Latest / Bloomberg Intelligence / ASML Guidance Cut, US Bank Earnings

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ASML Guidance Cut, US Bank Earnings · Bloomberg Intelligence

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Speaker 2: and we have one of them here for it with
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Speaker 2: us right now, Man Deep saying he's Bloomberg Intelligence senior
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Speaker 2: technology analysts. I'm this ASML News, so let me update
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Speaker 2: you on what we see ASML has been halted a
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Speaker 2: few times for volatility. The stock dropped like a stone
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Speaker 2: after cutting its twenty twenty five net sales and gross
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Speaker 2: margin guidance, and its third quarter bookings also missed estimates.
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Speaker 2: And these guys make the machines that you need to
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Speaker 2: make AI chips, Mandeep. Is this a negative sign for
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Speaker 2: a chip demand?
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Speaker 3: I mean, look, when it comes to ASML again, everything
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Speaker 3: is driven by Kapex. And when I say Capex, it's
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Speaker 3: really coming from the foundry guys like TSMC, like Samsung.
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Speaker 3: We know Samsung had layoffs recently, so clearly they are
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Speaker 3: not doing very well. But TSMC is so the fact
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Speaker 3: that their buyers are so concentrated and the geopolitical tensions continue,
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Speaker 3: and you know, the second half estimates the comps are tougher.
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Speaker 3: To me, this is just a sign of expectations kind
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Speaker 3: of going up to the point where you will not
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Speaker 3: see any positive revisions from the print this quarter. And
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Speaker 3: that's what happened with the SML. Expectations had gone up
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Speaker 3: and they didn't surprise to the upside, so we could
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Speaker 3: expect the same from others.
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Speaker 4: The magnitude of the miss on the orders versus the
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Speaker 4: estimate seemed huge to me. Yes, that typical or not
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Speaker 4: to play. When they missed, they really miss.
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Speaker 3: So that's that comes down to how SEMIS typically is
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Speaker 3: when you go back to prior cycles. When these companies miss,
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Speaker 3: they miss big. We've seen that with Micron, we have
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Speaker 3: seen that with some of the other names. But in
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Speaker 3: the case of ASML, the secular drivers are intact. When
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Speaker 3: you think about you know, every foundry looking to use
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Speaker 3: their machines, looking to go to you know, smaller nodes.
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Speaker 3: TSMC actually doing very well, so they are their largest customer.
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Speaker 3: And when you think about you know how well TSMC
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Speaker 3: has done in terms of their AI revenue. I don't
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Speaker 3: think they are cutting back capex, but it's always about
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Speaker 3: that incremental buyer when it comes to these semi companies,
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Speaker 3: especially the ones that are reliant on CAPEX spend, and
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Speaker 3: if you take China out of the equation or the
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Speaker 3: fact that they are restricted in some way, those are
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Speaker 3: some of your incremental buyers. So that's where it has
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Speaker 3: an impact.
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Speaker 2: We have a great function on the terminal. It's SPLC.
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Speaker 2: It's a supply chain analysis, So if you type in
2:59
Speaker 2: as and then go to the supply chain, you can
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Speaker 2: see who their competitors and their customers are. So competitors
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Speaker 2: are Applied Materials, KLA LAM Research, so you can kind
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Speaker 2: of see all of them are going to be down
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Speaker 2: on this news. And then to Mandeev's point, customers are
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Speaker 2: folks like TSMC, Samsung, Intel also although albeit not a
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Speaker 2: huge customer anymore, but you know the problems that Intel
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Speaker 2: has had a semiconductor manufacturing Micron. So watch that stock
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Speaker 2: sk Heinex am I saying Heinex, Yeah, memory yep, and
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Speaker 2: then you have global founderies as well. This is a
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Speaker 2: really ignorant question. Where does in Nvidia sit in this
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Speaker 2: story that we're talking about.
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Speaker 3: Well, Nvidia is sort of the first derivative. So if
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Speaker 3: TSMC is not buying machines from ASML, that means they
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Speaker 3: are not expanding their supply for the latest cost packaging
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Speaker 3: and the foundry side in terms of manufacturing and video's chips.
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Speaker 3: So TSMC determines what kind of capacity expansion they're looking
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Speaker 3: for for twenty twenty five and beyond, and based on
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Speaker 3: that they are placing an order for ASML equipment. So
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Speaker 3: it is a very big sign. And to your point
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Speaker 3: about Intel being a buyer, well, Intel is under pressure
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Speaker 3: to curtail their capex as well, so you're taking a
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Speaker 3: lot of the incremental buyers out of the equation, even
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Speaker 3: though there is no substitute for ASML. So it's not
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Speaker 3: as if ASML is losing market share to anyone. It's
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Speaker 3: just the incremental buyers are fewer compared to where they were.
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Speaker 3: You know, a couple of quarters back.
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Speaker 4: Okay, what I know about AI you can put into
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Speaker 4: a shot class. So answer this question like I'm a
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Speaker 4: five year old. Is this fundamentally changed the AI story
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Speaker 4: for tech?
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Speaker 5: It doesn't.
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Speaker 3: It's just that everyone is expecting some sort of digestion
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Speaker 3: period when it comes to AI. We have had you know,
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Speaker 3: a long up to the right sort of scenario so far.
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Speaker 3: When it comes to generative AI, and everyone expects a
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Speaker 3: pause at some point, their signs are you know, in
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Speaker 3: Vidia chip demand remains insay siable despite the restrictions. But
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Speaker 3: when it comes to you know, semis, the way it
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Speaker 3: works is first your foundry guys are gonna slow down
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Speaker 3: their supply expansion. Then you know and Vidia will see
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Speaker 3: fewer beat and raises, and so there is a derivative
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Speaker 3: aspect to how.
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Speaker 6: It flows through.
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Speaker 3: It doesn't all happen in the same quarter, and to
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Speaker 3: me ESML missing is one of the first signs that
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Speaker 3: you know, things may be cooling down a little bit.
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Speaker 3: It may not get reflected in a video's quarter this
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Speaker 3: time around, but two quarters down the line in Vidia
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Speaker 3: could get affected.
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Speaker 2: Which then also reads the question like which customer is
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Speaker 2: the problem for ASML, Like what are their customer lists
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Speaker 2: are calling them saying like guys, look, we don't really
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Speaker 2: need the equipment, like we know it may not be TSMC,
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Speaker 2: So then is an Intel because that's more of an
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Speaker 2: idiosyncratic Intel issue rather than like a broader AI chip
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Speaker 2: story issue.
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Speaker 3: Yeah, and Intel and Samsung, I mean, look, Samsung, we
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Speaker 3: know isn't doing very well on the manufacturing side. When
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Speaker 3: people talk about generative AI chips and GPUs, everyone is
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Speaker 3: going to TSMC as if there's only game in town.
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Speaker 3: Samsung isn't able to make that latest switch to that
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Speaker 3: latest note for you know, generative AI chips, and that's
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Speaker 3: where we heard Samsung doing a layoff, So clearly they
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Speaker 3: are curtailing their costs. Intel is curtailing their costs. So
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Speaker 3: you take out two of the top buyers of ASML
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Speaker 3: gear and we know they sell you know, multimillion dollar machines,
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Speaker 3: So these are expensive purchases. And it's not as if
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Speaker 3: ASML is losing business, it's just it won't get reflected
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Speaker 3: in the next quarter or you know, the couple of quarters.
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Speaker 4: So this ASML deposit us depository receipts down twelve percent.
