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This is Bloomberg business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast. A deluge of US economic reports this past week, including durable goods orders falling more than forecast, consumer confidence decreasing for the first time in four months, the US economy expanding at a slower rate at the end of last year, as consumer spending grew at a faster pace that initially estimated, and inflation was revised higher.
And then we got the big report of the week. The Fed's favored inflation gauge rose in January at the fastest pace in nearly a year, although it did come in exactly this forecast. Inflation adjusted consumer spending dropped for the first time in five months after a robust holiday shopping season, and real disposable income, the main supporter of spending,
was little changed. More on that latest inflation print and the US economic backdrop in just a moment, Carol, you were not joking when you said at deluge with economic data.
It was hard to keep up, all right. Also this hour, we got another check on the US economy and really US consumers thanks to Whirlpool CEO Mark Bitzer, who continues to see consumers changing their shopping ways post pandemic.
Plus, as US home buying demand nears its worst level since nineteen ninety five, as mortgage rates hold above seven percent, we got a check at the housing market with Kate Kaminski, COO at the real estate investment company Walton Global, and.
Folks, yes we may be a couple of months in, but there are still those who are making calls for the new year. We have the ten outrageous predictions for private equity in twenty twenty four.
And speaking of that, we check out the Peback studio behind everything from a tour driven oscar bait such as uncut Gems to Theman Award winning hit Beef. It's the BusinessWeek cover story.
All of that to come. We begin with the NonStop US economic data this week, and in particular the report that was the big one and the latest read on US inflation, which also happens to be the Fed's preferred inflation gauge. We're talking about the core Personal Conception Expenditures gauge or CORE PCE, which increased by the most in a year.
For more, we checked in with Bloomberg News International Economics and Policy correspondent Michael McKee.
The sigh of relief was it wasn't worse. The numbers came in on a month over month basis higher than they had in previous months. The core rate was up on a month over month basis four tenths, which was the highest in a year. And it sounds terrible, but because of base effects in the progress they've made on disinflation on the year over year basis, we continued to see the PCE and the CORE go down, and that's what people want to see, because that's what the Fed
wants to see. We're still a ways from two percent if you're using CORE as sort of your measuring stick, at two point eight percent, but there was progress and the economy is not doing badly.
People.
What personal income went up one percent and wages still went up four tents on a percent, which is healthy. Spending was a little weak, but remember there was a lot of storms in January, people didn't go out. We know they didn't buy cars and things like that. So overall, this is the Goldilocks soft landing story continues.
So break up in the Champagne.
In other words, I knew you'd get around it.
So Mike remind us why this is the Fed's preferred measure of inflation. Why do we care so much about pc and over CPI.
For well, basically, the PCE is a bit broader, but it also is a little bit more reflective of what people are spending on. It includes a lot of imputed data, which is data that they try to figure out by measuring parts of the economy rather than just prices, because they don't have prices on things like financial portfolio management was one of the biggest movers, up five percent of
the month because the markets are doing so well. So they're looking at the markets and they're looking at the gain in the markets, and they're guessing sort of what the commissions would be, etc. And the fees, and they impute a number from that, but that's not counted in the CPI. And for example, the CPI will measure what you pay for your monthly car insurance, whereas the pc will measure what you pay, and it also measures what value you get, In other words, how much will your
policy pay if you're in an accident. And of course that has to keep likely going up because cars keep getting more expensive.
So that's the kind.
Of thing that's the difference between them, and so the FED just prefers it. They normally don't run very far apart, but they have been running far apart over the last year.
Well.
As an economist, I mean, what do you trust as really kind of telling the true picture of of inflation, Because I do feel like there's a bit of a debate when it comes to some of the economic statistics that are out there about whether they not, you know, accurately reflect what's going on in the US economy. How do you see because I feel like, Mike, you're so good at kind of pulling in yes, government statistics, real words, real world statistics.
There are so many different measures, and even though there's a wedge between the PCE and CPI, it's about one hundred basis points now, it's normally somewhere between thirty five and fifty, so it's not very wide. And really we can't say, given all the different measures, exactly what inflation is so the CPI has the most categories, it's the most up to date. The PPI and the CPI feed into PCE, so PCE depends on CPI. So I guess
I would go with the CPI. That doesn't mean I think that three point nine percent is where we should be. There's a lot of talk of the FED maybe changing its inflation target to maybe three percent or something like that, but overall maybe the CPI.
You know, that's just talk.
The FED has denied that they're going to do that many many times over the last year.
Well, they're denying it now because if you do it now when you have you're moving the euation, You're moving the goalposts.
Right.
They do now have a procedure so that every five years they look at their monetary policy framework, and that's coming up in twenty twenty five.
So do you think that given what we've had we've seen over the last eighteen months with the data MIC, that they would consider actually changing it when there is a time to do that.
I think they would. Two percent was never a number written in stone. It was what the New Zealand Central Bank adopted number of years ago, and it sort of became a de facto standard, and the idea was basically, what's not too high and not too low, because if you're too number, you have no way to lower rates if you're at zero, and if you're too high, then
people get mad because you have inflation. So they picked two percent they could eat usually pick three percent, and people have been urging that on them for years, so it's something I'm sure they'll talk about, all right.
So the data this week, we all were kind of leading up, I feel like in a big way to this Thursday report of pc core and the read on inflation that the Fed follows the narrative if you put it all together, including some of the other data points, is there one clear narrative or a bit of a mixed narrative.
It's a mostly clear narrative that the economy is doing well. Interesting number we haven't mentioned and didn't get a lot of attention because of the PCEE was pending home sales really tanked in the last month, and that's maybe a sign that we're seeing the higher mortgage rates bite, which is despite Elizabeth Warm's desires, that's what the FED wants to see. So we seem to be doing and getting what the FED is looking for.
That was Bloomberg News International Economics and Policy correspondent Michael McKee, and staying with the US economy data great for reading the temperature on how the economy and consumers are doing. So too, is going straight to the CEOs of companies that sell directly to US shoppers.
Yeah, we get great reads right and what's going on? One such company as Whirlpool, which saw explosive demand as you know, during the pandemic when we were all stuck at home, and has really been going through a reset like so many other consumer facing companies as the world has moved back to pre pandemic levels of activity and wanting to kind of get out and do things.
Mark Bitzer is the chairman, president, CEO and COO of Whirlpool. We asked him how the consumer is doing following this week's US consumer confidence which decreased for the first time in four months, as Americans used deteriorated about the outlook for the economy, the job market, and financial conditions.
I mean, obviously, our purchase, like endurable appliance, is heavily driven by consumer confidence and housing general. So what we did see already the last here is that actually our replacement side of a business where people just replace a product under the rest. But it has been very strong even up. But the discretionary side we actually already lost year saw coming back coming down large as a result of if interest rates rising, housing kind of being very
slow and slowing down throughout the year. That ultimately depressed the discretionary side.
So what you're.
Describing we saw already last year, and we probably I mean in our earnings call also we said it's probably going to be around us, certainly for Q one and Q two, and then we need to see what happens if interest and mortgage rates and everything else. But I think where we need to be a catalyst from wet side to really lift consumer seentering.
Well, what would that catalyst be, Mark, Like, what are you looking for at the perch of worldpool?
Yeah, I mean in particularly our North American business, which you know, there's a strong correlation with existing home sales and housing market in general.
We always we shouldn't forget that.
You know, the average mortgage rates which are right now locked in with homeowners is three point seven percent. So I think to really bring supply on the market and
get people ready to sell their existing homes. I think you need to see mortgage rates, you know, a certain those six percent, probably more like five and a half percent to really kind of unfreeze the market again, because you know what we saw the last two years is the market pretty much dropped from six point four million existing home sales to three point eight That's a dramatic drop.
