Latest / Bloomberg Intelligence / BI Weekend: Alphabet, GM Earnings, Musk Empire

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BI Weekend: Alphabet, GM Earnings, Musk Empire · Bloomberg Intelligence

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Speaker 1: Paul Sweeney on Bloomberg Radio, YouTube and Bloomberg Originals.
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Speaker 5: I'm Paul Sweeney and I'm Lis Matteo filling in on
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Speaker 5: Bloomberg Intelligence.
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Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
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Speaker 2: business stories impacting Wall Street and the global markets. Each
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Speaker 2: and every week, we provide in depth research and data
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Speaker 2: on some of the two thousand companies and one hundred
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Speaker 2: and thirty industries our analysts covered worldwide. Today, we'll look
0:58
Speaker 2: at why the toymaker has broken is raising its full
1:01
Speaker 2: year outlook.
1:02
Speaker 5: Plus we'll look at how General Motors is being impacted
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Speaker 5: by President Donald Trump's tariffs.
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Speaker 2: But First, let's begin with the tech sector.
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Speaker 5: This week, tech giant Alphabet reported second quarter earnings that
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Speaker 5: beat analyst expectations. Alphabet said demand for artificial intelligence products
1:16
Speaker 5: boosted quarterly sales and now requires an extreme increase in
1:20
Speaker 5: capital spending for more.
1:21
Speaker 2: Lisa and I were joined by Mandep Singh, Bloomberg Intelligence
1:24
Speaker 2: senior tech industry analyst.
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Speaker 5: We first asked man Deep for his take on Alphabet's
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Speaker 5: most recent earnings.
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Speaker 6: The fact that they are able to grow their search
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Speaker 6: business double digit at that kind of run rate two
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Speaker 6: hundred ten billion dollar plus. Like, think of how many
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Speaker 6: incremental dollars they added just by virtue of that eleven
1:44
Speaker 6: percent growth in the two hundred ten billion dollar business.
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Speaker 6: And that is where you know the real strength lies
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Speaker 6: with a company like Alphabet. They are overlaying Gemini across
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Speaker 6: their family apps. AI overviews is actually driving ten percent
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Speaker 6: more queries and AI Overviews is now used by two
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Speaker 6: billion monthly active users. So Google Search has five billion
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Speaker 6: monthly active users. Imagine AI overviews being used by two
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Speaker 6: billion monthly active users. So they got the UI part right.
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Speaker 6: Gemini as a standalone app has got four hundred and
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Speaker 6: fifty million monthly active users. Imagine if everyone started paying
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Speaker 6: a twenty dollars subscription like chatchipt, this could become one
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Speaker 6: hundred billion dollar business. In addition to search and then YouTube,
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Speaker 6: I'm not even talking about you know, I'll talk about
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Speaker 6: all the strengthen YouTube and way more. So this is
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Speaker 6: a powerhouse when it comes to four hundred billion dollar
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Speaker 6: run rate they will be at the end of the year.
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Speaker 5: So can you explain something to me, Because when the
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Speaker 5: shares dropped because they said capex was a little bit more,
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Speaker 5: well ten billion dollars more than expected a little bit,
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Speaker 5: how is that different for an alphabet versus metaphor to
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Speaker 5: say that?
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Speaker 6: So that's great. So look, let's frame the capex eighty
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Speaker 6: five billion dollars at potentially a four hundred billion dollar
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Speaker 6: revenue run rate by the end of the year. That's
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Speaker 6: like a twenty five percent capex intensity. Meta, on the
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Speaker 6: other hand, is already at a forty percent capex intensity
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Speaker 6: because their CAPEX will be seventy billion at a undred
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Speaker 6: of close to two hundred billion. So that just goes
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Speaker 6: to show Alphabet is still far lower than their peer
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Speaker 6: group when it comes to the capex intensity. I mean,
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Speaker 6: that's just the scale of the business that they are operating.
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Speaker 6: And look, I do think the ROI on their capex
3:37
Speaker 6: is higher because Gemini's cost is much lower than all
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Speaker 6: the other large ANGLID models, including Microsoft, including Meta. They
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Speaker 6: do inferencing at a lower cost. And that's the advantage
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Speaker 6: of having your own chip, having your own large ANGLID
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Speaker 6: model that Microsoft or Meta don't have because they rely
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Speaker 6: on in video chips, whereas Google does most of their
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Speaker 6: inferencing from the TPU chip. So I think that just
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Speaker 6: vertical integration they have Alphabet has gives them such a
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Speaker 6: big cost advantage when it comes to running the AI infrastructure.
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Speaker 2: Where's the company on the various regulatory issues outstanding? What
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Speaker 2: are the one or two or three ones that we've
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Speaker 2: really got to focus on in what's the market telling us?
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Speaker 6: So that's the biggest risk with Alphabet. That has been
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Speaker 6: the biggest rag on their multiple and it remains because
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Speaker 6: we have a catalyst next month where Judge Meta is
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Speaker 6: going to make a decision on the remedies. And you know,
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Speaker 6: especially that Chrome split, that's still an overhang. Now the
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Speaker 6: base case is there won't be any Chrome divestiture, but
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Speaker 6: we still need to learn about what are the remedies
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Speaker 6: that may come about in terms of you know, proposed
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Speaker 6: by the judge, and that is where if they're asked
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Speaker 6: to you know, share search data or some other type
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Speaker 6: of remedy, that's going to hurt their position. I think
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Speaker 6: that is the big Overhay.
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Speaker 2: This one could be this one. If you have a
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Speaker 2: firm view on that. You buy the stock here and
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Speaker 2: there's there's a ton in this thing. Are people doing that?
5:08
Speaker 2: Are people making bets here?
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Speaker 6: Think?
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Speaker 2: I bet you they have to be.
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Speaker 6: I mean, the narrative is still no netive, so negative.
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Speaker 6: Everyone is fixated on oh chat ChiPT my work.
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Speaker 2: Bobby Action Rod on billions would somehow figure out where
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Speaker 2: this judge is going to rule, make a bet one
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Speaker 2: way or the other. You know, there's the Bobby Action
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Speaker 2: Rods of the world out.