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Speaker 4: Is that a reasonable reaction do you think in this market?
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Speaker 4: I think so.
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Speaker 3: I mean, given we are seeing some gross margin compression
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Speaker 3: and for semi's companies, gross margin is huge. Anytime you
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Speaker 3: see gross margin compression, that is your first sign that
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Speaker 3: you know thinks are aren't going your way, and it's
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Speaker 3: it's a sign that the demand is somewhat cooling off
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Speaker 3: or your costs are going up. In this case, I
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Speaker 3: think it is a function of orders getting delayed. And uh,
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Speaker 3: I think the reaction was warranted. Probably you may see
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Speaker 3: an ore reaction today. People may realize they still have
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Speaker 3: a strong mode tomorrow and then buy the stock. But
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Speaker 3: I think the reaction was warrant.
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Speaker 4: We've been looking for this, like a little bit of
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Speaker 4: a pickup.
7:24
Speaker 2: Or a crap or just something right, like not everything
7:27
Speaker 2: in sunshine and roses like all the time, and diy'd
7:30
Speaker 2: be really appreciate it. Thanks for the hustle, Mandy saying,
7:32
Speaker 2: is there anything you don't know? I wonder if we
7:36
Speaker 2: talked to him about.
7:36
Speaker 4: Like Childen technos on Wall Street for real, you need
7:41
Speaker 4: to stuff I was funding back in the day for you.
7:44
Speaker 2: Unbelievable man need Bloomberg intelligion.
7:47
Speaker 4: By the way, he's got a cast on, so who
7:49
Speaker 4: knows what's going on?
7:50
Speaker 2: Oh okay, well we'll get that.
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8:11
Speaker 2: And these banks just I know, Rush did today, I
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Speaker 2: mean really really really solid numbers. Although Golden sastock is
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Speaker 2: now down by about seven tenths of one percent. Yeah,
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Speaker 2: that's actually kind of surprising for me, But I'm taking
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Speaker 2: a look at say, Bank of America. That stock is
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Speaker 2: also down now by eight tenths of one percent. But
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Speaker 2: on the surface, these numbers looked really great. City stock, yeah,
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Speaker 2: I thought.
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Speaker 4: And the capital markets, yeah, the capital markets. The trading
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Speaker 4: business I thought did very well. But I know the
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Speaker 4: street likes the more predictable feed business in this special.
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Speaker 2: Yea, But they didn't seem to care about that when
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Speaker 2: it came to JP Morgan, Malls Fargo. You know who
8:47
Speaker 2: might know the answer to this, I think I know
8:48
Speaker 2: Alison Williams, Bloomberg Intelligence senior analysts for global banks and
8:52
Speaker 2: asset managers. So for my you know, let I read
8:55
Speaker 2: here there were really good numbers, and then the stocks
8:57
Speaker 2: were down and tell us why they were, And it.
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Speaker 7: Is all about the expectations. Keep in mind that we
9:02
Speaker 7: did get sort of a change in expectations not necessarily
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Speaker 7: baked into the numbers with the reports on Friday, the
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Speaker 7: very strong trading and fees for JP Morgan, which set
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Speaker 7: the tone, and the banks delivered on today net interest income,
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Speaker 7: which you know for JP Morgan basically they had talked
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Speaker 7: it down in September. Then they beat the numbers and
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Speaker 7: raised four Q guidance, but Jamie still talking negatively about
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Speaker 7: next year. And for Bank of America, really they did
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Speaker 7: exactly what they said. Interest income trought, the number came
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Speaker 7: in and they are not going to talk about guidance
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Speaker 7: for not interesting income until you know the next call
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Speaker 7: for next year. So I think it's I think the
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Speaker 7: stock is probably fine, just reacting to things coming in
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Speaker 7: basically as you know, good but versus sort of raised expectations.
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Speaker 4: What's the expectation here for when you talk to your
9:59
Speaker 4: invest about just regulation of banks, where's that headwind? Because
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Speaker 4: I know it has been a headwind off and on
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Speaker 4: for really since a great financial crisis. Where are we
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Speaker 4: now with the basil?
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Speaker 7: Yeah, it is, and it's depends on the election, Okay
10:11
Speaker 7: at this point, right, so if you know, Trump wins,
10:17
Speaker 7: then the role could be derailed sort of indefinitely. So
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Speaker 7: that would be positive for banks if you know democratic
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Speaker 7: when will sort of continue on the same path. So Basel,
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Speaker 7: you know, the rules were very onerous that were introduced
10:34
Speaker 7: last year. Basically we've we've gotten the signal that they're
10:38
Speaker 7: going to be lighter. You know, we sort of had
10:42
Speaker 7: had those expectations set within the last several weeks, but
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Speaker 7: we're still waiting for that proposal.
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Speaker 2: When we just break down the broader sort of investment banking,
10:52
Speaker 2: can we say M and A's back, so like they
10:55
Speaker 2: seem to be talking good about it, that's not a sentence.
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Speaker 2: They seem to be talking like positively about M and A.
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Speaker 7: So it is, and you know so from Goldman Sachs,
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Speaker 7: who's the leader in EM and A. Very good numbers
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Speaker 7: and the fact that their pipeline is upsequentially.
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Speaker 5: Is very good.
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Speaker 7: But fourth quarter does tend to be seasonally strong, so
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Speaker 7: we do have to see is it, you know, is
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Speaker 7: it just the typical seasonality or is there a little
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Speaker 7: bit more momentum.
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Speaker 4: Are all our friends on Wall Street are thinking get
11:25
Speaker 4: paid like really well.
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Speaker 7: This year, I mean it, you know, bonus bonuses do
11:29
Speaker 7: look good for this year, especially for death fees. I
11:32
Speaker 7: mean really that for September.
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Speaker 2: Yeah, well, underwriting right was was really quite strong across
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Speaker 2: the board. What are some of the questions that you
11:43
Speaker 2: have now? And whichever bank you want to focus on,
11:45
Speaker 2: Like what's a big glaring.
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Speaker 7: So you know, the election is is going to be
11:50
Speaker 7: important in terms of what that means for the for
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Speaker 7: the capital rules. I think that's that's sort of the
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Speaker 7: big structural question. You know, markets are strong. Things look
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Speaker 7: that momentum is likely to continue in the fourth quarter.
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Speaker 7: I think maybe the next thing that we're looking at is,
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Speaker 7: you know, can we get signs of improving long growth
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Speaker 7: because that is really you know, interesting income. That recovery
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Speaker 7: is what investors are looking for. Can we get a
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Speaker 7: momentum there? You know, the other side of the lending
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Speaker 7: business is credit, and all signs are are pointing pretty
12:23
Speaker 7: good right there.
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Speaker 4: All right, As a former city banker, I have an
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Speaker 4: interest in that institution. Where is Jane Fraser in the
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Speaker 4: turnaround of that bank? And does the street believe that
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Speaker 4: she can get it to the point where it generate
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Speaker 4: really competitive returns.
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Speaker 7: You know, I think, you know, the street has been
12:40
Speaker 7: burned so many times for getting their hopes up on
12:43
Speaker 7: City Group over the years, and so City Group is
12:46
Speaker 7: delivering on what they want to do. We saw that
12:49
Speaker 7: in the in the numbers this quarter. They like the
12:53
Speaker 7: other banks, are getting a lot of upside from markets
12:56
Speaker 7: by keeping the costs stable. And so for them it's
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Speaker 7: really you know, these regulatory headwinds which are so hard
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Speaker 7: to predict, and you know, I think the best thing
13:07
Speaker 7: that could have happened to City is this you know,
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Speaker 7: regulatory scrutiny that finally is making them, you know, make
13:14
Speaker 7: a lot of the changes that probably should have been
13:15
Speaker 7: done a long time ago, you know, getting the risk
13:19
Speaker 7: systems together, improving their operating efficiency, which at the end
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Speaker 7: of the day will will be helpful in the long term.