We call it a shot freeze. And it takes that momentum.
Of a catalyst on the interest rates side to kind of unfreeze a fall the market. And that's what we I mean, we don't see it short term. I mean, and of course, well everybody's got to watch what the FED will do, but I think over time it will kind of be a key catalyst for growth.
So make that connection for our investor audience about that key catalyst here and why a person who is sitting at a three point five US three point seventy five percent mortgage won't necessarily go out and buy a new appliance from Whirlpool. But if they were to sell that home to somebody at a favorable mortgage rate, that person moving in would then buy a new appliance from Whirlpool.
Why would't the person who lives there now end up buying it if it actually need if they actually need a new washer dryer.
Yeah, so so again I mean if it just needs a new wash and dryer, we would see a better a replacement market. And you know it's again if you break down and let me zoom out a little bit, break down our fundamental demand. Our demand has, replacement has discretionary and new homes. These are basically our fundamental free demand.
Driver replacement is very strong because of what we've seen in post COVID and of certainly during COVID, people spend more time at home, so the appliant's usage is higher. High usage rates drive early replacements. So that side of
business is very strong we see by today. But what is right now soft is the discretionary side, which particularly comes with existing home scenes and over many decades, what we typically saw kind of the month before and the month after people buying a new home or existing home.
That's when you have.
Increased purchase and appliance and everything. So because of what we typically see were people moving in, one of the first things we might do is replace the kitchen or at least replace the appliances, so that part of the demand is today missing And again it's think about yourself. If you're a homeowner, you're locked in at three point seven rate. I mean, it's are you willing to kind of refine and buy a new home mortgage rate right now on six point eight or six point nine percent?
The chances I know, okayts right now what we see in the market, and you can't blame a consumer for that mark.
I feel like you're describing me. You know, we bought a new hot water heater because we had to. We didn't have a choice, right that was replacement. We thought about maybe purchasing something else new that we didn't need to end discretion, and we said, you know, we're going to not do it right now. So like, I totally get what you say is going on. Having said that, then let's talk a little bit about your investor day
and some of what you're doing. Our team writing up how you guys are going to focus or are focusing on smaller appliances. It seems to be maybe what consumers are willing to spend money on the margins are better. Talk to us little bit about that strategy and how it can move the needle, especially when it comes to top line growth and margin growth.
Yeah, so so Carol, what we what we spoke about is, you know, as a company, we've been in a multi year what we call portfolio transformation and what base you men do is over past decades we've had a fairly dispersed global business. We were from China to Chile, in all places of the world. And what we've decided on the major's business, but we want to focus on the markets where we have an undeniable strong position, which offer us the America's North America, South America. We have good
business in India and that's what we'll focus on. So we over the years, we sold off the majority of our China business, we sold off Russia, and right now we're just in the kind of final weeks before we can close our European transaction where we would only have a smaller portion of a business. So with that we
have a fundamentally different business portfolio. One essentially of it's the major business in America's in India and we have our small domestic appliance business that was in some ways we could describe it as a hidden gem from the past because it was hidden in a segmentaryport results of all the different regions, but if you look at that,
that is probably it's our strongest brands. It has passion across all demographics and age groups, and we feel we have a license of robot business certainly from a consumer perspective, and a lot of our resources going forward will go into our small domestic appliance business because it's certain one which we love, strong margins and an exceptionally strong consumer precision.
How small what percentages? Is the smaller appliance business mark right now in terms of revenues and how big do you think it could become if we look at the kind of revenue pie?
Yeah, so today it is quote unquote only a one billion dollar business, but it has fifty and ebit margins, so it's a very marg attractive business. But you know, our presence in if you look at the categories of small domestic clianes, it's largely small. It's large stamp mixers and associated products. But we have so much opportunity to grow in coffee and we just announced that day also we will bring a fully automatic expresso maker in maybe
this year. In other parts of business, so we strongly believers ample opportunity to grow at business.
Hey, I want to talk a little bit about the cost cutting that you're targeting right now across the different business lines. After incurring significant increases back in twenty twenty two and in twenty twenty one, mark where within the business are you finding these savings.
Yeah, So, first of all, to put it in context is you know, in the COVID years, we basically had more two and a half billion of additional costs. That was a big inflation with not only raw materials in all parts of a business. Last year we clawed back eight hundred million of that and we see we're targeting number five hundred million, so we're not even fully back to pre COVID cost levels. The opportunities which we see this year, and that's a little bit different from last year.
We don't see a lot of tailwinds from raw materials, so we pretty much expect steel and oil and everything else to remain rather stable for us. But we do see opportunity on cost takeout on products. We do see further opportunities to reduce logistic costs because it's it's a massive cost element for us because we're shipping big, bulky products and just drive a lot of cost and logistics side, but we're also looking at our overall overhead and infrastructure.
And what I mean with that is, you know, global business required a fairly complex global organization. If we're more focus on our Americas, we have an opportunity to radically also simplify how we organize and that also drive some cost savings.
I do wonder too, looking at your balance sheet. We have this really great story at Bloomberg Exclusive today. It's among our most read about how companies who have been so addicted to debt are now seeking equity, so thinking about selling shares rather than tapping the debt markets if they need money. You, guys, what's your plan to do you leverage your balance sheet specifically, which has grown as
you've done some acquisitions. And I do wonder if investors can kind of still count on the dividend going forward, the sustainability of the dividend market. And just got about a minute or so left.
Yes, so let me first start start straight away from dividend.
We paid our dividend for sixty nine years sixty nine and in none of the sixty nine years we ever had a dividend reduction, actually out of the last of the last ten years, and eight years we had a dividend increase.
So we we are.
So that's yes, that is well, of course that every single dividend payment requires a board approval, but I would I would say this statement publicly if I don't feel the board feels very strong about it.
So we are. We strong believe in dividend. We have a funds to pay the dividend, and.
More importantly, we have a basic guideline internal where we say over the last three years, we look at the average EPs and we took pay out thirty thirty five percent of at the EPs over the last three years and we're pretty much on track on this one. So so more to a balance sheet is first of all, keeping our in mind, we have one point six billion
dollars for cash on hand, that's public number. So what we do want to do, and you know, we knew exactly when we acquired the insincorator business in Wisconsin, which is usually margin attractive of a strong position. We knew of course it's it's a heavily ODN boundar sheet. And with two or three years to kind of digest that acquisition related that we paid last year down five on ared million, we'll pay down this year five on a million.
So what we guided today in midmester today is kind of yeah, by twenty six we want to be roughly in a two times that leverage. We feel I'm a right path and on the risk if you want to say so, and us with boundary to whatever.
It's what we want to have it.
So appreciate it covered so much ground, as you always do. Mark bitzer Be well, look forward to always our next conversation, Chief executive Officer.
At World Quoth. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then brought auto with a Bloomberg Business app, or watch us Live on YouTube.
We did get a batch of economic news earlier, but one report that we wanted to check out was what happened with sales that previously owned US homes rising in January by the most and nearly a year. Buyer's taking advantage of lower mortgage rates at the start of the new year of twenty twenty four.
Okay, at the start of the year, because just yesterday we reported how US mortgage rates jumped above seven percent for the first time since early December that delta blow to the housing markets and recovery. So the rates issue is certainly sticking with us.