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Speaker 6: I agree. I think if you can figure out decisively
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Speaker 6: what the judges verdict is going to be, the multiple wise,
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Speaker 6: you could see easily a twenty five to thirty percent
5:37
Speaker 6: multiple expansion and numbers will go up for sure after
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Speaker 6: print last night. But multiple expansion is like twenty five
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Speaker 6: to thirty percent. Just and when is that ruling that's
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Speaker 6: coming up in August September time frame to keep up with.
5:51
Speaker 5: These things to do.
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Speaker 2: It's got like a huge team, global team behind him.
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Speaker 2: I mean all he does is come on radio, TV
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Speaker 2: and they give all the work. He's got everything everything.
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Speaker 5: So you mentioned YouTube before Google Video site, how is
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Speaker 5: its advertising still going? Still going strong?
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Speaker 6: So look, YouTube subscriptions is what it's really doing well
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Speaker 6: right now. So YouTube subscription growth is north of twenty percent. Imagine,
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Speaker 6: you know, Netflix growing sixteen seventeen percent, YouTube subscriptions actually
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Speaker 6: surpassing Netflix's growth. And then you layer ads on top
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Speaker 6: of that, which grew at a very healthy thirteen percent.
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Speaker 6: So ads is a forty billion dollar business. Subscriptions is
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Speaker 6: now close to you know, twenty billion dollars, and that
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Speaker 6: is where you're seeing, you know, combined cloud plus YouTube
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Speaker 6: arr is close to one hundred and fifteen billion. So
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Speaker 6: imagine when just these two segments growing at north of
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Speaker 6: twenty percent. I mean, it's it's just a phenomenal business
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Speaker 6: these to both cloud and YouTube and on a standalone basis,
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Speaker 6: there is so much runway for growing the to segment.
7:01
Speaker 2: Our thanks to Man Deep Seeing Bloomberg Intelligence senior tech
7:04
Speaker 2: industry analyst.
7:05
Speaker 5: We moved next to consumer earnings. Earlier this week, Philip
7:08
Speaker 5: Morris posted second quarter earnings that missed analysts expectations.
7:11
Speaker 2: The results were due to the company's Zen nicotine pouch
7:14
Speaker 2: shipments accelerating less than expected. Separately, Coca Cola reported second
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Speaker 2: quarter earnings that beat analse expectations.
7:21
Speaker 5: And this came as a company announced it was launching
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Speaker 5: a new version of its coke product made with US
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Speaker 5: sugarcane this fall. President Donald Trump had urged a company
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Speaker 5: to do so.
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Speaker 2: For more Lisa and I were joined by Ken Shay,
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Speaker 2: Bloomberg Intelligence Senior consumer products analyst.
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Speaker 5: We first asked Ken to explain why Coca Cola is
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Speaker 5: making a switch to cane sugar and if pressure from
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Speaker 5: President Trump had an impact.
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Speaker 3: It certainly is in sync with what Coca Cola has
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Speaker 3: been doing for a long time, and that is keeping
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Speaker 3: its post on what the consumer wants to do. It
7:48
Speaker 3: has a lot of assets at his disposal, and a
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Speaker 3: cane sugar product is not novel to Coca Cola. I mean,
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Speaker 3: it's produced it in the US, largely more outside of US,
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Speaker 3: but in the US on a selected basis, So it's
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Speaker 3: really just going to expand that it may have been
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Speaker 3: prompted to a degree by the President's tweets or whatever,
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Speaker 3: but it's certainly in synct. Like I said, you know,
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Speaker 3: there's a there's an audience out there that prefers sugar
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Speaker 3: based as opposed to high fructose corn cruit based, full
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Speaker 3: calorie sodas, and they're going to play into that. Most likely,
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Speaker 3: it's going to be a brand Coke extension, and it's
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Speaker 3: going to be sell at a premium price in selected
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Speaker 3: markets to give it, uh an aura of exclusivity. I'm
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Speaker 3: guessing to to command those prices, and so just as
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Speaker 3: a little more excitement. It's it's one of many things
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Speaker 3: Coke is doing now on the innovation front.
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Speaker 2: So from Coca Cola's economic perspective, do they care which
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Speaker 2: ingredient they use?
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Speaker 3: Well, it depends, Paul, It depends if they can capture
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Speaker 3: the premium price they're going to, you know, price it
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Speaker 3: at kin share costs more than high fructose corns herup.
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Speaker 3: You know, a corn is a heavily, heavily subsidized crop
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Speaker 3: in the US. UH they built their supply chain around
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Speaker 3: HFCs because of that, and most consumers early, you know,
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Speaker 3: they don't really notice the difference. Some do but buy
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Speaker 3: and large. You know, they've grown that franchise very well.
9:15
Speaker 3: But I guess you know some tourists that go to
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Speaker 3: Mexico and they taste the sugar cane sugar coke down
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Speaker 3: there and they say, you know what, this is really
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Speaker 3: good and they want to capture the same experience in
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Speaker 3: the US.
9:26
Speaker 2: I'm going to Chipotle and they do offer the Mexican
9:30
Speaker 2: zoda there. Let me ask, let me shift gears here.
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Speaker 2: What is a zin patch?
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Speaker 3: A zin patch? You want a patch?
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Speaker 6: It?
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Speaker 3: I think they made a pouch pouch, Zin pouch, a pouch.
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Speaker 3: You know, it's a it's an oral tobacco product. Actually,
9:45
Speaker 3: zin isn't. It really doesn't even contain tobacco. It's a
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Speaker 3: synthetic products. It's lads with nicotine that is a facsimile
9:54
Speaker 3: for tobacco, which a lot of people will say causes harm,
9:57
Speaker 3: and a lot of people are right. So this is
9:59
Speaker 3: a product that you know, people can get their nicotine
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Speaker 3: buzz in a you know, hands off kind of way,
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Speaker 3: doesn't emit smoke, doesn't offend your neighbor that you're working with. Uh,
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Speaker 3: and it's done really really well. So those are really
10:12
Speaker 3: the Zin pouches that are doing really well. Yeah, yeah, I.
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Speaker 2: Thought it was Zinfindel the wine. That's no kidding, no idea,
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Speaker 2: that pouch. So but I mean it's it's big enough
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Speaker 2: a business can that Philip mars would would call it out.