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Speaker 2: On Friday, we talked about a well spargo in particular,
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Speaker 2: and you were saying that the big question you have
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Speaker 2: is when the loans pick up, whend a loans pick up,
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Speaker 2: and what do we learn from say City and Bank
13:34
Speaker 2: of America on that.
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Speaker 7: So it's hard to say, you know, I think that
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Speaker 7: it's it's going forward, right. So the FED cuts happened
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Speaker 7: in the last couple of the weeks of the quarter,
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Speaker 7: so we're not necessarily going to see the impact of
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Speaker 7: that right away. Maybe the Senior Loan Officer survey will
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Speaker 7: give us a little bit of insight when that comes
13:56
Speaker 7: out in a couple of weeks.
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Speaker 4: All Right, we got more inans Stanley tomorrow, I believe.
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Speaker 7: Organ standing tomorrow. They have you know, really raised the
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Speaker 7: bar for them all these all these banks, especially Goldman,
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Speaker 7: strong numbers today, so we'll see if they can deliver
14:13
Speaker 7: on that. They tend to be more skew towards equities trading.
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Speaker 7: That's been the source of strength, So we'll see.
14:19
Speaker 4: And are they going to be like past cycles they
14:21
Speaker 4: being all the big banks like next week all issuing that.
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Speaker 7: Yeah, that tends to be. That tends to be the focus.
14:30
Speaker 7: And one more thing I'll add about them. You know,
14:33
Speaker 7: while the institutional there's a lot of positive momentum, I
14:36
Speaker 7: think it will be all about the wealth flows for them,
14:39
Speaker 7: So they will need to you know, if they get
14:42
Speaker 7: institutional right and ride this way with everyone else, that's great,
14:46
Speaker 7: but they do need to deliver and show that that
14:48
Speaker 7: wealth business is continuing together at which they always which
14:51
Speaker 7: you know, the markets should be very helpful on that
14:54
Speaker 7: front as well.
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Speaker 2: Right, because it's expanding pie that they're all competing for now, Right,
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Speaker 2: it's not like tiny pie that isn't growing at the
15:02
Speaker 2: end of the day. One more question about Goldman and
15:05
Speaker 2: this is a little personal for me because I have
15:07
Speaker 2: a Marcus account for their consumer Did they what they say?
15:13
Speaker 2: Did they say that they're lowering rates a lot and
15:14
Speaker 2: they of.
15:15
Speaker 4: Steel inflows were noted during the four point one Now, yeah,
15:20
Speaker 4: it's just another message.
15:22
Speaker 2: I mean, come on, guys, like they just lowered ones. Anyway,
15:25
Speaker 2: How are they doing on offloading all the risk and
15:27
Speaker 2: stuff for their consumer business? I know that they already
15:29
Speaker 2: offloaded a lot to GM. They took a write down
15:32
Speaker 2: for it or charge for it. Where are they in
15:34
Speaker 2: this process?
15:34
Speaker 7: Yeah, so one step closer with the sale of the
15:37
Speaker 7: of the GM portfolio. They are hanging on to Marcus.
15:40
Speaker 7: But you know, FED lowers rates. That positive for the
15:45
Speaker 7: banks means that there's less competition, less competitive pricing pressure,
15:52
Speaker 7: but for the consumer, you know, not as favorable.
15:54
Speaker 2: You know what I'm gonna do, I'm gonna find something
15:56
Speaker 2: that is competitive. I'm gonna go to those munis like
15:58
Speaker 2: Plasman saying like, see later we're gets some take my
16:00
Speaker 2: money and run free.
16:02
Speaker 8: Yeah, but you can't pull your money out at a
16:04
Speaker 8: moment's notice, Marcus.
16:06
Speaker 2: No, I know, I know, but I'll know, Like in general,
16:09
Speaker 2: I should have known when John Tucker going to Marcus
16:10
Speaker 2: account that that was the top.
16:12
Speaker 6: Yes, you're playing data.
16:13
Speaker 2: Yeah, totally fault. All right, Alison, thanks a lot. We
16:16
Speaker 2: really appreciate. Alison Williams, Bloomberg Intelligence, a senior Global banks
16:20
Speaker 2: and Asset Manager analyst.
16:23
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Speaker 4: Let's not bowing. They are back in the news again,
16:41
Speaker 4: and when we talk news. George Ferguson again. George Ferguson,
16:45
Speaker 4: senior Aerospace defense analyst for Bloomberg Intelligence. George, I'd like
16:48
Speaker 4: this move. Boeing puts up a twenty five billion dollar
16:51
Speaker 4: shelf offering gives us some flexibility to shore up it's
16:55
Speaker 4: balance sheet. I know we have to talk about dilution,
16:57
Speaker 4: but tell us what Boeing is doing here with this
16:59
Speaker 4: twenty five billion dollar shelf.
17:02
Speaker 9: Yeah, so I think Kelly Orpberg went out and brought
17:05
Speaker 9: up the big guns, right so, I think he wants
17:08
Speaker 9: to shore up the balance sheet. I think so he
17:10
Speaker 9: can show the union that Boeing has plenty of cash
17:13
Speaker 9: to make it through this strike. I think that's part
17:16
Speaker 9: of a strategy, you know, to get the union back
17:18
Speaker 9: to the table and get them to rethink probably some
17:22
Speaker 9: of their demands.
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Speaker 5: That's that's what I see here.
17:27
Speaker 4: And what is the sense of their balance sheet? Just
17:29
Speaker 4: give us sense, George. I know you've been calling it
17:30
Speaker 4: out and highlighting it for us for quarters. Now talk
17:34
Speaker 4: to us about kind of the cash on their balance sheet,
17:36
Speaker 4: the cash burn. How long can they go before they
17:38
Speaker 4: really do need to think about fresh capital.
17:42
Speaker 9: Yeah, so I think they need capital now, right So,
17:45
Speaker 9: I think it is part of why Kelly or Berg
17:47
Speaker 9: and Boeing and going going to the market, because you know,
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Speaker 9: they just pre announced earnings for the third quarter. Cash
17:54
Speaker 9: balances were right around ten billion. That's about what they've
17:57
Speaker 9: told us they need to operate the kind company. So
18:01
Speaker 9: I think that really put their back up against the wall.
18:03
Speaker 9: As you know, they're managing a dance with the creditors
18:06
Speaker 9: as well, because you know, they're really up against the
18:09
Speaker 9: edge on their investment grade credit rating.
18:11
Speaker 5: So I think it really precluded going to the.
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Speaker 9: Debt markets here, and so you know, I guess the
18:19
Speaker 9: question is too now is it's a stain power right now?
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Speaker 9: Long can Boeing manage with the ten billion? They couldn't
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Speaker 9: manage very long strike, And so to get better negotiating
18:30
Speaker 9: leverage with the unions, I think if you put another
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Speaker 9: ten fifteen billion dollars in the balance sheet here, I
18:35
Speaker 9: think it gives you at least a quarter, probably multiple
18:38
Speaker 9: quarters of potential cash burn. So you can tell the union, look,
18:43
Speaker 9: I'm gonna I'm gonna wait this out into you, you know,
18:48
Speaker 9: bring me some demands that I can make.