Yeah, So let's get to it and what it all means. Ka Kaminski is chief operating officer of the privately owned and asset and real estate investment company. It is Walton Global. They've got about three point six billion in assets and over ninety four thousand acres under management here in the United States. She joins us. Kate does from Scottsdale, Arizona. Kate, Welcome to Bloomberg Business Week. Nice to have you here
with Tim and me. How are you and talk to us about your world, because you guys do commercial, industrial, residential real estate. Give us kind of an overview of how things are going better than the last year, better than the last six months. What can you tell us?
Yeah, we're pretty excited about twenty twenty four. Here at Walton. We really focus on the land space, where we're buying land in the path of growth, predominantly to sell to public new homebuilders. But we also, as you noted, have industrial, commercial, and retail holdings. So the numbers that came out today, you know, really important in terms of what we're seeing in the resale market, which has a direct impact on the new home building space, which is where we focus
with with the resale figures. Seeing you know, the slowest year for the last three decades in twenty twenty three, we're excited that January was finally an uptick in terms of the resale market, and you know that continued increase
in value. I think we were at about five percent and in increase in existing home sale value year over years, So strong numbers on the resale market, but you know, still seeing a continued push for buyers to that that new home market because of a lot of the lock in effect that we're seeing from those mortgage rates, which, as you noted, are creeping up a bit.
He Ky, how would you characterize demand from the home builders right now? Because you guys have property all over the United States. You've got a lot in Colorado, a lot in California, Oklahoma, Texas, Florida, Georgia. How would you characterize the demand that you're seeing from home builders who want to buy that land and then build homes on it.
I mean, home builder sentiment is up. I think it was at forty four percent. We're seeing more transactions go under contract right now than we did is certainly a year ago, which twenty twenty three was a good year. Here at Walton, we've got around two point eight billion in deal volume that's at various stages, hoping to move that towards closing. So we're still seeing a lot of demand, but certainly builders are looking to take positions right now.
Permits are up just across the board.
We've seen a year of month over month increases. I think right now we're sitting at just over a million units at an annualized rate, which is up thirty five percent year over year. So you know, permits showing us what we can expect for the future, what our forecasts are looking like.
What's land prices look like right now, so you.
Know, like everything else, we continue to see that increase, but it's remaining somewhat consistent and where we're really seeing a lot of our negotiations take places working with builders on understanding what development costs are going to be, timelines and working to ensure that everyone's margins are really remaining consistent and hitting those targets.
That they're looking for.
But for you, for the acquisition costs, our land price is going up, and I'm curious if there's I'm assuming there are geographical differences. I mean, I know, I've got a lot of family down south, and it's kind of on fire right now. So if you can give us some context as you look across the United States where you're seeing land values go up a lot, because that's that's your bread and butter.
Right Yeah, you know, our assets are really focused in the southern half of the United States. Uh. If if I were to pull our acquisitions team or or talk to any of the builders, I mean, land prices are going up right across the board, and it's it's getting more and more difficult to find to find any deals. I would say they're they're few and far between right now. The markets that we're really focusing on continue to be Florida, Texas, Georgia, and the Carolinas and and then you know, of course
in in the Southwest and West as well. But but definitely seeing increases and land values, and a lot of that has to do with the lack of supply of development ready land. We continue to see significant challengees right across the country as it retains to land getting approved for development. This is a challenge that that builders and landowners are basing across the board as we have more municipalities really restricting especially that that identity residential.
You're listening to the Bloomberg Business podcast Country listening live each week starting at two pm Eastern. Yeah, we could listen. You can also listen live on Amazon Alexa from our flagship New York State and.
Bloomberg as sort of a middle person in this market because perhaps some of them are asking themselves, well, why why doesn't the landowner go directly to the developer h and actually make more money when they sell that. What is the what's the value that you bring to the transaction by holding onto the land from the landowner to the developer.
Well, that's a great question, and our entire business is really focused right now on feeding builders. You know, demand for just in time inventory. Just in time inventory is as simple as you know builders post Great Recession where we're penalized significantly for holding long term land assets that were not income generating that they weren't going to turn
in call it a two year timeframe. So Walton comes in, We buy these land assets and we sell them to builders typically you know, on a phase by phase basis over time as they're ready to take it down and start development and ultimately build a home.
And so we're we're.
Kind of in that land banking space for those of you familiar with the term, which is something that we're seeing right across the board. Every builder is really being forced to utilize that tool in their toolbox, right.
So it's not kind of stuck on their balance sheet, especially if there's any kind of downturn. Kate got thirty seconds left here in terms of what you are seeing. Are you setting up for a US economy that's recovering, that's growing, that might have a recession, And just real quickly twenty five seconds if you.
Could definitely looking at growth. I mean, if you just look at the population numbers from last year alone, I think it was the largest one year population increase in history. That plus you know, the builders continuing to buy down rates for new home buyers. I think we're going to see really strong figures in the balance of this year and in the economy in general.
All Right, going to leave it on that note, Kate, thank you so much, really appreciate it. Kai Kaminski, Chief operating officer of the privately owned asset and real estate investment company Walton Global joining us from Scottsdale Arizona Homebuilders. As a group, they're up about one and a half percent here in twenty twenty four, and we're seeing yeah, them up a little bit higher as well. Today this is Bloomberg.
You're listening to the Bloomberg Business Week podcast live weekday afternoons from two to five pm Eastern Listen on Apple car Play and then brout Auto with a Bloomberg Business act or want us live on YouTube.
Well, this past week we learned that Leon Black sold Apollo Global Management stock for the first time, making the move almost three years after he exited the giant that made him one of Wall Street's richest billionaires.
Black unloaded nearly one hundred and seventy three million dollars of stock in the New York based firm last week. That's according to a regulatory filing. It's almost two percent of his stake in the alternative asset manager, which has seen it shares rise about four hundred and eighty percent since going public thirteen years ago.
So Timmy might recall, after a tumultuous period, Leon Black retired as Apollo's chief executive officer. That was in March of twenty twenty one, after three decades a top one of the world's most powerful investment firms, which is now run by fellow co founder Mark Rowan.
Private equity it's a huge part of how money moves around today, which is why it was a lot of fun to catch up with Anton Dream, founder and chairman of Triago. It's a placement agent that's best known for assisting private equity firms with fundraising. Since nineteen ninety two, the company has raised and advised clients on more than fifty billion dollars in capital. That's a going to its website.
Antwan joined us from our New York studios to talk about the private equity backdrop, and here's some of its outrageous predictions for PE in twenty twenty four.
We are going back to reality right after qees, zero interest rates, etcetera, etcetera. We're going back to flight to quality. Mostly, it's obviously tougher out there. It's tougher for exits, as you've been saying. It's also tougher on the investment side because credit is lacking. So we are I think going to what I was what private equity was in the early nineties, right, adding value to businesses and being smart about investing.
So does private equity thrive in an environment like that?
Not all of it. Some of it was just you know, riding the wave, I guess, And these guys are in trouble because things are now tougher for these who know their way within the difficult environments. It's obviously great times. They can buy great assets at cheaper prices, they can have less competition, and they can think about, you know, great growth bands.
How are you thinking about using leverage when it comes to buyouts right now, just because interest rates are so much higher.
I think it's it's obviously part of the game, you know, leverage. It can leverage and can make people rich. It can also hurt or kill. I think you have to use it with a lot of you know, skill, and that's what most of these guys are doing right now.
What do you make of though, kind of it's all about private credit right now? Do we continue to see I feel like you know, traditional Wall Street is saying, wait, I increasingly want a piece of that. How does that impact the market, How does that, you know, impact some of the conversations that you're having with the clients.
You deal with.
Most LPs are indeed interested in credit, then I mean you go to them, they don't really want to know about private equity, nor VC growth, et cetera. They're all interested in credit. I guess up to a point. At some point there will be probably too much available.