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Speaker 3: Oh yeah, I know it in it's about eight percent
10:30
Speaker 3: of the sales, I believe at this point, but it's growing,
10:32
Speaker 3: you know, a twenty thirty percent rate as opposed to cigarettes,
10:36
Speaker 3: which are flat, if not down. But you know, Icoas
10:39
Speaker 3: is their smoke free device segment, which is doing very well.
10:43
Speaker 3: But if the low large numbers at some point, that's
10:45
Speaker 3: going to slow and Zen is filling the gap. They
10:48
Speaker 3: keep the overall volumes in a positive trend. They price
10:53
Speaker 3: these things very high. There's not a lot of competition
10:55
Speaker 3: in this space. So you know, one of the things
10:57
Speaker 3: investors would say about the world of tobacco, because it's
11:00
Speaker 3: so consolidated, they can pass on a very high pricing
11:04
Speaker 3: and that's what really drives a top line and you know,
11:06
Speaker 3: the cash flows and so on, and Zen plays very,
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Speaker 3: very very well into that model.
11:11
Speaker 5: And how does it fair as far as we hear
11:13
Speaker 5: about e cigarettes, vaping things like that, how has Philip
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Speaker 5: Marris been doing competing with this category.
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Speaker 3: So they have a product called viv which is their
11:24
Speaker 3: e vapor product as opposed to what they call Heat
11:26
Speaker 3: not Burn, which has actual tobacco in it, and they
11:30
Speaker 3: would say as a more appealing alternative for smokers who
11:35
Speaker 3: are trying to quit. It's a lower margin product. It's
11:38
Speaker 3: kind of seen by Philip Morris as a kind of
11:40
Speaker 3: an entry level product for those who are trying to
11:43
Speaker 3: move away from combustible cigarettes. They can turn to e
11:46
Speaker 3: cigarettes a low cost method, and their hope is that,
11:50
Speaker 3: you know, even though it's a low margin product, their
11:52
Speaker 3: hope is that they can get that consumer maybe at
11:56
Speaker 3: some point to trade up to their heat not Burn product,
12:00
Speaker 3: which is, you know, a more profitable product for them.
12:04
Speaker 2: Our thanks to Ken Shay, Bloomberg Intelligence Senior Consumer Products analyst.
12:07
Speaker 5: Coming up, well look at why the hotel chain Hilton
12:09
Speaker 5: lowered expectations for net income this year.
12:12
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 2: depth research and data on two thousand companies and one
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Speaker 2: hundred and thirty industries.
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Speaker 5: You can access Bloomberg Intelligence via Big on the terminal.
12:22
Speaker 5: I'm Lis Matteo and I'm Paul Sweeney.
12:24
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Speaker 5: I'm Paul Sweeney and I'm Lis Mateo filling in on
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Speaker 5: Bloomberg Intelligence.
12:47
Speaker 2: We move next to the telecommunication space. This week, Verizon
12:50
Speaker 2: Communications posted second quarter revenue that surpassed analyst estimates, and
12:54
Speaker 2: the company raised this profit outlook.
12:56
Speaker 5: The results were fueled by wireless price increases and favorable
12:59
Speaker 5: tax reform.
13:00
Speaker 2: For more at Least and I were joined by John Butler,
13:02
Speaker 2: Bloomberg Intelligence senior telecom analysts.
13:04
Speaker 5: We first asked John, what's making the company so optimistic?
13:07
Speaker 7: When I look at Verizon, I think of the phrase
13:11
Speaker 7: game of the inches, right. I think the improvements here
13:15
Speaker 7: quartering and quarter out are incrementally better. They're edging towards
13:21
Speaker 7: that acquisition of Frontier, which is really going to change
13:24
Speaker 7: the game for them. But in the meantime, they put
13:27
Speaker 7: a lot of changes in place in terms of their
13:31
Speaker 7: go to market strategy, how they're combating promotions coming from
13:36
Speaker 7: T Mobile and AT and T and on the margin
13:41
Speaker 7: quarterin and quarter out, I just see them doing a
13:43
Speaker 7: better and better job. I think all the actions they've
13:47
Speaker 7: taken are starting to work, and so taking the long
13:51
Speaker 7: view here, I really think Verizon is improving just quartering
13:57
Speaker 7: and quarter out. And this was another quarter where you
14:01
Speaker 7: could look at it in isolation and say, you know,
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Speaker 7: it was a solid quarter, a little bit mixed on
14:07
Speaker 7: some of the metrics, but I think I'm balanced better
14:11
Speaker 7: than last quarter and last year.
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Speaker 2: John, what's kind of the positioning of Verizon in the marketplace? Like,
14:18
Speaker 2: I've been a long time Verizon wireless customers since the
14:20
Speaker 2: beginning of cillier service actually, and I guess I was
14:24
Speaker 2: initially drawn to it because I thought they had the
14:26
Speaker 2: best network. So quality, is that still the case because
14:30
Speaker 2: it seems like T Mobile's gotten a lot better in
14:32
Speaker 2: quality and AT and T. I don't know.
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Speaker 7: Yeah, you know, Paul, you bring up a good point.
14:38
Speaker 7: I think there's a question mark out there as to
14:41
Speaker 7: whether Verizon still has the best network versus T Mobile
14:46
Speaker 7: and AT and T. But I think they have a
14:49
Speaker 7: slight edge they are in terms of coverage. And it's
14:53
Speaker 7: interesting a lot of people ask me about wireless, who
14:56
Speaker 7: was the best network? Who should I choose? And the
14:59
Speaker 7: one thing that people are always ask about is how's
15:03
Speaker 7: their coverage. I think coverage is very important to people,
15:06
Speaker 7: and I think when you think on that metric. In
15:09
Speaker 7: terms of that metric, for Riizon delivers the bars on
15:13
Speaker 7: your smartphone, probably more than T Mobile and AT and
15:17
Speaker 7: T in terms of download speeds, though I suspect that
15:21
Speaker 7: T Mobile probably is gaining the edge here.
15:25
Speaker 5: Now, what about prices? Did Verizon increase their prices? If so,
15:29
Speaker 5: did that help?