18:52
Speaker 2: Just hold that thought for one second, because I want
18:54
Speaker 2: to point out ASML, which is a company that makes
18:57
Speaker 2: lithography machines so you can make AI is now halted
19:01
Speaker 2: after a steep drop and earnings that did not look great.
19:05
Speaker 2: Third quarter net sales did come in higher than estimated,
19:08
Speaker 2: but their third quarter bookings fell below about two point
19:12
Speaker 2: sixty three billion euros, substantially below the estimate. They're also
19:16
Speaker 2: taking a look at twenty twenty five net sales, also
19:20
Speaker 2: below estimates. This is quite interesting read through for AI Again,
19:25
Speaker 2: they make the lithography machines that help make AI chips,
19:28
Speaker 2: and that stock is now halted after falling steeply after
19:31
Speaker 2: those numbers came out at shocking shocking. Right, let's take
19:35
Speaker 2: a look at Videota in video down.
19:36
Speaker 4: Four point four percent just on that news, just in
19:39
Speaker 4: the last couple of minutes.
19:40
Speaker 2: Okay, so not only just from the news over the
19:42
Speaker 2: over the night, George Foy, let you go, how much
19:45
Speaker 2: time does this by Boeing?
19:48
Speaker 5: I think ad buys them at least a quarter, if
19:51
Speaker 5: not more.
19:51
Speaker 9: I mean, look, I think if you're negotiating with the union,
19:54
Speaker 9: I'd be really surprised if the average union member is
19:56
Speaker 9: ready to go a quarter without a job and so,
20:00
Speaker 9: you know, without income.
20:01
Speaker 5: I shouldn't say without a job. They have a job
20:03
Speaker 5: at Boeing, I guess, but without an income. So I
20:06
Speaker 5: think it gives them plenty of staypowner. I think that's
20:08
Speaker 5: what Boeing has.
20:09
Speaker 9: To do here, right, If they're going to get the
20:11
Speaker 9: union to come back to the table and negotiating good faith.
20:14
Speaker 5: They have to be able to say, look, We're not
20:16
Speaker 5: over a barrel. We can wait you out.
20:18
Speaker 10: Now.
20:18
Speaker 9: Let's talk about some of the issues, especially I think
20:21
Speaker 9: the pension plan. Right, the emails talked about a return
20:23
Speaker 9: to pension plan. I don't think any major corporation is
20:26
Speaker 9: given back on a pension plan since they've retired them
20:30
Speaker 9: over the last number.
20:31
Speaker 5: Of decades, so I think they have ready to go
20:35
Speaker 5: the distance to not have that happen.
20:37
Speaker 4: All right, George, thanks so much for joining us. George Ferguson,
20:40
Speaker 4: he's senior Aerospace, Defense and Airlines sentals for Bloomberg Intelligence.
20:44
Speaker 4: Just kind of talking about the Boeing news.
20:45
Speaker 1: Here, you're listening to the Bloomberg Intelligence Podcast. Catch us
20:50
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20:53
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21:05
Speaker 2: Alex Steel here alongside Paul Sweened. This is Boomberg Intelligence Radio.
21:08
Speaker 2: We bring you all the tap news in business, economics
21:10
Speaker 2: and finance through a lens of our Bloomberg Intelligence folks,
21:12
Speaker 2: and we are broadcasting to you live from our inactive
21:14
Speaker 2: Booker Studio right here in Midtown Manhattan. As John Tucker
21:18
Speaker 2: was just talking about, you're looking a crewed off by
21:20
Speaker 2: over four percent, and the only headline that you could
21:23
Speaker 2: really find was perhaps Israel will not be targeting Iranian
21:28
Speaker 2: oil infrastructure, so raises the question are we looking at
21:31
Speaker 2: geopolitical risk being priced out? Also, the IA revised slightly
21:35
Speaker 2: down a demand forecast for this year and next, mostly
21:38
Speaker 2: a China story, but nonetheless. Dan Pickering is Chief investment
21:41
Speaker 2: Officer Pickering Energy Partners. He joins us from Houston, Texas.
21:44
Speaker 2: He's honestly one of the best in the industry. He's
21:47
Speaker 2: been around a long time, He's kind of seen it
21:48
Speaker 2: all and he has a great insight into what companies
21:51
Speaker 2: will do as well. What's your take on crewed off
21:54
Speaker 2: by three bucks?
21:57
Speaker 11: Yeah, Alex, good morning.
21:58
Speaker 12: It's definitely this news that we potentially are not going
22:02
Speaker 12: to see any escalation of violence in the Middle East.
22:05
Speaker 12: If Israel doesn't hit the Iranian oil facilities, then we
22:09
Speaker 12: have kind of continued status quo, which is oil has
22:12
Speaker 12: been flowing out of the Middle East with no problem,
22:14
Speaker 12: and so we're taking the air out of the risk
22:18
Speaker 12: of supply disruption and getting back to a more fundamental market,
22:22
Speaker 12: which has been pretty soft over the last couple of months.
22:25
Speaker 2: What's the fair price you think for oil?
22:29
Speaker 12: Yeah, fair price for oil, I'm an eighty dollars through
22:32
Speaker 12: twenty twenty seven, that's my forecast, but I think twenty
22:37
Speaker 12: twenty five is going to be tougher. Fair price for
22:40
Speaker 12: oil in twenty twenty five is probably seventy give or take,
22:44
Speaker 12: maybe a five dollars band around that. If we have
22:49
Speaker 12: challenges in the Middle East, all bets are off. If
22:52
Speaker 12: it's supply and demand. My expectation kind of seventy to
22:56
Speaker 12: seventy to eighty sixty five to seventy five something like that.
23:00
Speaker 4: Dan, I always joke or often joke that you know
23:02
Speaker 4: my next lefe I want to come back as an
23:04
Speaker 4: energy m and a banker. Every Monday we come in.
23:06
Speaker 4: It seems to be something on the Bloomberg terminal talk
23:08
Speaker 4: to us about consolidation in the energy space. Where are
23:12
Speaker 4: we what are you likely to see over the next
23:14
Speaker 4: year or two.
23:16
Speaker 5: Yeah.
23:17
Speaker 12: So it has been a very active M and A
23:19
Speaker 12: market with companies focused primarily on four things. They're adding inventory,
23:25
Speaker 12: they're going for size, they're looking for scale, and it's
23:28
Speaker 12: happening at pretty good values. And so because the market
23:32
Speaker 12: has not been that interested in energy, right, it's an
23:35
Speaker 12: underperformer last year, it's an underperformer this year.
23:38
Speaker 11: Because these stocks are pretty cheap.
23:40
Speaker 12: The companies are buying each other, and as they're doing that,
23:43
Speaker 12: they're replenishing the inventory that they that they drilled up
23:47
Speaker 12: during COVID. They're getting bigger, which is important. You know,
23:50
Speaker 12: bigger companies are getting more attention from the market, they're
23:53
Speaker 12: getting more profitable, and they're doing it at three or
23:56
Speaker 12: four times cash flow.
23:57
Speaker 11: All of those attractive things. It's going to keep going.