And when you've tracing too many things.
Of course, unlike everything, you know, it's supply and demand. And when there's a you know, too much supply and not enough demand, you're in.
You're in.
You're in. You're in trouble.
When you say trouble, though, does it mean that it results in that we see assets being build up in terms of valuations, and so there's going to be fallout.
Yeah, and it's going to mean less less. I mean, performance is probably going to be hit. I think it's not there yet, right, There's going to be a few years where the asset class is going to thrive. But at some point, I mean, things will go back to the mean.
Hey, we should know for everybody who has not necessarily been keeping up. Hulhan Loki is acquiring Triogra. The deal is expected to close in the first half of the year. What does this look like for for your life. What does it look like for the business? I mean, this is a big deal.
Do you go on vacation.
I'm not yet dealing close. I'm not yet going on vacation. The deal is not closed yet. Are we have signed an agreement. We are basically done, except that we're waiting for regulatory approvals. So we're now much much stronger. I mean, we will be much much stronger.
But there is something to write being bigger, like I think at some point, because there is so much competition that when you can be a house that offers a lot, there's power in that. And there's there's something about increasing your presence physically that makes it easier.
Absolutely, absolutely, I think is this There's going to be more consolidiation in this space for that same reason. You want to be a giant or nothing.
Right, And I'm asuming clients come to you they want a lot of things that they can play with or work with. Hey, you have shared with us your ten outrageous predictions for private equity in twenty and twenty four. What's your most outrageous?
So I've seen that some of them, you know, in the past, some of them did happen.
So maybe not so outrageous.
You know, I guess the most outrageous is probably Karla i Can and Nelson Pels buying all the distressed funds out there. I think I put the forty billion number in there. There will be lots of fallout from funds. There has to be some some cleanup, and there aren't many players doing that already, So these guys or similar entities could probably do a lot in that space.
Hey, one thing I was really surprised to see on your predictions for twenty twenty four was Amazon creating an online private equity exchange, this so called category killer.
Carol and I've.
Spoken about the past couple of years the idea of private equity. You know, private equity providers want to access to people's farrow one case, they want to make this thing, you know that just not just high net worth individuals have access to. What do you mean by Amazon doing this?
I think the asset class needs fluidity. A few a few years ago, it wasn't really needed because the retail investors were not playing in that game. Today it's a complete different story and they I think these people especially need to know that there is a way out right.
But that's one of the reasons why returns have been good is because you get that high return in exchange for locking up your money for you know, ten twelve years.
Yeah, but you can still get a very decent return even if you leave the show, you know, in the in the in between, right, And that's that's an option, it's not. I guess that most people stay where they are, and ninety nine percent of the paper, the private equity paper, stays where it is. Trades account for roughly one percent. My bet is that, especially if such tool exists, you know, we may go to five percent.
I love this one.
They're about Michael Jordan, Serena Williams and Blue Owl consolidate private equity sports investments, I mean sports private equity.
Man, it's a love affair.
Prediction.
Prediction like this one could happen. I don't know about the names, I don't know about the people, but but there's private equity and sports, as you said, is a love affair, and there's a lot to be done in the space. And it's still pretty you know, it's it's I mean, there's much more to be done.
Thanks to Antoine, founder and chairman at Triago.
Okay, so Antwan just now talking about private equities involvement. They're so called love affair with sports. Private equity also well known when it comes to content and Hollywood at least now. That brings us to the Bloomberg BusinessWeek cover story. It's about the masters of hipster cringe that now have hardware and some Wall Street cash.
Love the story and in fact it is available in the new issue of Bloomberg Business Week, which is available on newstands, now online and on the Bloomberg terminal. It gets inside A twenty four, the indie film company behind the film's uncut Gems and Ladybird and the award winning
TV hits Euphoria and Beef. In twenty twenty two, A twenty four rays two hundred and twenty five million dollars from a group of investors, including private equity firm Stripes, that value the company at two and a half billion dollars, a staggering amount in the indie film world.
Felix Gillette wrote the story. He's Media, Entertainment and Telecom editor for Bloomberg BusinessWeek. He's also the author of It's Not TV, The Spectacular Rise Revolution in Future of HBO. Felix began by talking about a twenty four bolstered now by Wall Street riches as it's making a run, it's scaling up its indianess.
Yeah, it's kind of a fascinating time for the company. They've had this amazing run over the past year. They started as an indie film distributor, which is a very unglamorous role, and just by having good taste and picking good movies and doing a really good job of hyping movies, you know, small budget movies that they picked up at festivals, they've grown into this force somewhat of an outsider in Hollywood.
And yet this year, if you look at the Academy Award nominations, they again have two nominations for Best Picture, Zone of Interest and Past Lives. They've kind of mastered the art of these small, you know, five to ten million dollars budget movie, you know, original voices, aw tar driven and the problem with that is.
Those movies don't make a ton of money.
And so, you know, they raised all this money, they have this high valuation and the next step in their evolution is really to grow into you know, what you might call a mini major in Hollywood and try and basically start making bigger movies. Maybe not like you know, Marvel sized movies, but in that range of you know, thirty forty fifty sixty seventy million dollar budget movies.
And to do that, you know, you have to take bigger risks.
It's not as easy. You have to move into.
New genres, which they're really trying right now a lot of different things. I mean, it's kind of fascinating to see all the different intellectual property they're buying up. They're working with bigger stars, they have their first movie with the Rock is in development.
Felix companies like this, I'm always like, I mean, who are the people behind it? Like, how did you know? Tell us a little bit about kind of their origins and how it all came up on your radar.
I think the one thing that really distinguishes them from a lot of the indie film companies we've seen rise and fall over years is that they do have very strong roots on Wall Street. So Daniel Katz, who's the CEO of the company, before he started A twenty four, he did a stint at Guggenheim and he was running
their entertainment investment division. And also but just like not talking about their business very often and letting this kind of mystery void and filling it with you know, they have these, they have a peril that sells for a lot of money online. They can do these like sneaker drops for like a twenty four hats and a twenty four Totacs, which is.
It's all right, So I kind of want to go a couple of different directions with this. You mentioned the New York angle here, Felix, and I'm wondering how geography plays a part in this, because when we think of Hollywood, we think of literally Hollywood. Does that geographical distinction matter.
I think it does.
I mean, I think they play up their outsider status and they have a lot They've had a lot of success with that. I mean, in some ways, the business model is very similar to what Mirrormax did in the eighties.
It reminds me of yeah.
Yeah, it's very similar, and I think they did, you know,
consciously model themselves after that. You know, if you look at their mix of movies, it's always been kind of like a mix of really high brow kind of oscar bait movies and then at the same time they do horror films and if you look at a twenty four, yeah, they have these two Best Picture nominees this year with a zone of interest in past lives, but they also their top you know, probably the most lucrative film that they had this year was a horror movie Talk to Me.
So having that kind of high brow mix is very much like Mirromax. The difference, obviously, is that Mirrormax with the Weinstein brothers. You know, they were very out there in the press always throughout their rise before they sold to Disney, and A twenty four very much took an opposite approach in terms of their company culture and how they present themselves of the world.
Well, the first.
Paragraph alone, we've had been fun reading in the newsroom. I'm not going to tell anything more because there's a movie they made. It was a musical, but it maybe isn't for the family, so can't read it on there. I always love the stuff you do, Felix. Thanks so much. Felix de Lap, Media Entertainment and Telecom editor for Bloomberg Business Week. This is the cover story of the new issue.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on applecar Play and androyd Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven.