15:30
Speaker 6: So?
15:31
Speaker 7: We did see in all the carriers are increasing prices
15:35
Speaker 7: right now as the market matures and new user growth
15:38
Speaker 7: is slowing considerably. The only way you're going to grow
15:41
Speaker 7: that important service revenue metric is by raising prices. They
15:46
Speaker 7: tend to do it on older plans for riizing stunted
15:50
Speaker 7: over the past six months. As if you look over
15:54
Speaker 7: the past year, so as AT and T and T Mobile,
15:58
Speaker 7: that's flowing through and it's helping to boost the service revenue.
16:02
Speaker 7: I think over time they're adding in those little extras
16:06
Speaker 7: like you know, device insurance and perks like you know,
16:11
Speaker 7: added content that you can purchase at a discount through
16:15
Speaker 7: through Verizon, and I think all that together is going
16:18
Speaker 7: to continue to provide a lift to service revenue. It's
16:23
Speaker 7: nothing special.
16:24
Speaker 6: Again.
16:25
Speaker 7: I'm looking forward to that Frontier acquisition where they're going
16:28
Speaker 7: to buy, you know, access to two million Fiber broadband
16:34
Speaker 7: subscribers and eight million fiber homes passed, because once they
16:39
Speaker 7: get Frontier under the hood, they're going to be able
16:42
Speaker 7: to bundle that wireless service with Fiber and I think
16:46
Speaker 7: that's going to help to really drive renewed UH subscriber growth.
16:52
Speaker 2: Our thanks to John Butler, Bloomberg Intelligence Senior Telecom Analist.
16:55
Speaker 5: We move next to the toy industry.
16:57
Speaker 2: This week, the toy maker has But reported second quarter
16:59
Speaker 2: earnings that beat analyst expectations.
17:01
Speaker 5: The company also said it's raising its full year outlook.
17:04
Speaker 5: This comes after a record quarter for Hasbro's Magic the
17:07
Speaker 5: Gathering card game.
17:08
Speaker 2: For more, co host Isabelle Lee and I were joined
17:10
Speaker 2: by Lindsey Dutch, Bloomberg Intelligence Consumer Hardlines Senior Analyst. You
17:14
Speaker 2: first asked Lindsay to break down what we learned from
17:17
Speaker 2: Hasbro this week.
17:18
Speaker 4: Strong quarter are really a continuation from the first quarter
17:22
Speaker 4: where all the strength is really coming from Magic the
17:25
Speaker 4: Gathering Monopoly go and Hasbro's digital gaming business. What we
17:29
Speaker 4: did not learn from the release is really about the
17:32
Speaker 4: consumer and what the outlook is for toys in the
17:35
Speaker 4: second half, and that's causing a lot of uncertainty what
17:39
Speaker 4: that back half might look like.
17:42
Speaker 8: I was going to ask how exposed is Hasbro to
17:44
Speaker 8: current consumers spending trends, Like, especially in the toys and
17:49
Speaker 8: entertainment area, do we see more middle income shoppers buying
17:51
Speaker 8: Hasbro or what kind of consumers are you seeing?
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Speaker 4: Yeah, so the toy business typically grows with GDP. It
17:59
Speaker 4: has been you know, coming down a bit challenge over
18:01
Speaker 4: the past couple of years after the peak during COVID
18:04
Speaker 4: when everyone was stuck at home buying a lot of toys.
18:07
Speaker 4: This year was supposed to be a turnaround year four
18:09
Speaker 4: toys and then early this year, you know, we got
18:12
Speaker 4: hit with the tariff news, which created a lot of
18:15
Speaker 4: uncertainty in the business. One is, you know, we don't
18:19
Speaker 4: know how the consumer is going to react to broader
18:21
Speaker 4: price increases, and we do expect increases on toys very specifically,
18:27
Speaker 4: so companies like Hasbro and Mattel, you know what some
18:30
Speaker 4: of the biggest toy makers in the globe you know,
18:33
Speaker 4: are really faced with that challenge in second quarter. Normally
18:38
Speaker 4: retailers already start buying their holiday inventory. That didn't happen
18:42
Speaker 4: this year. Those retailers Walmart, Target, took a pause. So
18:46
Speaker 4: normally by now we would sort of get a sense
18:48
Speaker 4: of holiday But because of that pullback, you know, Hasbro
18:52
Speaker 4: saw their consumer products segment see a sixteen percent decline
18:55
Speaker 4: in the second quarter revenue because of that hold on
18:58
Speaker 4: those orders.
19:00
Speaker 2: Thought they would have tried to front run the tariffs. Here,
19:02
Speaker 2: what's the company saying about when they expect some of
19:04
Speaker 2: these retailers to place their orders, so.
19:08
Speaker 4: They expect the orders to be sort of made up
19:11
Speaker 4: in the third quarter. And the challenge with that is,
19:14
Speaker 4: you know, some of those hotter toys that do sell
19:16
Speaker 4: out maybe in the early holiday shopping season, there will
19:20
Speaker 4: be very little time to sort of replenish on that end.
19:23
Speaker 4: So Hasbro did continue their production, which you know they
19:26
Speaker 4: do still make about fifty percent of their toy products
19:29
Speaker 4: in China. They continued in May. You know, they took
19:32
Speaker 4: some of that inventory on their books in the second quarter.
19:35
Speaker 4: That's why we saw the inventory come up there. You know,
19:37
Speaker 4: they're hoping that the retailers, you know, place more of
19:40
Speaker 4: their orders in the third quarter, you know, ahead of holiday.
19:44
Speaker 4: You know, the risk is they just don't really know
19:46
Speaker 4: what those pre order will be and there will be
19:49
Speaker 4: limited time for additional orders like in that fourth quarter
19:54
Speaker 4: right before holiday.
19:56
Speaker 8: To your point. In April, the company warned the tires
19:59
Speaker 8: clid impact profit by as much as sixty million two
20:02
Speaker 8: hundred and eighty million this year, and they did reduce
20:04
Speaker 8: their Chinese manufacturing output to less than forty percent, or
20:07
Speaker 8: at least plan to by twenty twenty six. If they
20:09
Speaker 8: do that, will they pass on the cost to consumers?