24:00
Speaker 2: Yeah, Dan, that's such a good point because, first of all,
24:02
Speaker 2: I want to point out, Paul, you wouldn't want to
24:04
Speaker 2: admit an m and a banker like a few years ago,
24:06
Speaker 2: there was like a whole that and nothing happening. But
24:10
Speaker 2: the idea is, if you're an investor or, you're a
24:12
Speaker 2: pension fund or something like, you can't own a huge
24:14
Speaker 2: bunch of oil stocks. Like your investors are not going
24:16
Speaker 2: to like that. So it's like you have to gussie
24:18
Speaker 2: yourself up to be the top one or two oil
24:21
Speaker 2: players out there. So to that point, who needs to
24:25
Speaker 2: still buy stuff? And who needs to be sold.
24:28
Speaker 12: Yeah, I think if you look at all levels, companies
24:32
Speaker 12: are trying to get bigger, whether it's Exon buying Pioneer,
24:35
Speaker 12: or you move down into as much smaller market caps.
24:38
Speaker 12: So I think that we'll continue to see probably fifty
24:42
Speaker 12: billion as a give or take the point.
24:44
Speaker 11: Of relevance for the broad markets.
24:47
Speaker 12: And so my expectation is folks that are below that
24:50
Speaker 12: are going to keep buying trying to get to that size,
24:53
Speaker 12: and that folks that are sort of smaller than Exon
24:55
Speaker 12: are going to going to keep merging. So it's kind
24:58
Speaker 12: of across the board right now, Alex. And again, these
25:02
Speaker 12: companies will keep buying each other until the market decides
25:06
Speaker 12: that they're going to buy the stocks.
25:09
Speaker 4: And Dan, you mentioned that the energy stocks have been underperformers.
25:12
Speaker 4: What is the bowl case out there for energy? Is
25:15
Speaker 4: it simply maybe just valuation here?
25:18
Speaker 12: Yeah, the bull case is strong yields, very good free
25:21
Speaker 12: cash flow. The companies have turned into real businesses since
25:25
Speaker 12: the shale bust, and so they're throwing off a lot
25:27
Speaker 12: of cash. We're turning a lot of it to shareholders.
25:30
Speaker 12: The other piece is it is an inflation hedge. Nobody's
25:33
Speaker 12: thinking about inflation right now unless it comes back. And
25:37
Speaker 12: then you have this sort of geopolitical element, which is,
25:40
Speaker 12: if things do spiral out of control, you're going to
25:43
Speaker 12: want to own some energy stocks, So there's a bit
25:45
Speaker 12: of a hedge, and then there's value.
25:47
Speaker 11: Those are the two arguments for the energy sector right now.
25:50
Speaker 2: Do you think that oil producers will keep producing more oil?
25:55
Speaker 2: Let me define that question a little bit. Have they
25:58
Speaker 2: run out of the good stuff? And that's another reason
26:00
Speaker 2: why we're seeing the m and and I don't want
26:02
Speaker 2: to underestimate shale players because we know that innovation and
26:05
Speaker 2: technology is huge, but they have a lot of other
26:07
Speaker 2: stuff they need to spend on, particularly in the energy transition.
26:10
Speaker 2: So can we count on technology to make the rock good?
26:18
Speaker 12: The answer is yes, on the margin. There's another lag
26:21
Speaker 12: up in efficiencies that's been happening this year. I think
26:24
Speaker 12: the reality, though, is that US shale is maturing, and
26:29
Speaker 12: what that translates to is likely sort of an upward
26:32
Speaker 12: push on cost structures and upward push on commodity price. Remember,
26:37
Speaker 12: you know shales now over half of much more than
26:40
Speaker 12: half of US production. The Permian alone is six million
26:44
Speaker 12: barrels a day. That is a meaningful player in the
26:47
Speaker 12: global market, and so as those assets mature, there's an
26:50
Speaker 12: upward bias to price. Never count out ingenuity and efficiencies.
26:55
Speaker 12: But as this as this industry matures, we're going to
27:00
Speaker 12: to see a slow upward push.
27:03
Speaker 11: On cost and price.
27:05
Speaker 2: And for let you go, Dan, how do you think
27:09
Speaker 2: the election is going to affect Big oil at all?
27:11
Speaker 2: I know that the talk is going to be like,
27:13
Speaker 2: we want oil friendly, blah blah blah, But in reality,
27:15
Speaker 2: they're not going to want build a drill, baby drill
27:18
Speaker 2: because they don't want to do that. They're going to
27:19
Speaker 2: tank the oil price materially. Do you think the election
27:22
Speaker 2: matters for oil companies?
27:26
Speaker 12: Snipple answers know, Alex. I think that these companies it
27:30
Speaker 12: may be a little bit easier or a little bit
27:32
Speaker 12: harder to interact and run the business depending on who
27:36
Speaker 12: gets elected.
27:37
Speaker 11: The reality is that, you.
27:40
Speaker 12: Know, politicians have proved that they want low gas prices.
27:43
Speaker 12: We're not punishing bad actors globally, We're letting them produce
27:46
Speaker 12: their oil.
27:47
Speaker 11: We want US oil. We're not going to punish this
27:50
Speaker 11: industry too much.
27:51
Speaker 12: And the industry itself is not going to step up
27:54
Speaker 12: and get super active unless there's a price signal. So
27:57
Speaker 12: the election it matters for a sentiment perception. I don't
28:01
Speaker 12: think it matters a ton for reality.
28:03
Speaker 4: All right, that's great stuff. Dan appreciate it as always.
28:07
Speaker 4: Dan Pickering, Chief investment Officer, Pickering Energy Partners. I've known
28:11
Speaker 4: Dan as a voice on energy for thirty years. It's yeah,
28:14
Speaker 4: And Buddy Man used to work with him. David Bradshaw,
28:16
Speaker 4: my energy investment banker. He's my go to guy all
28:19
Speaker 4: things there.
28:19
Speaker 2: Nice.
28:20
Speaker 4: Well, let's get him on too, we will, right will.
28:23
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
28:27
Speaker 1: weekdays at ten am Eastern on applecar.
28:30
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28:33
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28:41
Speaker 2: So the FED isn't a rate cutting cycle at this point.
28:44
Speaker 2: How much they cut TBD, but the idea is that
28:47
Speaker 2: they're in a global central bank easing with the exception
28:50
Speaker 2: of Japan. Does it make certain aspects of the market
28:53
Speaker 2: a little bit easier to stomach, like commercial real estate?
28:56
Speaker 2: So I want to check in on that with David Aurback,
28:58
Speaker 2: a chief Investment Office sir at Hoya Capital. He joins
29:01
Speaker 2: us from Dallas, Texas. How have reads done? If we're
29:06
Speaker 2: taking a look since the FED first cut and then
29:09
Speaker 2: the trajectory now for this year and next, how are
29:11
Speaker 2: reeds performing well?
29:14
Speaker 8: In the lead up to the interest rate cut? Reads
29:17
Speaker 8: performed very well post FED rate cut. The reds have
29:21
Speaker 8: not done so well. They've given back some of that
29:23
Speaker 8: return because the tenure treasury is back over four percent
29:27
Speaker 8: for the first time since August.
29:29
Speaker 6: With the less.
29:31
Speaker 8: Likelihood of more significant rate cuts on the calendar this year,
29:36
Speaker 8: I wouldn't expect the reads to respond accordingly. Obviously, if
29:40
Speaker 8: we can get the ten year back below four percent again,
29:43
Speaker 8: that should bode well. And the reason being the cost
29:46
Speaker 8: of borrow for the reads is they go to refinance
29:48
Speaker 8: becomes more attractive. Reads would obviously be able to borrow debt,
29:52
Speaker 8: would like to borrow debt with a four handle or
29:54
Speaker 8: a five handle let alone.