Thirty Plenty ahead in our second hour of the weekend edition of Bloomberg Business Week, including Elon Musk's underground tunnel project that was supposed to be the next generation of hyperspeed mass transit and instead has hit a muddy and dare we say toxic roadblock, while boring companies tiny Las Vegas Loop is less hyperloop and more stories of chemical burns, broken promises, and a puddle of toxic sludge.
Also ahead well on the topic of Elon Musk, We've got everything you need to know about driving Tesla's polarizing electric pickup. You know it, it's the cyber truck. Elon and Detroit Automaker's got a break this week on the Bloomberg exclusive news of the demise of Apple's car program. We got the details from Bloomberg's Mark German, who broke the story.
Yeah, so We've got a lot on cars in Elon and Apple in the next sixty minutes. First up, though this hour, Tim, here's a surprising stat almost fifty two percent of recent college grads are working jobs that do not require a college degree. This is what is referred to as underemployment.
It's kind of staggering, it is, and I think that's why people are questioning whether or not it's worth it to go to college.
Yeah, it's a really good question. And for those who do find themselves underemployed after graduation, it can be incredibly difficult to get career earnings on track. It all just kind of builds from there.
Okay, So on that theme, and with the cost of attending a time top ranked US college now pushing close to ninety thousand dollars a year, Yeah, you heard that right, it does have many people wondering if a college degree is still worth it. Our next guest, well, he says it is. Jim Keyes is the former CEO of two Fortune five hundred companies, Blockbuster and A seven eleven. Also the founder of the nonprofit Education Is Freedom Foundation. He's got a new book out. It's called Education Is Freedom.
The Future Is in Your Hands. He joined Carol in our New York studio.
We're in a unique bubble right now with three and a half percent unemployment and there are a lot of jobs out there that don't require a college degree, that are very well paying jobs. The question is where will we be when we have seven eight percent unemployment? Because of course, these things are cycles and it will happen at some point in the future, and that degree will help you differentiate yourself. Think of it as your brand.
At some point, you're gonna have to raise money, You're gonna have to apply for a job, and not having that degree will make it difficult to compete with others who.
Do you know the story about the amount of student debt that's out there, and kids who've gotten college degrees, they're indebted and it's taking them years to pay it back because they haven't gotten necessarily a job that has made it easy to manage that debt.
Well, I'm going to give you a classic business example. Yeah, you would never invest in a company based on today's returns. You basically run a net present value of future earning streams and discount it back for today's dollars. I'm not sure why we don't look at college as an investment in ourselves, because it's not going to pay back in today's dollars, but it will pay back over time. If you look at all of the statistics about having a
degree versus not having a degree. Now, this doesn't hold for every degree that you get or every job that you have, but on balance, that degree does give you far more earning power over your life. And here's the way I like to look at it. Getting a college degree is an investment in yourself that pays dividends for the rest of your life. Right, So think of it as a business investment in yourself.
It's interesting because you are so all in on education.
Oh yeah, And.
It's interesting when you've got schools now that are sixty seventy eighty ninety thousand dollars a year that automatically make it kind of problematic for some people to afford them. And again they have to tack on a pile of debt that doesn't go away so easily.
I had to address the same thing because I've had people Now I'm out there on social media, I've got kids going, yeah, it's easy for you to say, Boomer, you know you had it easy. College was cheap, so I ran the numbers and when I graduated from college, my tuition was seven five hundred dollars a year in today's dollars is fifty five thousand a year. So yes, it's a little bit more today, but not extraordinarily higher.
And this is a really important point. Endowments have been massively improved today versus twenty thirty, forty fifty years ago. And college discount rates, this is a really important factor that no one takes into consideration, are as high as forty five, fifty, sometimes sixty percent discount rate. In other words, the amount of scholarship money that they provide. So beware being intimidated by the sticker price because the actual price may be significant.
The thing I will say about scholarships having gone through the college route with my own daughter, and that there's not a ton of academic scholarships anymore. There's a lot on the sports side of things, and then there's a lot on depending on your economic well being or not so well being. And I'm so glad it's there for that, but there's a lot of people in the middle that kind of get stuck with that debt load there is.
The middle is tough, and it's always been tough, and I guess if you look back at history, this is not unique to today. We've always had that challenge of kids that really can't afford it are in a much better position to get scholarships. The kids who can afford it almost doesn't matter. Is that middle group that are challenged. But again, I can't stress enough from two perspectives. From the individual's perspective, right, it's critical important to differentiate yourself
down the road and make that investment. But for a corporation, you know you remember from from a bio I ran two fortune five hundred companies, right, we had a hard time in employing an educated workforce at that store manager level, and that's even more challenging today with three and a half percent unemployment. So if we're going to be competitive, if our corporations are going to be competitive twenty thirty forty years from now, we better step up and recognize the importance we'll go there.
Because I do feel like before the pandemic, and very much so after the pandemic, the role of the corporation and kind of taking care of employees. What do you think should be the role of employers when it comes to helping to educate their workforce.
Here's the way I look at it. It's a it's a classic can turn everything into a classic business problem. It supply and demand, right, Yeah, we're the demand. Businesses are the demand for an educated workforce, and yet we very rarely make the investment in that education state and local government that trains public school kids. And so today my recommendation in the book, it's a bit of a call to action to corporations to see the need for
investing and how do we do that through technology? You know, we've we've got such an opportunity to transform education with things like AI.
How we do it?
Yeah, digital learning, there's so much opportunity, but that's not going to happen at a state and local government level.
So who needs to do it?
The companies? I think corporation should, and ultimately I think they will once they've realized that this supply and demand problem is a problem.
I'm want to kind of go back to some of the stuff you and I were just talking about on air. Peter Thiel, who has said, eh, you don't have to go to college wrongs. If Peter was here right now, what would you say to him?
I would say, please stop. And here's why. If you give a young person an excuse and say you don't need to go to college, they're going to take it. They're gonna take it. So just step back from this and think about global competitiveness. The United States since about twenty twelve twenty fifteen has gone from high fifties and graduates post secondary graduation rates down to forty. Now COVID contributed to that, to climb, but we're going in the
wrong direction. Meanwhile, China has gone exactly opposite. They have gone from the forty percent range up to nearly sixty and climbing. They're doubling down on the importance of an educated populist and an educated workforce. And this issue is critically important to corporate America if we dial forward and our ability to sustain competitiveness will depend on an educated workforce demand for the supply that is lagging right now?
What's the answer? And I think about I mean, I'm one of seven kids and my parents it was all about getting a college education. That was so important. My dad came out of World War two a GI GI bill went to like, this was from the get go, you can do whatever you want after you to college was kind of the mission here. How have we gotten away from it? In your view, Yeah.
We're in this weird bubble of the availability of technology, but not the application of technology. And some of it comes down to how are we funded state and local governments the challenges of that. So we spend a lot of money, and we are spending a lot of money, but we can spend it far more efficiently. I don't think the solution will happen leaving it up to state and local governments.
I hope that.
Corporations will see that they are ultimately the demand and want to step up because the technology is available today to completely transform the way we teach and the way we learn. We saw a little you know and I were talking about, you know during cool the pandemic. Yeah, yeah, during the pandemic wasn't so great for some. It wasn't so great for some. But here's what happened. It was a massive improvement in the availability and access that wasn't there,
particularly for the underprivileged. It's there now. What we haven't done is integrated those platforms, upgraded the user content to make it eye popping. So those kids that were hating their online class with then play video games for four or five hours, right, So you can make school just as engaging. That's the challenge, and that will come, that's our next step.
But do we have to be careful about technology? Yay, great, right, Jim. But I mean I also think about the importance of part of school is social skills, learn to communicate, like.
