector.
Speaker 12: Which what's kind of ironic is that if you look
Speaker 12: at INVESTM numbers for last year for ccs in total,
Speaker 12: it was globally eleven point.
Speaker 8: Three billion higher than it's ever been before.
Speaker 12: The US to come around two point eight billion of that, however,
Speaker 12: that is all bolstered by just DOOE grants. So the
Speaker 12: DOE has you know, these direct air capture hubs. They're
Speaker 12: trying to throw money at growing out midstream infrastructure, so
Speaker 12: trans like pipelines, the storage like storage basins you mentioned earlier.
Speaker 12: But there's really no FIDS being taken in the sector
Speaker 12: at all. Besides, I think it was the hydrogen Bomont
Speaker 12: complex last year.
Speaker 3: So FID is foreign investment decision final best financaim sorry,
Speaker 3: And it basically means like, Okay, I have enough and
Speaker 3: I understand enough of the economics where I can actually
Speaker 3: like put money in the ground and like put a
Speaker 3: shovel in the ground and do some stuff. And that's
Speaker 3: where we're really lacking, which raids of the question is
Speaker 3: it building this stuff is still too complicated? Or is
Speaker 3: it the demand side? So I'm a company and I'm like,
Speaker 3: I can capture your carbon and I can store it
Speaker 3: for you, but how much are you willing to pay
Speaker 3: for that? Is that part of the issue now?
Speaker 12: Yeah, it's definitely kind of a sector by sector issue.
Speaker 8: So we look to power.
Speaker 12: We're seeing the most cancelations in the power sector just
Speaker 12: because CCS is tremendously expensive and so for seeing a
Speaker 12: project announced around, you know, thirty percent of those projects
Speaker 12: in the power sector are like they're probably going to
Speaker 12: get canceled. And that's because retrofitting with CCS adds around
Speaker 12: fifty six percent.
Speaker 8: To the total l COE. So it's eight hundred million
Speaker 8: plus capex investments. If you look to something which how
Speaker 8: did they recoup that?
Speaker 3: Because that's about power, it's either the company is paying
Speaker 3: for it or like I'm paying for it in my bills, right,
Speaker 3: And that's the definite.
Speaker 8: Way of how they recoup that cash.
Speaker 12: Especially if you know the forty five Q credit if
Speaker 12: you are in amit or to qualify, it only lasts
Speaker 12: twelve years. A lot of these lifetimes are twenty twenty
Speaker 12: five years, and so yeah, how do you kind of
Speaker 12: make that investment back.
Speaker 1: Hard and capture losing some momentum because maybe just the
Speaker 1: transition to green in the US has become a little
Speaker 1: politicized and maybe it's losing a little bit of impetus.
Speaker 1: Are we falling behind other countries for example?
Speaker 8: I mean, the US is definitely the market leader.
Speaker 12: So globe there's around four hundred and twenty four million
Speaker 12: metric tons of CU two capture capacity do to come
Speaker 12: online by twenty thirty five. Now, out of that, around
Speaker 12: one hundred and sixty I think it's one sixty three
Speaker 12: million tons is based in the US and following you know,
Speaker 12: the forty five Q Inflace Reduction Act. Even though there's
Speaker 12: you know, hiccups here, hiccups with transparent storage permitting, we
Speaker 12: do see the United States as the best place in
Speaker 12: the world is to kind of build one of these projects.
Speaker 3: So what companies do you feel like have the real
Speaker 3: deal it? So I talk to a lot of companies
Speaker 3: and they're all going to try and sell me their
Speaker 3: carbon capture products and like why they're the best, and
Speaker 3: how their economics.
Speaker 8: Work and all that stuff.
Speaker 3: Who actually can make this work?
Speaker 12: Yeah, I mean, if we're looking at power and hydrogen,
Speaker 12: which are the two leaders right now, kind of the
Speaker 12: biggest players here, we're.
Speaker 8: Seeing Occidental Energy.
Speaker 12: So not only are they looking to retrofit they're you know,
Speaker 12: natural gas assets with carbon capture, but they're also kind
Speaker 12: of taking this first mover run into the direct air
Speaker 12: capture space. So that's really interesting company to watch in
Speaker 12: that kind of little corner. There's also you know, like
Speaker 12: air products for hydrogen excelon MO. It's primarily these oil
Speaker 12: and gas majors that are moving around in the market
Speaker 12: because they have you know, just previous expertise, but they
Speaker 12: also understand the geology, how to store these things, how
Speaker 12: to build you know, these big expensive projects.
Speaker 8: So yeah, air products oxy All right.
Speaker 3: Thanks to Brenda Casey, Bloomberg bn EF Carbon Capture Analyst.
Speaker 1: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio
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