29:56
Speaker 6: They don't want to borrow at a six handle.
29:58
Speaker 8: So any movement at the that is able to go
30:01
Speaker 8: lower on the interest rates only provide some tailwinds for
30:04
Speaker 8: the reads as a whole.
30:06
Speaker 4: David, what was the last fish concert you went to?
30:10
Speaker 6: Good to see you, Paul, Thank you so much.
30:12
Speaker 8: I was in Colorado at Dix in Labor Day and
30:16
Speaker 8: right now my next schedule concert will either be MSG
30:18
Speaker 8: in New Year's run or Mexico in February.
30:21
Speaker 2: All right, how did you know that?
30:22
Speaker 4: It's in the notes? You got to do your work here.
30:24
Speaker 4: Put and if you come to Manison Square Garden. If
30:26
Speaker 4: you come to the garden, you can see Matt Miller.
30:28
Speaker 4: He's there with his all his brothers and McKee.
30:31
Speaker 2: Oh no, you're talking of fish.
30:32
Speaker 4: I'm kind of the same same thing.
30:34
Speaker 2: I mean kind of yeah.
30:35
Speaker 6: I thought it's kind of.
30:37
Speaker 4: You know, kind of ye did so, all right, David?
30:39
Speaker 4: Did the banks? Are they still lending to real estate?
30:42
Speaker 1: David?
30:42
Speaker 4: If I've got a project, can I go to my
30:44
Speaker 4: local bank? And are they going to make me alone?
30:47
Speaker 8: Well, for a lot of the reads themselves, remember they're
30:49
Speaker 8: able to go out and borrow their own debt. They
30:51
Speaker 8: have strong balance sheets obviously on a one off off
30:55
Speaker 8: type basis.
30:55
Speaker 6: For the individual investor, the answer is going to be
30:58
Speaker 6: it depends.
30:59
Speaker 10: You know.
30:59
Speaker 6: I think with some of the big big.
31:01
Speaker 8: Banks, the JP Mortgage, the Bank of Americas, you know,
31:03
Speaker 8: they might be more likely to lend depending if the
31:06
Speaker 8: borrower qualifies. Obviously on the regional bank level, that becomes
31:12
Speaker 8: again on a case by case basis. But the lending
31:14
Speaker 8: window is open and the past month, two months alone,
31:18
Speaker 8: Reads have been able to borrow you know, takedown. Frankly,
31:21
Speaker 8: billions of dollars of new debt. I want to say,
31:23
Speaker 8: it's close to like between five and ten billion dollars
31:26
Speaker 8: have been raised by a handful of rates, and so
31:29
Speaker 8: the money is out there.
31:31
Speaker 2: What about residential reads.
31:34
Speaker 8: Great place to be because of the housing shortage and
31:37
Speaker 8: lack of affordability, It's one of the core focuses of
31:40
Speaker 8: our JOYA Housing Index, and so as a result, when
31:44
Speaker 8: you think about the lack of affordability, it's the residential reads,
31:47
Speaker 8: the apartments, the single family rental guys that benefit. And
31:51
Speaker 8: also when you think about some of the other companies
31:53
Speaker 8: that are out there, you know, because a person can't
31:55
Speaker 8: go out necessarily and buy affordable home, they're putting more
31:58
Speaker 8: you know, work into their exist stay home. And so
32:01
Speaker 8: again one of the unique funds of stories of the
32:03
Speaker 8: Hawaiia Housing Index is because we also include your home depots,
32:07
Speaker 8: your lows, your restoration hardwares, because again that affordable product
32:11
Speaker 8: isn't out there for the average consumer.
32:13
Speaker 4: Can you explain to me how we got to this point, David,
32:15
Speaker 4: where they're really we always talk about a housing shortage.
32:17
Speaker 4: How do we get there? How hard is it to
32:19
Speaker 4: build a multi family apartment?
32:22
Speaker 8: Well, the obviously higher rates of impacted construction costs, So
32:27
Speaker 8: that's why you're not seeing a lot of new apartment
32:29
Speaker 8: projects underway. I also do blame the COVID run up
32:34
Speaker 8: taking away some of that housing inventory, since we saw
32:37
Speaker 8: you know, flippers and people taking down second homes, guys
32:40
Speaker 8: wanting to get out of apartments and you know, taking
32:42
Speaker 8: the first home possible. But you know, when you look
32:45
Speaker 8: at some of the hottest markets in the country as
32:47
Speaker 8: far as rentals, it's in your neck of the woods
32:50
Speaker 8: in New York City, it's in Chicago. I saw a
32:52
Speaker 8: story that Detroit is one of the hottest rental markets
32:55
Speaker 8: right now. And so the housing issue is a chose
32:59
Speaker 8: to co nationwide issue. You know, you could point to
33:02
Speaker 8: pockets of areas that have more problems versus others because
33:06
Speaker 8: again of that affordability angle. But think about a rental project.
33:11
Speaker 8: You know, I can rent an apartment here in Dallas
33:13
Speaker 8: for a couple of thousand dollars, and that same apartment's
33:15
Speaker 8: going to cost me forty five hundred dollars or more
33:18
Speaker 8: in Los Angeles or San Francisco. So again the number
33:21
Speaker 8: one rule of housing or real estate location, location location.
33:26
Speaker 2: When you take a look at the different reads, is
33:28
Speaker 2: it going to be in large cap reads, mid cap
33:30
Speaker 2: small caps? Like how do you guys look at it?
33:33
Speaker 8: We skew our high dividendy Old Index RIET towards small
33:39
Speaker 8: and mid cap reads. The reason being reads as a whole,
33:42
Speaker 8: they only make up about two percent of the S
33:44
Speaker 8: and P five hundred or about seven percent of the
33:47
Speaker 8: S and P MidCap four small cap six hundred, So
33:50
Speaker 8: we see a lot of opportunities in hidden gems in
33:53
Speaker 8: the world of small and mid cap reads that's going
33:56
Speaker 8: to kind of provide that, you know, i'd say alpha,
33:59
Speaker 8: that performance that you're looking for. We focus on dividends,
34:03
Speaker 8: and again it's really those smaller MidCap reates that offer
34:06
Speaker 8: the higher dividend yields are also our high dividend field fund.
34:10
Speaker 8: I believe this to currently the only ret in real
34:12
Speaker 8: estate product that's on the market that offers both common
34:15
Speaker 8: and preferred stocks in one rapper. So with us taking
34:19
Speaker 8: a ten percent allocation or one third of the names
34:23
Speaker 8: of RIET into repreferreds, if you add up small and
34:27
Speaker 8: MidCap rates, mortgage red exposure plus our repreferred exposure, we're
34:31
Speaker 8: paying a monthly dividend that's annualized just under nine percent.
34:35
Speaker 8: And if you just bought a large market cap weighted
34:38
Speaker 8: ETF like a VNQ, your yield is probably closer to
34:41
Speaker 8: three point eight percent, because again it's really focusing on
34:44
Speaker 8: those big large cap names.
34:46
Speaker 4: In terms of the dividends, David, what do you guys
34:49
Speaker 4: kind of value more dividend payout or dividend growth.
34:54
Speaker 8: That's a great question. I mean, I hate to say
34:57
Speaker 8: it's a little bit of both. I think to the
35:00
Speaker 8: end investor, though, they really want the company to do
35:02
Speaker 8: four things. Grow revenues, grow profits, grow dividends, and grow
35:06
Speaker 8: annual guidance. For a lot of the reds, because of
35:10
Speaker 8: a RED is just a dividend income passed through vehicle,
35:14
Speaker 8: so they want to make sure that they are obviously maintaining,
35:17
Speaker 8: if not growing that dividend on an annual basis if possible.