Exactly what's the balance here? Well, and that's too. You just made my point. That's why a formal education still is and will be important for quite some time because it's more than just learning. You can learn online virtually anything, right, But it's those meta rights. Yeah, yeah, but it's those meta skills, it's those soft skills that I've outlined in
the book, things like curiosity, creative, creativity, critical thinking. Those skills are things that you hone in a classroom working with others.
If there's one thing, one thing you could change, or one step that you think and I'm assuming it sounds like what you're saying is it's on the side of corporations to really step up here. What would be the step that the world needs to take to improve this?
Well, the first step I think is we've got to get beyond fear, because I think fear is the big culprit here right about that In the book, right about a whole chapter on fear and a chapter on confidence, because confidence is so important for learning and preparation. But fear is the killer because we're afraid of so much. We're afraid of some of us are afraid of teachers, unions.
We're afraid that kids are being indoctrinated. We're afraid of you know, this and that and this and that, all these horrible things that are buzzing around, and it's contributing to this narrative that maybe you don't even need school. Well, if we can reverse that fear, and you think about
the antecdote to fear its knowledge. So if we can, ironically, if we can reverse the fear replace it with not knowledge and understanding and confidence, then I believe that will help us recognize the opportunity because we are there right on the cusp of being able to completely transform the way we teach and learn.
If we don't do this, what do you think is the outcome or the impact in our country.
I am concerned both for our corporations and global competitiveness of America, but also for the country itself. All the way back to Jefferson, Alexis Dtopfel came from France and said with Jefferson that the sustainability of a democracy depends on an educated populace.
And you get into this, this whole idea of the polarization that we see. You believe that this is going to be the way that we get rid of some of that.
Right, I do. I believe it's ultimately the solution because so much of this polarization is fear and going back to FDRs and in doctrination speech all we have nothing to fear of but fear itself, right, and we are in the grips of fear, and it's just taking us down. It's just distracting us from so much potential to move forward as a people.
Our thanks to Jim Keyes, former CEO of Blockbuster and seven eleven and the founder of the nonprofit Education Is Freedom Foundation.
You're listening to Bloomberg BusinessWeek coming up. It was meant to provide fast and convenient transportation to the Las Vegas community. Instead it's racking up safety violations. How Elon Musk's Vegas tunnel project is causing chemical burns to its workers. That story is next.
This is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple car Play and then Brout Auto with a Bloomberg Business act or watch us live on YouTube Jimmy, Elon.
Musk and EBS check Elon Muskin, satellites and space exploration via SpaceX A check. Then there's the brain Elon's neuralleak project.
Okay, some news there recently too, so we can go ahead and say check I think at this point, but don't sign me.
Up for it.
What we haven't earned much about in a while is Elon's toneling venture the Boring Company, that is, until.
I think it's fair to say uncheck on this one.
Exactly well, which is why our Bloomberg Business Week team had to take do some digging around no pun intended. They found out that the Boring Company's tiny Las Vegas loop is all that's come of Musk's promise and his promises overall to build super fast mass transit hyperloops. Workers say it's tunnels, meantime, are packed with chemical sludge. This is a story by Max Chafkin and Sarah McBride of our Bloomberg News team.
Max is Bloomberg Business Week columnists also contributor to the Elon Inc Podcast a new episode dropping tomorrow onto the Bloomberg Terminal and on bloomberg dot com slash elon Ing maxis here in Art's.
It called the Sludge Episode.
Yeah, it's a sludge special.
Since we talked about the sledge, we got to start with the sludge because it's actually kind of serious, pretty serious laughing but causes some pretty bad health effects.
Yeah.
So, I mean, the genes of this story are these documents that we obtained that Sarah McBride and I obtained from the state OSHA, that's the Occupational Health and Safety Administration, and it basically shows lots of complaints from workers about unsafe conditions, including this issue of like these toxic muck, which the workers say they've had to wade through. The reason it's toxic, it's it's not necessarily like they're doing
something that's totally outside the norms of tunneling. These chemicals are are sort of standard chemicals that are used. But the allegation from the workers is that corners are being cut, they're trying to move too fast, they're doing it on the cheap, you know. And the funny thing about this, or it's not really funny but these are the things that Elon Musk has set out to do to some extent, Like the whole point of the Boring Company, like many
of Musk's companies, has been to cut unnecessary costs. The thing that we're hearing with this story, however, and I think you see echoes of this elsewhere in Elon Musk's empire, actually is that they're not necessarily finding lots of innovations there. They're ultimately ending up with a normal tunneling company essentially that happens to have.
A safety record that some would say is troubling.
Okay, So here's here's what's a little puzzling to me. Max Elon Musk is guy who's literally putting chips in people's heads. He's doing something that only until SpaceX did it, governments taking a whole of government approach could do. We've been able to dig tunnels for transportation purposes for over a century. Why is he running into so much trouble here?
So I think I.
Wrote one of the first stories about this back in early twenty seventeen, talked to Elon Musk at the time about this, and just to put a slightly different spin on what you just said, and which relates to this, which is that SpaceX is not the first company, not the first private company to build rockets, right, the shuttle, all the things that NASA done were built by government contractors.
Right.
Well, what I guess what I'm saying is he's doing it in a way that is really innovative anything well yeh one hundred percent very much reusable stuff is that was a really.
Innovative contracting process.
They used contracts, They sold him directly the government at a fixed price, which was new. But one of the core things that SpaceX did was like go out and look for existing technology and find a way to improve on it and do it cost effectively. Now, there are a lot of potential inefficiencies in the world of aerospace, and Musk has had a much harder time in some other fields finding similar sort of levels of inefficiency, just
sort of low hanging fruit. And I think the tunneling example is one you know, he talked about back in twenty seventeen. He talked, you know, it costs a billion dollars a year, and it takes a mile. It takes a year to dig a mile, and it costs like a billion dollars a mile. Or some some very large figure like that, and now Boring is doing maybe a little better on cost, although it's hard to know, but when you look at the actual pace that they're going,
it's basically a mile a year. It's it's not that much faster than existing tunneling projects. And when you look at the end result, we're not talking about mass transit.
We're not talking about you know, big subway cars full of people, which.
Is actually what many people in Las Vegas, you know, would have hoped for, because traffic there is really bad.
We're talking about are Tesla's.
Just normal cars that can take three people and a driver. They're not even driverless, and they're limited to forty miles an hour. So we're so far away from the kind of grand visions.
And just to remind.
People what Elon Musk originally promised here was New York to DC in twenty nine minutes San Francisco, Los Angeles. Yeah, in thirty five sounds awesome. You could commute from you know, you could like commute halfway across the country, and you know, it just hasn't gone that way. And I think, you know, in all sorts of different ways across Elon Musk's empire. You're seeing maybe fissures, cracks, ways in which the promises are not necessarily matching up.
You know, we saw this ruling with pay in Delaware.
You know, of course, lots of problems documented at x slash Twitter, and here you just have like a very visceral way where you have these grand promises and the end what you have is basically a glorified shuttle bus system. It doesn't take you, you know, from one end of the country to the other. It takes you from one end to the Las Vegas Convention Center to the other.
Is it just a case of that's all I can do so far there?
Yeah, I mean to some extent, Yes, I mean the thing that if you squint and I think the reason that this was approved it's partly that was approved because Las Vegas is a low regulation city. These are mostly on private property. There isn't a ton of oversight from the government as there might be in other places. But also, you know, they're talking about opening these stations throughout the city, but you know, when we talk to people on the
ground there, it is a long way from happening. It's also hard to see how this is going to make a huge impact on traffic. Again, when you're talking about you know, moving people three at a time, very very slowly, a lot of things would have to happen, and there are lots of reasons for skepticism. I mean, you know, digging underground is hard. There's a reason it costs so much money. It costs so much money because there's stuff you can run into, complicated property rights, and of course.