20:11
Speaker 8: And do you think consumers will bear the brand of
20:14
Speaker 8: that burden.
20:15
Speaker 4: Yes, so Hasbro is using multiple mitigation strategies. You know,
20:20
Speaker 4: they have been very focused on cutting costs. You know,
20:22
Speaker 4: prior to tariffs, they sort of accelerated some cost cutting
20:26
Speaker 4: at the corporate level. They will be raising prices, I
20:30
Speaker 4: think selectively on toys. They are also just going to
20:34
Speaker 4: not sell certain toys in the US if it can't
20:38
Speaker 4: it doesn't make financial sense to do so if they
20:40
Speaker 4: can't raise the price and consumers would not buy it
20:43
Speaker 4: at that price. So they're sort of using a mixed strategy.
20:47
Speaker 4: They had predicted tariffs to cost sixty million to one
20:50
Speaker 4: eighty million on an annual basis three months ago. They
20:54
Speaker 4: sort of dropped that impact closer to the sixty million side.
20:58
Speaker 4: That's because of lower rate on the Chinese imports. They
21:03
Speaker 4: are working to diversify the supply chain, but that will
21:05
Speaker 4: take time. The goal of less than forty percent that's
21:08
Speaker 4: really by twenty twenty seven, So in terms of this year,
21:12
Speaker 4: you know where their supply chain is. They're sort of
21:14
Speaker 4: locked in with that at the moment, and they kind
21:17
Speaker 4: of have to work with the price increases and sort
21:19
Speaker 4: of balancing where do I increase price and not hurt
21:22
Speaker 4: the demand even.
21:23
Speaker 5: More our thanks to Lindsay Dutch, Bloomberg Intelligence Consumer Hardline
21:27
Speaker 5: Senior Analyst, we've.
21:28
Speaker 2: Moved next to the hospitality industry. This week. The hotel
21:31
Speaker 2: chain Hilton Worldwide lowered expectations for net income for twenty
21:34
Speaker 2: twenty five, while US hotel booking declined in the second quarter,
21:38
Speaker 2: and this comes as.
21:39
Speaker 5: US travel demand has faced headwinds in recent months, including
21:42
Speaker 5: lower consumer confidence and a decline in international visitors.
21:45
Speaker 2: For more co hosts, Isabelle Lee and I were joined
21:48
Speaker 2: by Jody Lourie Bloomberg Intelligence credit analyst. We first asked
21:51
Speaker 2: Jodie what we learned about Hilton from It's Ernie's call
21:53
Speaker 2: this week.
21:54
Speaker 9: I mean, I think what's so interesting is they definitely
21:56
Speaker 9: tried to provide an upbeat, optimistic view. The amount of
21:59
Speaker 9: times they talked about the thawing that after the freeze
22:03
Speaker 9: from tariffs was sort of interesting to hear, and I mean,
22:06
Speaker 9: I think it fits a little bit with the conversation
22:08
Speaker 9: that we've been having with clients is that what we've
22:10
Speaker 9: been seeing in our data is twenty twenty five summer
22:15
Speaker 9: should still be pretty strong, but I think as we
22:18
Speaker 9: get into the latter part of the year and then
22:20
Speaker 9: into next year, it's a little bit uncertain. And I
22:23
Speaker 9: think they were trying to suggest that economic data is
22:29
Speaker 9: positive for them and will provide for additional sort of demand,
22:33
Speaker 9: but it's still a little bit, you know, it's still
22:36
Speaker 9: a little bit hazy, at least for me. And I
22:39
Speaker 9: mean more than anything, you know, they're so focused on
22:41
Speaker 9: giving back to shareholders that and.
22:44
Speaker 2: There's a credit analyst that's not something.
22:46
Speaker 9: Necessarily that's yeah, yeah, you know, Hilton's one of those
22:49
Speaker 9: companies that we say, if they wanted to be investment grade.
22:51
Speaker 9: They probably could work to it yesterday and would have
22:54
Speaker 9: been investment grade five years ago. But you know, from
22:58
Speaker 9: a margin standpoint, they're so much stronger than of their peers.
23:00
Speaker 9: But from a leverage standpoint, they just they're happy being
23:03
Speaker 9: around three times three and a half times, and they've
23:06
Speaker 9: indicated that they want to be a little bit higher
23:08
Speaker 9: than where they currently are. So I mean, I think
23:11
Speaker 9: they're going to invest in organic growth and look at
23:13
Speaker 9: ways to sort of grow some of their newer brands
23:16
Speaker 9: like Spark, which they've been talking about. And the most
23:18
Speaker 9: interesting thing related to that is it seems like they're
23:21
Speaker 9: looking outside the US for growth opportunities, and maybe that's
23:25
Speaker 9: a function of the fact that they while they think
23:28
Speaker 9: the US is still having decent momentum, perhaps they need
23:31
Speaker 9: to sort of look outside to sort of really see
23:34
Speaker 9: the growth.
23:35
Speaker 8: Where are they finding that growth elsewhere? And is that
23:37
Speaker 8: in relation to just the lower consumer confidence in the
23:40
Speaker 8: US and the decline of international travelers. So then they
23:43
Speaker 8: just decided maybe looking elsewhere US better. What was the
23:46
Speaker 8: rationale behind that?
23:48
Speaker 9: So they actually talked about on the first quarter, they
23:52
Speaker 9: talked about Canada and Mexico, demand and they said specifically
23:56
Speaker 9: that it's such a small percentage, just like one percent
23:58
Speaker 9: of their total revenues is Canada MC, and inbound US
24:01
Speaker 9: is certainly a large portion, I think, larger than they
24:04
Speaker 9: sort of indicate. But I think they're also sort of saying, Okay, yeah,
24:07
Speaker 9: it's going to be an effect, but it's not that
24:09
Speaker 9: much effect. I think they are seeing. And what we
24:11
Speaker 9: sort of heard on this most recent call is that
24:14
Speaker 9: there is an element of trickle down effect related to
24:18
Speaker 9: what's going on in the US, the prevalence of travelers
24:24
Speaker 9: coming into the US versus historically because of the tariff
24:27
Speaker 9: and geopolitical environment, and so, you know, they mentioned Saudi Arabia,
24:32
Speaker 9: they mentioned India, they mentioned turkeya on the call, and
24:36
Speaker 9: I think they're looking at anywhere there's potential growth opportunities.