35:22
Speaker 8: So I think you're kind of looking at both sides
35:24
Speaker 8: of it. How do we make sure that we don't
35:26
Speaker 8: have to cut our dividend, and what are the tools
35:28
Speaker 8: in place that we can put there to grow our dividend.
35:31
Speaker 6: And it's really both sides of the equation.
35:34
Speaker 8: It's how do we maximize our revenue growth and minimize
35:38
Speaker 8: our expense growth? And for like you talk about residential,
35:41
Speaker 8: you know, the big issue with residential right now is insurance.
35:44
Speaker 8: What we're seeing in Florida unfortunately with the hurricanes and
35:47
Speaker 8: property taxes, especially for the single family rental guys. So
35:51
Speaker 8: we can minimize their expense growth and maximize revenue growth
35:54
Speaker 8: that should hopefully lead to a higher dividend payment in
35:58
Speaker 8: investors pockets.
36:00
Speaker 2: But you go want it. Also get your take on
36:01
Speaker 2: sort of other property sectors within the re market. Retail.
36:05
Speaker 2: When I say retail, what am I asking? Is it
36:07
Speaker 2: big malls? Is it like smaller retail presence? Like how
36:10
Speaker 2: are those reads performing?
36:11
Speaker 8: Yeah, they've actually come out pretty well over the past
36:15
Speaker 8: couple of years when they were really kind of not
36:18
Speaker 8: really well received by investors.
36:21
Speaker 6: And I think it's due to a couple of things.
36:22
Speaker 8: Again, lack of new supplies, Like we're building a ton
36:25
Speaker 8: of new shopping centers coast to coast, you're looking at
36:28
Speaker 8: an evolution of the product. A good example is Tanger,
36:31
Speaker 8: a typical factory outlet mall. The tenant offerings are different
36:35
Speaker 8: today than what you would have seen just a couple
36:37
Speaker 8: of years ago. A lot of these companies also, like
36:40
Speaker 8: the mall guys, are trying to bring in more experiential
36:44
Speaker 8: type offerings, not stuff.
36:45
Speaker 6: That you can replicate online.
36:47
Speaker 8: And so the goals to try to bring the family
36:49
Speaker 8: to the mall, you know, provide them in a lot
36:52
Speaker 8: of activities that you've captured that consumer for multiple hours
36:56
Speaker 8: in a day. But really, you know, think about your
36:58
Speaker 8: typical grocery anchor shopping center. We're going to get groceries
37:02
Speaker 8: every single week, right. Obviously we see the inflation side
37:05
Speaker 8: of it since the prices of a lot of the
37:07
Speaker 8: goods are up, but that anchor tenant, that grocery store,
37:11
Speaker 8: it's not there going away really anytime soon.
37:13
Speaker 6: Now. Obviously we've got some stop with.
37:15
Speaker 8: The Oppersons Kroger merger that is going to kind of
37:19
Speaker 8: send some shock waves through the grocery anchor industry. But
37:23
Speaker 8: I think with the lot of these reads, with the
37:25
Speaker 8: relationships that they have and the experienced management teams, these
37:29
Speaker 8: anchor spaces are not going to be dark for very long.
37:32
Speaker 2: All right, we appreciate it. Thank you so very much
37:35
Speaker 2: for joining us on those reads. David Aurbak, chief investment
37:38
Speaker 2: Officer at Hoya Capital.
37:40
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37:59
Speaker 2: Happy to everybody. I'm Alex c alongside Polsweenia John Tucker.
38:02
Speaker 2: This is Bloomberg Intelligence Radio. We're broadcasting to you live
38:05
Speaker 2: from Interactive Broker Studio right here in Midtown Manhattan. We
38:09
Speaker 2: have a great pig Take story out for you. We
38:11
Speaker 2: love diving deep into all the topics and subjects that
38:14
Speaker 2: you need. It's a great Big Take podcast, and then
38:16
Speaker 2: you can also get it on Bloomberg dot Com as
38:18
Speaker 2: well as The Terminal and Today's Big Take a Big
38:22
Speaker 2: Take story is on how VW so Volkswagen and Mercedes
38:25
Speaker 2: are getting just left in the dust by China's evs.
38:29
Speaker 2: The whole industry is getting squeezed by these cheap EV's
38:32
Speaker 2: from China. How do they recalibrate? Oliver Cook joins us.
38:36
Speaker 2: Now Crook, excuse me, Oliver Krook. Bloomberg gear of correspondent
38:39
Speaker 2: joins us. Oliver, it's been way too long since we chatted,
38:42
Speaker 2: so hello. Indeed, it's so good to see you.
38:45
Speaker 4: We know that.
38:46
Speaker 2: Volkswagen and Mercedes are struggling and are left in the dust.
38:49
Speaker 2: Just how far behind in the dust are they?
38:52
Speaker 5: So listen, Alex.
38:53
Speaker 13: It defense kind of where you want to approach this
38:55
Speaker 13: question from when we talk about the Chinese market, which
38:57
Speaker 13: again is a very key market for Mercedes, bm W
39:00
Speaker 13: and Volkswagen. This is their biggest market, or has traditionally
39:03
Speaker 13: been their biggest market for a very long time. You
39:05
Speaker 13: look at just the three third quarter deliveries that we
39:07
Speaker 13: got just a couple.
39:08
Speaker 5: Of weeks ago.
39:08
Speaker 13: BMW alone was down thirty percent in terms of the
39:12
Speaker 13: sales that they were making in China, and that is
39:13
Speaker 13: their biggest market. So that illustrates the scale of the
39:16
Speaker 13: importance of this here. The problem is is that this
39:18
Speaker 13: is not just a question of the Chinese slowdown, right.
39:21
Speaker 13: This isn't a question of just we're going to put
39:22
Speaker 13: some stimulus in demand's going to come back. The nature
39:25
Speaker 13: of that demand in China is now changing. So what
39:28
Speaker 13: we see now in the Chinese market is that more
39:30
Speaker 13: than half of the car is being sold there are evs.
39:33
Speaker 13: And so while they still retain a lot of these
39:35
Speaker 13: German car companies some of that market share, a good
39:37
Speaker 13: amount of that market share, it's really not in the
39:39
Speaker 13: EV section and they're not even in the sort of
39:41
Speaker 13: top five or ten in the leader board for evs.
39:43
Speaker 13: So the question is going forward, how do you get
39:45
Speaker 13: competitive again. The problem they have is they had that
39:48
Speaker 13: IC market share. It's about winning that electric market share,
39:52
Speaker 13: and they're just way behind on the inside of the
39:54
Speaker 13: car and the electronics.
39:55
Speaker 2: Yeah, the IC is the internal combustion engine part, which
39:58
Speaker 2: is the hardest part for these guys. Is it actually
40:01
Speaker 2: the battery? Is it just doing it all cheaply? Or
40:05
Speaker 2: is it the bending in the metal for the evs?
40:07
Speaker 2: Where is the struggle?
40:09
Speaker 13: I mean, it's a combination of all of these things.
40:11
Speaker 13: There is, of course, are the battery components, even the
40:13
Speaker 13: sort of the evs that are sold here in Europe,
40:15
Speaker 13: even the ones that are produced here in Europe. The
40:17
Speaker 13: batteries are still coming from China. All of the components
40:19
Speaker 13: are coming over from China because they've really sort of
40:22
Speaker 13: been very proactive with their raw material policy, everything from
40:25
Speaker 13: the lithium to this processing that all goes on to China.