So the company is not going to create a trillion jobs.
Well yeah, which is what Elon Musk told me back in twenty seventeen. They were going to create a trillion jobs. I'd say it's a long way from that.
To put it.
To put it mildly, I mean, there there was sort of flirtations or talk of various projects. There was one in Maryland, one in Los Angeles, one in Chicago. And in all these cases, you know, he was bringing along some of the most famous politicians in the United States. So it was Larry Hogan, you know, governor of Maryland, who former governor Maryland, who was you know, at the time, a big star of the Republican Party.
You know Rama Manuel, you know.
Former chief of staff to President Obama, mayor of Chicago, Eric Garcetti, star Mayor of Los Angeles, like a lot of people went for this and they just you know, they haven't been able to deliver. And I think there's probably some element of distraction. Obviously Musk has a lot going on. And also I think just tunneling this is hard. You're dealing with dirt.
And a lot of people up in space and stuff in space is really hard. Tapping into the autorway industry. I mean, this is like going back to Tim's point, right, how many times were like, you know, you count out Elon Musk or whatever, and then he's like, whoa, look what he did. And I understand there's a lot on his plate right now and that's to be distracting. But should we not rule him out? Has he not found the right boring tool?
Is?
What is it? Max?
Well, I would say, I mean, I think it's there's probably a bunch of different factors going on.
I mean, one thing that was different.
With SpaceX is you had a very interested buyer, which was NASA. You had the US government wanting to finance this thing, right looking for somebody just like Elon Musk, and Elon Musk sort of finding a way to fit himself, you know, to sort of make himself look like the thing that the US government want.
Elon Musk is really good at this.
We're seeing this with Starlink as well, where like, you know, he's this what would seem like a civilian technology, these these internet services for as Musks I told it to Walter Isaacson, I think he said, you know, it's to Netflix and chill.
Increasingly, this looks like a potential military tool. This is gonna this is gonna.
Lead to government contracts and and could be a big line of business for SpaceX. You know, I think what happened is in twenty sixteen, twenty seventeen.
Donald Trump becomes president.
There's a lot of talk about infrastructure, and in general, there's been a lot of talk about wanting to spend public money on infrastructure, but there hasn't been a ton of delivery, right, And I think a big part of this was predicated on this, you know, trillion dollar the thing that Trump was saying, which is like a trillion dollar infrastructure plan. And you know, ultimately infrastructure, whether it's
Elon Musk or anyone else, is very expensive. It's politically dicey because you have land rights and so on, and it it just hasn't come together with the speed that SpaceX came together.
Max.
I want to dig into something that you said, that you mentioned a little earlier, which is the idea that back in twenty seventeen twenty eighteen, a lot of politicians were kind of jumping up and down with the idea of collaborating with Elon Musk. What I noticed in your piece is that that tone has totally shifted and they are now local politicians who are saying hey, thanks, but no thanks.
Yeah, including the mayor of Las Vegas, who is you know, Las Vegas is an interesting place because the city of Las Vegas actually doesn't contain most of the Strip, so it's not like she has oversight overall this. As I said, a lot lot of it is on public property. But with Caroline Goodman, the mayor, longtime mayor, her husband was a long time Mayriorg. She's like one of the probably the most famous politician in Las Vegas, is essentially criticizing
it and criticizing it on the grounds that it's unpractical. She, you know, from the start, has raised these safety concerns which I think look prescient when you look at this oh shut thing and yeah, and she's essentially saying, you know, this would be great if it could actually happen, but I don't see it. And that again, is that does represent a bit of a departure for Elon Musk. You do feel like in Las Vegas at least, you know, some of the magic, some of that kind of Elon
Musk stardust. It just doesn't feel quite you know, shine quite as brightly. Maybe that's the lights of the strip drowning it out. I don't know, but it definitely feels like there's something different going.
On there all right.
Back to the workers though and their conditions. Is this something unusual in terms of infrastructure projects? And I'm always a little wary when there's a line in your story. Although no one has been killed at a boring company work site so far in Vegas, it doesn't just speak to how tricky it is.
Yeah, as I said, these are not like no one's saying they're using chemicals that are worse than anybody else. What what the workers are saying, what you see in these ocean complaints are sort of like little things that maybe add up to a dangerous situation. And you know, we have seen similar stories like this around Tesla's car factories around there. You know, Reuter's had a great piece some weeks ago about you know, death at a SpaceX site.
So you know, I mean when you're when you're radically.
Trying to cut costs, when you're going around telling people that the only law that matters are the laws of physics, right, I think I think to some extent they're going to be costs of that, and we're seeing that, and and but we should say, like this isn't This is probably more an indictment of boring company being less innovative rather than it's like the most dangerous place in the you.
Know, there's just hasn't been proof rock three yet Max. And that, by the way, is the tunnel boring machine.
Read the story you'll find out more.
Yeah, which is you know, promise, over promising and under delivery. They have good names of home ts Eliot would be crouded.
All right, Max, Thank you so much. Max Chapkin. Here is Bloomberg Business Week column a store featured in the new episode of the Elon Inc. Podcast on the Bloomberg and ap Bloomberg dot Com slash elon Inc.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting a two pm Easter on Apple Car Play and Androyd Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
Big News this past week. By big, I mean really big in the tech space, in the car space. It was a Bloomberg exclusive by Bloomberg's Mark German. And what Mark found out. Apple is abandoning plans for a self driving car, giving up on billions in potential revenue and the dream of selling what one executive called the ultimate mobile device.
Reached this crossroads Tuesday when I told employees it was winding down the car project and reassigned some of the staff to its AI efforts. The decision followed months of frenzied meetings between top executives and the company's board over how to proceed.
The sudden demise of Apple's car program is another bleak sign for the electric vehicle market. It's also a welcome boon for automakers Detroit. Those in Detroit and Tesla perhaps breathing a sigh of relief. As Apple's exit eliminates a potential threat in an EV market that is slowing and frees up a pool of talented engineers who may be out of a job.
Tesla's CEO, Elon Musk, wasn't shy about commenting, celebrating the move by sharing a post on his ex platform with a saluting emoji and a cigarette. For more on the Apple news, we spoke to Mark German, Bloomberg News chief technology correspondent, who broke the story exclusively on Bloomberg.
Apple officially canceled work on a self driving electric car. Jeff Williams, the company's chief operating officer in Kevin Lynch, the company's vice president of technology, who was foremost in charge of the car project, announced to the team it's about two thousand people that the project, called Titan internally, is winding down. There will be layoffs of some hardware people. Hardware people will have the opportunity to apply to other teams.
Other people working on the project are being shifted to Apple's AI and Machine Learning division to work on generative AI products, a key future component of the company. There will some There will be some people moved to the Vision pro as well, with that focus on spatial computing. But this is a bombshell development.
This is a very rare retreat for Apple.
This is a project that they've invested over ten billion dollars in. They've worked on it for over ten years. It's had many fits and starts, It's had many directional changes. About a month ago, we reported that Apple had reached
a make or break point for the car project. We reported at the latest incarnation of the project after several meetings with the company's board of directors, was a new budget around a Level two plus car that was a downgrade from the original vision of a Level four or a Level five fully autonomous vehicle, and they also pushed.
Back and delayed that.