24:38
Speaker 9: I mean, Hilton's so large and global that it's not
24:42
Speaker 9: really surprising to me, but it is sort of interesting
24:45
Speaker 9: when you hear a company that's seventy five percent US
24:48
Speaker 9: dominant that they are sort of looking to expand elsewhere.
24:52
Speaker 2: Our thanks to Jody Lourie Bloomberg Intelligence Credit Analyison coming up.
24:55
Speaker 5: Well, look at how Elon Musk's recent political antics may
24:58
Speaker 5: be affecting his business empire.
25:00
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
25:03
Speaker 2: depth research and data on two thousand companies and one
25:05
Speaker 2: hundred and thirty industries.
25:06
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25:09
Speaker 2: I'm Lisa Mattheo and I'm Paul Sweeney. This is Bloomberg.
25:21
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25:25
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25:28
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25:31
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25:34
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25:35
Speaker 5: Paul Street and I'm Lisa Matteo filling in on Bloomberg Intelligence.
25:38
Speaker 2: Next, return to the auto sector.
25:40
Speaker 5: This week, General Motors will lease second quarter earnings that
25:42
Speaker 5: beat analysts expectations, but the carmaker said it still suffered
25:46
Speaker 5: a one point one billion dollar profit hit from President
25:49
Speaker 5: Donald Trump's tariffs.
25:50
Speaker 2: GM also revealed no plan for near term fixed to
25:53
Speaker 2: return to pre tariff profit levels. For more, Lisa and
25:56
Speaker 2: I were joined by David Welsh, Bloomberg News Detroit Buro chief.
25:59
Speaker 5: First as David was he surprised by the one point
26:02
Speaker 5: one billion dollar tariff hit.
26:04
Speaker 10: Not surprised at all. GM said they were going to
26:06
Speaker 10: take a fort to five billion dollar hit, or at
26:08
Speaker 10: least that they had forty five billion dollars in exposure
26:11
Speaker 10: this year to tariffs, and then they would only be
26:13
Speaker 10: able to offset about thirty percent of it, and the
26:17
Speaker 10: measures they're using to offset that you really won't see
26:20
Speaker 10: to the second half. I thought there would be a
26:21
Speaker 10: pretty big hit to it. I don't think the street
26:25
Speaker 10: was surprised either, because the forecast for GM's earnings were
26:30
Speaker 10: for a pretty big drop off of the second quarter
26:32
Speaker 10: of last year. Already, GM did better than that because
26:35
Speaker 10: they did have some things, better profits in China than
26:38
Speaker 10: we saw a year ago and better sales in the
26:41
Speaker 10: US that helped them. But overall, a pretty tough quarter,
26:44
Speaker 10: and it really shows that the car companies are going
26:46
Speaker 10: to have a tough time getting anything close to pre
26:50
Speaker 10: tariff profits going forward because there's just no easy way
26:53
Speaker 10: to get around them.
26:54
Speaker 2: So I mean is what were to take away from
26:57
Speaker 2: them is that the autom manufacturers, for what reason, maybe
27:00
Speaker 2: they're just not able to or they chose not to
27:02
Speaker 2: pass along the bulk of their cost increases to consumers
27:06
Speaker 2: is at a policy or is that just an economic reality?
27:10
Speaker 10: It's an economic reality. And look, we're at a period
27:13
Speaker 10: right now where interest rates are at pretty high levels.
27:16
Speaker 10: You have historically not record but pretty close to record
27:20
Speaker 10: new vehicle prices in the US right now, average monthly
27:22
Speaker 10: payment well over seven hundred dollars a month. We have
27:25
Speaker 10: a record number of people I think paying more than
27:27
Speaker 10: one thousand dollars a month for their monthly payment. Cars
27:30
Speaker 10: are expensive, so you know, you can go out there
27:32
Speaker 10: and say, hey, I'm going to pass this tariff cost
27:35
Speaker 10: on to consumers or even some of it. But if
27:37
Speaker 10: consumers don't pay it, then you just lose the sales.
27:40
Speaker 10: And you haven't seen huge price increases. You've seen small
27:43
Speaker 10: and you seen companies sneak in, you know, some bigger
27:46
Speaker 10: fees for transporting the vehicle for example, things like that.
27:50
Speaker 10: But it's just not they just don't really have the
27:54
Speaker 10: ability to push in big price increases to you know,
27:58
Speaker 10: to pass on. In GM's case, a billion hours worth
28:00
Speaker 10: of tariffs in a quarter.
28:02
Speaker 5: And it's not just terrors. What else affected profits for GM?
28:05
Speaker 5: I mean, how's their inventory for electric vehicles?
28:08
Speaker 10: They built that up in the quarter and since the
28:10
Speaker 10: vehicles lose money, they have to count for that that
28:13
Speaker 10: that costs them. I think it was six hundred million
28:16
Speaker 10: dollars in the quarter they had three hundred million. Because
28:18
Speaker 10: they've had a big engine recalls, they've had higher warranty costs.
28:22
Speaker 10: It wasn't just because of that recall. They've had other
28:24
Speaker 10: issues and they're working on that. Some of it, some
28:27
Speaker 10: of these quality issues you're seeing that are costing companies
28:30
Speaker 10: more in warranty and recall type costs, are all the
28:33
Speaker 10: software that goes into electric vehicles. These are kind of
28:37
Speaker 10: first times out with new software, new infotainment systems, power
28:42
Speaker 10: management systems in these vehicles, and it's just tough for
28:46
Speaker 10: them to go out there and not be buggy.
28:49
Speaker 6: Right.
28:49
Speaker 10: You know, think about how many times there's something on
28:51
Speaker 10: your smartphone that you know needs an update, and fixing
28:55
Speaker 10: that with the cars is often more expensive. So some
28:59
Speaker 10: of it was related to that. And actually, you know,
29:02
Speaker 10: they saw pricing go down with some of their fleet customers.