40:28
Speaker 13: The other issues, of course, the cost base, and we're
40:30
Speaker 13: starting to see that hit here in Europe where Volkswagen
40:32
Speaker 13: is talking about closing factories for the very first time
40:35
Speaker 13: in its history. They're talking about closing a factory in Belgium,
40:38
Speaker 13: closing a few factories in Germany. And to understand why
40:41
Speaker 13: that's so important, this is a company that has literally
40:43
Speaker 13: never done that before in Europe, in large part because
40:46
Speaker 13: you know, their supervisory board half of their seats are
40:48
Speaker 13: held by sort of union representatives. So if they're moving
40:51
Speaker 13: forward and making that decision, it's because things are very
40:53
Speaker 13: very challenging the cost base. If you look at the
40:55
Speaker 13: hourly wages of its sort of autoworker in Germany, it's
40:58
Speaker 13: close to like sixty two year euros an hour. You
41:00
Speaker 13: go to Hungary, just not too far away, it's sixteen
41:03
Speaker 13: euros an hour.
41:04
Speaker 2: Okay, how do they fix it? And that's a silly question,
41:07
Speaker 2: but like do they need a massive amount of subsidies
41:09
Speaker 2: to stimulate demand or do they need sort of unions
41:12
Speaker 2: to get out of their way. What would make this
41:14
Speaker 2: process a little bit easier.
41:17
Speaker 13: It's going to be a combination of all of those things,
41:19
Speaker 13: and one thing that makes it even harder, Alex, if
41:20
Speaker 13: you haven't talked about yet, is there actually our new
41:22
Speaker 13: EU regulations coming into force at the end of this
41:25
Speaker 13: year that basically stipulate that they twenty percent of all
41:29
Speaker 13: the cars that they need to sell basically need to
41:31
Speaker 13: be EV's. The problem is there's a mismatch between what
41:33
Speaker 13: policy makers wants and what the market wants. Right now,
41:36
Speaker 13: the market is stuck. These guys are still selling below
41:38
Speaker 13: fifteen percent evs. If they fail to hit that twenty
41:41
Speaker 13: percent by the end of this year, they're looking at
41:43
Speaker 13: potentially billions of euros worth of fines. So that's just
41:46
Speaker 13: another sort of overlay there. But this all, you know,
41:48
Speaker 13: I mean, the policy sort of dissonance that exists is
41:50
Speaker 13: one issue. But really these are car makers that have
41:52
Speaker 13: it's partially their own doing, right, They were just far
41:55
Speaker 13: behind on this. The former Volkswagen CEO, he really wanted
41:58
Speaker 13: to lean into electrification.
41:59
Speaker 5: They were into that.
42:00
Speaker 13: They got rid of him. They brought in somebody new
42:02
Speaker 13: and now they're really paying the price.
42:04
Speaker 4: Hol or how much of this is nationalism we've seen
42:06
Speaker 4: with Apple with the iPhone. Maybe the concerns that the
42:09
Speaker 4: Chinese consumer on the margin doesn't want to buy Western products.
42:13
Speaker 13: So listen, I think that that is going to be
42:14
Speaker 13: part of it. And of course this is the Chinese
42:16
Speaker 13: policymakers have been trying to gear their sort of economy
42:19
Speaker 13: to not have the kind of dependency that they've historically had. Remember,
42:23
Speaker 13: the Chinese were really sort of welcoming with open arms
42:25
Speaker 13: Volkswagen back in the nineteen eighties when they first sort
42:28
Speaker 13: of started producing cars in the Chinese market because there
42:31
Speaker 13: was no automotive industry in China. What is interesting now
42:34
Speaker 13: is you're seeing some of these European car makers now
42:36
Speaker 13: sort of inverting that sort of same dynamic where you
42:39
Speaker 13: have the partnerships with say Stilantis and Leap Motor, a
42:43
Speaker 13: Chinese company have a joint venture here in Europe where
42:46
Speaker 13: now Stilandis owns fifty one percent, so that they are
42:49
Speaker 13: starting to build Chinese cars at their own plants. And
42:51
Speaker 13: that is so we talked about the sort of threat
42:53
Speaker 13: to the Chinese market that is also coming very very
42:55
Speaker 13: quickly and very soon to the European shores as.
42:58
Speaker 2: Well, which is so ironic because if Europe really wanted
43:01
Speaker 2: to green stuff fast, they would just import a boltload
43:04
Speaker 2: of Chinese EV's on the cheap and have their consumers
43:07
Speaker 2: buy them. To your point, then it becomes like a
43:09
Speaker 2: nationalist point, Paul, who Okay, who's in the worst who's
43:14
Speaker 2: in the best spot of this debacle?
43:17
Speaker 13: Are you really really putting me on the spot here?
43:18
Speaker 13: We try to get forty five second?
43:21
Speaker 2: I mean, listen, I'll tell you this.
43:22
Speaker 13: The Lansas is down forty five percent this year. They're
43:25
Speaker 13: down almost lost a fifth of their value since a
43:27
Speaker 13: profit warding two weeks ago. For thinking about companies that
43:29
Speaker 13: are really well physicianed in Europe.
43:31
Speaker 5: You think about Tesla.
43:31
Speaker 13: They've got manufacturing over in Germany, and guess what they
43:34
Speaker 13: make only EV's, so they're able to even sell some
43:36
Speaker 13: of those credits when those regulations kick it next year.
43:39
Speaker 2: Okay, so you didn't twenty seven seconds? What are you
43:41
Speaker 2: complaining about it? He's totally fine, Oliver Cook, Thank you
43:44
Speaker 2: so very much, really appreciate it. Great to chat with you.
43:46
Speaker 2: Bloomberg Europe a correspondent joining US in the Big Take
43:49
Speaker 2: story Volkswagen Mercedes getting left in the dust by China's EV's,
43:54
Speaker 2: and you can read more of the story on Bloomberg
43:56
Speaker 2: and at bloomberg dot com slash Big Take.
43:58
Speaker 4: I didn't even think that would be a risk for
43:59
Speaker 4: the West. I thought the brands were so strong over
44:01
Speaker 4: there that and the quality was so much better. But
44:05
Speaker 4: maybe that's not the case.
44:06
Speaker 2: I think maybe it's just a price point. Yeah, me
44:08
Speaker 2: at this point, and like everyone wants a super cool,
44:10
Speaker 2: luxury hot EV right like that in essence, isn't a problem.
44:13
Speaker 2: Like if you want to pay a bazillion dollars for
44:14
Speaker 2: a Porsche that has an EV engine, no problem. But
44:16
Speaker 2: that's not the issue.
44:17
Speaker 4: I didn't. I want the guess.
44:19
Speaker 2: Yeah, but you're not going to buy a Porsche. Okay,
44:21
Speaker 2: you've bought your Vespa.
44:22
Speaker 4: This is different a Vespa, Yes I did.
44:23
Speaker 2: Would you buy an EV Vespa?
44:25
Speaker 3: No?
44:25
Speaker 4: Please?
44:26
Speaker 3: No?
44:26
Speaker 2: Please?
44:26
Speaker 6: Okay.
44:27
Speaker 4: Le's kind of thrawl the lines somewhere, but that's so easy.
44:30
Speaker 2: It's a little thing. You plug it in anyway.
44:32
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44:40
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44:50
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