Since then, there have been more discussions and executives made the final decision earlier this month. I'm told to completely shutter the project. So again, this is Apple canceling work on an electric car. This is a significant development for one of the company's most ambitious attempts at a new product category in its history. So this is a very significant day for the company.
Yeah, very significant. It's not like it's just you know, an idea on the back of a napkin. I mean they had been pursuing, as you said, Mark, for over ten years. The road was rough though, in Apple's pursuit in terms of bringing a car to market. I mean, you know this company, for them to step up the amount of time, money, people, effort that they have put into something like this, I don't know. How do you get your head around it. Does it mean just completely done?
Does it mean that they could buy into something in the future, or they're just saying this isn't a market for us.
Certainly there are considerations on the table to acquire an existing car maker. Obviously, you've seen what's happened in the car industry lately. Rivian has not been doing so hot. You've seen other car companies struggling, Lucid being one. Tesla has had its own ups and downs. It's a very very thin profit margin business. It's not the typical business that Apple likes to get into. But there is some
risk in abandoning this project. What if Alphabet, Google, Waimo, Amazon with Zookes, some of these other big technology companies, certainly the Chinese phonemakers, they're all getting into cars. What if one of these companies comes up with a great car idea One day and successfully creates a new ecosystem of its own to rival Apples, and they can risk pulling people away from Apple into a Google car or an Amazon car and getting them on their other products
in the ecosystem. So there's certainly some very long term risk here, But in the short term this may be a good thing for Apple being able to focus resources towards perhaps more promising areas in the short term like spatial computing and generative artificial intelligence.
Well, that's exactly where I wanted to go with you next mark to you. Is this more about Apple saying no to a car and less about Apple focusing resources on AI? Or is it the other way around here? Is it all about Apple saying wait a second, the rise in interest in generative AI over the last eighteen months has just been massive, and we need to go all in on this such that we need to actually cancel our work on the car in order to do that.
It's certainly not the latter tim This is Apple making a decision to wind down the car project because they weren't getting anywhere. It kept getting delayed, it kept getting more expensive. They have these hundreds and thousands of employees that are brilliant people, and we have places for them.
Generative AIS a key area, let's throw them there. There's a lot of artificial intelligence machine learning overlap between work on an autonous vehicle and what needs to be done for the future of AI on phones and watches and earbuds and glasses and such, so it makes sense to reallocate those resources. But don't be mistaken, this is a decision all about canceling the car. They just happen to have an excellent soft landing for the resources that have been invested in the vehicle project.
Our thanks to Mark German, Bloomberg News Chief Technology correspondent.
All right, Tim, so, no Apple cars hitting the road, and yet look around, after a two year delay that began with a smashed window gaff, the most anticipated vehicle of the year is out and about in the United States.
It's not easy to get your hands on one, but our own Hannah Elliott sure did. She's Bloomberg Pursuits autocolumnist, and she spent a full day driving the cyber truck all around Hollywood, and needless to say, she got plenty of attention. She joined Carol Los Angeles to tell all of us why she was surprised that Tesla's futuristic electric pickup truck might actually be worth the hype.
I was surprised because we've been talking and hearing about this truck since twenty nineteen when it debuted, and really before, So you know, it's just kind of I roll my eyes and think, can it really be that great? And by now is it even outdated? We've been waiting for years, And yes it is polarizing. Yes the brutalist looks may not be for you, but I have to say it
was surprisingly nice. I enjoyed it. It was fun, and I loved seeing all of the positive reactions that people had to it, because you don't get that very often these days.
I have to say, your pictures which are going out on YouTube and also on Bloomberg Streaming, when you shared them with our YouTube producer Elizabeth, I'm like, those are sick. First of all, the pictures you took are just gorgeous in how you set them. But it is a crazy, crazy car and really interested interesting. So tell us about kind of the outside and then take us inside.
So the cyber truck, as I'm sure you've heard, is a stainless steel truck and you know, this again is not new technology. You might remember the DeLorean from Back to the Future in the eighties.
Did it feel like a DeLorean in many ways? I mean not on the inside.
The inside actually feels really modern and nice, but certainly on the outside. It's like if the Dolorian was a truck, it would be that. You know, one cool thing I really loved about it is that the back of the truck bed there's a rolling cover that you can lock, and that is really it comes.
With the truck.
You deploy it at the push of a button, so you can lock the truck bed, which is really great and practical, and the inside is really modern, clean, very well thought out. I have to give props to Tesla. Of course we've heard reports about some poor craftsmanship, but this particular cyber truck I drove, I didn't detect any of that, all right.
You were kind of renting it for the day, so you had to be probably careful at how much you good push it because I know you like to check it out on like different terrain. But tell us a little bit about the ride and what it was like.
So I wanted to have a very la day with this truck, which as you might imagine, would involve a photo shoot, a coffee run, maybe a lunch, you know, somewhere a little bit fancy in West Hollywood. I even went to home depot with it and was practically swarmed there. The owner of the truck from Touro did ask that I not take it off road, and that's that's fair.
So this truck admittedly was coddled.
We don't actually know how it will do over the long term, and we certainly don't know how it would do off road in a real rugged environment. This truck weighs almost seven pounds, so it's a lot of weight, but also a six hundred horsepower and instant torque, so it does feel really fast. Of course, it's silent. The brakes are really great, and the rear wheel steering makes it actually pretty easy to park and gives it some
great turning radiuses when you're parking. And the valets I know, when I had them park it at the Chateau Marmont.
I don't believe you went there. They appreciated it. I love it. Listen, you pop into a lot of different cars, a lot of you know, similar kind of I don't know, trucks with a lot of hef I think about the Hummer ev You're right about this in the story the Rolls Royce specter. I mean, how did it compare to some of the other ones that you might put in this category.
Very comparable in terms of driving range, in terms of power, in terms of driveability, I would say very comparable. I actually back to the driving range. You know, Tesla says about three hundred and forty miles on a single charge. Probably in real life driving it's going to be less than that. But you know, comparable to the Rivian R one t about the same horse power. But I will say again back to this nimble maneuverability in small clothes sections.
I actually felt the cyber truck, for its size, really excelled. I really did think they did a great job with that.
All right, But if you're sitting in the rear seat, it ain't so comfortable, right because I mean, if you look at the roof, the pitch is pretty rough.
Yes, as with any truck, the rear seat is a little bit compromised. And with the cyber truck, you've got this steep roofline that is almost like a triangle shaped and it does compromise the rear headroom a little bit, especially if you're really tall, you might notice it. So you're not going to want to put your tallest friend or your kid brother in the back if he's a big guy. But you know, it wasn't horrible. I would say it wasn't horrible. It's a three person bench seat in the back. It's doable.
Favorite thing about it, Hannah.
You know, I actually loved how it really caused an emotional reaction for people. And like I said at the start of this conversation, so many things look safe and ubiquitous and they all just look the same. And whatever you think of the cyber truck, at least they have a strong point of view and a strong design, and least in Los Angeles, people got really excited about it.
I love seeing the enthusiasm. Really cool, and I love how you finish up your story that when your time was up and you had to deliver it, you got up early because you wanted, what one more cup of coffee in LA Are you ready to give it back?
Yeah?
I have to say.
You know, some cars I'm actually glad to give get rid of and give back this cyber truck.
I would have kept it for the weekend. At least it's fun. I love it. Hey, how much does it cost? For quickly?
So the one I drove costs around one hundred thousand dollars. Cheaper versions cost about seventy six thousand, and then we're going to have some higher performance versions coming out later for one hundred and twenty or so.
Such great stuff. Love it, love the photos, Love you, Love your story. Bloomberg pursuits auto columnist Hannah Elliott out there in La Hannah, take care.
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