29:05
Speaker 10: There's a lot of competition out there for the for
29:07
Speaker 10: the corporate and fleet business, and they actually saw some
29:11
Speaker 10: downward price pressure there too, and that cost them a
29:13
Speaker 10: couple one hundred million dollars. So a lot of things
29:16
Speaker 10: in the quarter that pushed profits down, But tariffs are
29:18
Speaker 10: the real story here, David.
29:21
Speaker 2: You're out there in Detroit. You live and breathe this
29:23
Speaker 2: stuff every day. What's the feeling in Detroit as he
29:26
Speaker 2: relates to this evolution to evs and how will the
29:30
Speaker 2: tariff and the tariff impact on profitability? Is that going
29:33
Speaker 2: to slow this down even more?
29:36
Speaker 4: Do you think?
29:38
Speaker 6: I do?
29:39
Speaker 10: I think everything that Trump administration is doing is really
29:43
Speaker 10: going to slow the EV transition. First of all, you know,
29:46
Speaker 10: the obvious one is there, comes September, they're going to
29:49
Speaker 10: be getting rid of the seventy five hundred dollars tax
29:51
Speaker 10: break for qualifying electric vehicles. But you know, with tariffs,
29:54
Speaker 10: you've got battery components, electronic components, wiring harnesses. There's more
30:00
Speaker 10: wiring in an EV than in a conventional vehicle. All
30:03
Speaker 10: that stuff adds to the cost of vehicles that already
30:05
Speaker 10: lose money. Some of them are actually built overseas. In
30:08
Speaker 10: the case of Hyundai, they make some of theirs overseas.
30:12
Speaker 10: GM makes a couple of it's evs in Mexico. They
30:15
Speaker 10: do qualify for US MCA, but there are still some
30:19
Speaker 10: parts component tariffs that they can be hit with on
30:23
Speaker 10: some of these vehicles, and so you add cost to
30:27
Speaker 10: vehicles that are already pretty expensive, and you can't pass
30:31
Speaker 10: it on. If you do, even fewer people will buy them.
30:34
Speaker 10: Companies may have less incentive to build and sell them
30:36
Speaker 10: if they lose a bit more money on these, So
30:39
Speaker 10: that's going to hurt as well. And then of course
30:40
Speaker 10: Trump's rhetoric for people who are you know, politically right
30:45
Speaker 10: of center and pretty far right is that you know,
30:48
Speaker 10: evs are a dumb purchase and they don't work for you,
30:50
Speaker 10: and I think that hurts sales as well. So all
30:54
Speaker 10: of this is just not good for the momentum that
30:57
Speaker 10: EV's had in the US, you know, before Trump got
31:00
Speaker 10: in office.
31:01
Speaker 5: Yeah, so, David, last month the company said it would
31:03
Speaker 5: shift some production to the US from Mexico. So what
31:05
Speaker 5: other changes can we expect to see from the company.
31:09
Speaker 10: Yeah, I think you'll see them try to bring more parts,
31:12
Speaker 10: more of the parts they buy into the US, so
31:14
Speaker 10: they'll be encouraging their suppliers to do what they're doing,
31:17
Speaker 10: which is move some production to the United States. And
31:19
Speaker 10: that'll take time, and you know, you may see them
31:23
Speaker 10: make some more production related moves. What they've done is
31:26
Speaker 10: pretty big, so I'm not anticipating any big announcements. But
31:30
Speaker 10: you know, as they look at this and they find
31:31
Speaker 10: other ways to do it, you might see more vehicles,
31:33
Speaker 10: more parts built.
31:34
Speaker 5: Here in the US our thanks to David Well, It's
31:37
Speaker 5: Bloomberg News Detroit Bureau Chief.
31:39
Speaker 2: This week we focused on a Bloomberg Big Takes story
31:42
Speaker 2: entitled Elon musk Empire is Creaking under the Strains of
31:45
Speaker 2: His Antics. You can find it on Bloomberg dot Com
31:48
Speaker 2: and The Terminal.
31:49
Speaker 5: The story looks at the state of Elon Musk's companies Tesla, SpaceX,
31:53
Speaker 5: and Xai, and it gives insight into how much Elon
31:56
Speaker 5: Musk's recent political antics are affecting his empire.
31:59
Speaker 2: For more, Lisa I were joined by one of the
32:00
Speaker 2: stories co authors, Max Chafkin, Bloomberg BusinessWeek senior reporter and
32:05
Speaker 2: co host of the Elon Inc. Podcast.
32:07
Speaker 5: We first asked Max if Elon musk political antics are
32:10
Speaker 5: impacting his business empire.
32:12
Speaker 11: I mean absolutely, and it's because as much as Tesla
32:16
Speaker 11: is a car company, it is I think for many
32:19
Speaker 11: investors really an Elon Musk company. It's a way to
32:22
Speaker 11: bet on what they see as the singular genius of
32:26
Speaker 11: this guy. And as you said, over the last few years,
32:29
Speaker 11: it's gotten harder to see that there have been challenges,
32:34
Speaker 11: and I think obviously the biggest challenges is this relationship
32:38
Speaker 11: with Donald Trump, where you had, you know, in December,
32:42
Speaker 11: Elon Musk, you know, helps get Trump elected and then
32:44
Speaker 11: is in this position of extreme influence, you know, probably
32:47
Speaker 11: more influence than almost any you know, executive ever and
32:52
Speaker 11: and you had this kind of Trump trade where people
32:54
Speaker 11: were bidding up the stock based on the idea that
32:56
Speaker 11: Elon Musk was going to be able to get all
32:58
Speaker 11: of these policies that were going to help his company.
33:00
Speaker 11: His companies of course very very much enmeshed with the
33:03
Speaker 11: government and heavily regulated. And then we're seeing that in reverse,
33:06
Speaker 11: we're seeing that, you know, what happens when you get
33:09
Speaker 11: when you have a business and a bunch of businesses
33:12
Speaker 11: in fact, that are heavily regulated, and you're in a
33:14
Speaker 11: fight with you know, the most powerful person in the world.
33:17
Speaker 11: And Donald Trump.
33:18
Speaker 5: You say in the article that really stood out to me,
33:20
Speaker 5: you say, he is rich on paper, but he is
33:22
Speaker 5: cash poor. So kind of explain that to us.
33:25
Speaker 11: Stick into that, Yeah, I mean part of this has
33:27
Speaker 11: to do with the fact that he's he's always making
33:29
Speaker 11: these big bets. But when you look at his wealth,
33:32
Speaker 11: it is mostly in Tesla's stock, Tesla stock and options,
33:36
Speaker 11: and he's running this empire which you know obviously includes Tesla,
33:41
Speaker 11: it also includes SpaceX. He's got a lot of SpaceX
33:44
Speaker 11: stock as well. You know, neither of those companies. He's
33:47
Speaker 11: able to borrow money against his positions in these companies,
33:51
Speaker 11: and we have seen sort of company A buy equity
33:55
Speaker 11: and company B that sort of thing.
33:57
Speaker 2: But there isn't just like a huge.
33:59
Speaker 11: Pile of cash and he has all these things he's
34:02
Speaker 11: trying to do. You know, you there's there's really only
34:04
Speaker 11: one company in the portfolio that is reliably profitable, and
34:08
Speaker 11: that's Tesla. And then you have SpaceX, which of course
34:11
Speaker 11: has a lot of promise and has a dominant position
34:14
Speaker 11: in the launch market, but is not necessarily throwing off cash.
34:17
Speaker 11: And so you have this empire that is very large,
34:20
Speaker 11: but where different companies are supplying things to other Elon
34:24
Speaker 11: Musk companies. And I'd say the most obvious example of
34:27
Speaker 11: that is this in this Xai investment round, which is
34:31
Speaker 11: already at Elon Musk has already said SpaceX is putting
34:34
Speaker 11: two billion dollars in. He's also indicated he's going to
34:36
Speaker 11: try to get Tesla to put five billion dollars into Xai.
34:40
Speaker 11: And this is a company that is burning, you know,
34:43
Speaker 11: a billion dollars a month. Now, this is the kind
34:45
Speaker 11: of thing that for any other executive, you know, it's
34:48
Speaker 11: like a pie. It's like a conflict of interest on
34:50
Speaker 11: top of a conflict of interest. On the other hand,
34:52
Speaker 11: you know, Elon Musk has this fan base that has
34:55
Speaker 11: so far been willing to kind of go along with
34:58
Speaker 11: things that no other investment in, any other company, whatever,
35:01
Speaker 11: go along with.
35:02
Speaker 2: Is there any reason to believe that the few, to
35:05
Speaker 2: whatever degree it is at the moment, between President Trump
35:09
Speaker 2: and Elon will de escalate.
35:11
Speaker 11: Yeah, I mean, I definitely think that's possible, partly because
35:15
Speaker 11: both Trump and Musk, you know, obviously they're both famously
35:18
Speaker 11: kind of alpha, you know, very tough, but they also
35:22
Speaker 11: both you know, they they forgive like this. People have
35:26
Speaker 11: made this observation about Donald Trump that you know, although
35:29
Speaker 11: there are there are a handful of people that are
35:31
Speaker 11: sort of permanently outside of the circle of trust with Trump.
35:34
Speaker 11: People fall in and out of love with Donald Trump,
35:37
Speaker 11: and he is able to kind of look past FEUs.
35:39
Speaker 11: Elon Musk is the same way, And there is a
35:41
Speaker 11: mutual interest here. As I said, you know, Trump kind
35:45
Speaker 11: of needs Musk because Musk was the most important financial
35:48
Speaker 11: backer for Republicans during the twenty twenty four cycle. He
35:52
Speaker 11: could very well be the most important backer in the
35:54
Speaker 11: twenty twenty six cycle. And I'd say that Musk kind
35:57
Speaker 11: of needs Trump, both from a branding perspective, from the
36:00
Speaker 11: fact that, like, once you've alienated the entire universe of
36:04
Speaker 11: Democratic voters, which must kind of has done, then what
36:08
Speaker 11: do you have left? You have basically the Republicans, and
36:11
Speaker 11: you don't really want to be on the outs with
36:13
Speaker 11: Donald Trump as a cultural force. And then and then
36:16
Speaker 11: on top of that, you have the sort of regulatory issues.
36:19
Speaker 11: You know, self driving, which is what Tesla is betting
36:22
Speaker 11: its future on, is a regulated industry, you know, rockets
36:26
Speaker 11: government contractors. So there are always ways that Donald Trump
36:29
Speaker 11: could either hurt or help Elon Musk, depending on what
36:31
Speaker 11: the relationship looks like in.
36:32
Speaker 5: The last minute. So we have left it seems like
36:34
Speaker 5: someone else is kind of sliding into that position. Open
36:37
Speaker 5: Ay Sam Altman is he kind of taken over where
36:40
Speaker 5: Musk left the spot.
36:42
Speaker 11: I mean incredible, right, like watching that happen, especially given
36:46
Speaker 11: the fact that Sam Altman, you know, former Democrat course
36:49
Speaker 11: Elon Musk at times has supported Democrats as well, but
36:51
Speaker 11: Sam Altman much more recently was a Trump critic and
36:54
Speaker 11: so on, and that is, you know, there there have
36:57
Speaker 11: been a bunch of political sort of mistakes, missteps made
37:01
Speaker 11: by Elon Musk, and that is you'd have to include
37:04
Speaker 11: that in the list, just because Sam Almons certainly didn't
37:07
Speaker 11: have the pole position. And now open Ai this you know,
37:11
Speaker 11: AI large language model company competing with Xai is in
37:14
Speaker 11: a position of proximity to the president and and so yeah,
37:18
Speaker 11: that's that's yet another case where where this feud is
37:20
Speaker 11: not helping Elon Musk.
37:22
Speaker 5: Our thanks to Max Chafkin, Bloomberg BusinessWeek Senior reporter and
37:25
Speaker 5: co host of the Elon Inc.
37:26
Speaker 2: Podcast.
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Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
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Speaker 1: and anywhere else you get your podcasts. Listen live each
37:36
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot Com,
37:40
Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business App.
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Speaker 1: You can also watch us live every weekday on YouTube
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Speaker 1: and always on the Bloomberg Terminal