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After the bell, Tesla reported worse than expected profit and revenue for a third consecutive quarter. The company continues to buckle under the weight of slower demand for electric vehicles. However, Tesla said it is accelerating the launch of more affordable models. It plans to start production on the cheaper cars before the second half of twenty twenty five. That could ease
deterioration in profit margins and sales. The market sort of seized on that as a positive, but Gerber Kawasaki's Ros Gerber says he's not sure Tesla can deliver on that new claim.
I just don't believe that statement. I don't see how they're going to pull forward production of this vehicle to be ready in a year after they just laid off fifteen thousand people and a lot of factories and a lot of high quality individuals just lost their jobs. So I'm kind of curious to you know, we can say things, but we know that when Elon says something, it often takes four years after the initial comment.
That's Ross Gerber, the co founder of Gerber Kawasaki, and he has formerly been a massive bull on Tesla. And as I said, the market really seized on this, because Tesla scheres was thirteen percent in late trading.
Well.
Joining us now for some discussion on this is Steve Mann, Bloomberg Intelligence Global Autos and Industrial's research manager taking a closer look. So, as you mentioned, the market, Steve really seized on the idea of a cheaper car. So a lot of companies have thought about and have tried to make cheap evs. Can it really be done? I think we have to say that with Tesla, this is a CEO who landed spent rockets on a barge. Should we believe him?
Hey, Brian, thanks for having me on. I think I think this is a very important earnings release for Tesla. Stock's been down forty percent since the minion of the year. They really need to come out and really soothe the concerns of like basically two groups investors. One those who just believe Tesla is an automotive company, not a tech company, and there are the other majority that believes this is a tech AI company and not so much of an
auto company. So coming out and you know, announcing that you know they're going to launch a more affordable EV not in the second half of twenty twenty five, actually moved it up to the first half of twenty twenty five. That really resonated with I think the automotive group of investors.
And then I think, more importantly, as you know, this stock's valued quite valuation is quite high on the back of you know, their AI endeavor, and I think launching a more affordable EV is critical to get scale more vehicles on the roads to actually help them scale up AI training. So I mean it was a really good good call for Tesla, really, I mean, the numbers were bad, but I think the outlook is positive.
Maybe I'm going to be a little skeptical and I'm wondering, Steven, and you can weigh in on this, whether the move the eleven percent move that we had in late trading, any amount of that move that may be attributable to kind of short covering here because we know, as you said earlier, this stock year to date is down by more than forty percent, and the street was prepared for kind of, you know, pretty bad report here for the quarter, and I'm wondering whether maybe a little bit of short
covering was involved in late trading.
It seems like. But you know, I think, uh, I think your last segment, one of your guests that you know, have some reservation in terms of how they're going to execute and launching this new vehicle, that that is a risk. It's always been testless risk in in execution. But I think, uh, you know, I think they're still going ahead with some of the new production facilities that they're looking to to
erect uh in in Mexico. But I think, uh, you know, with slowing sales in the Model three and Model Y, they're taking advantage of the additional capacity to pull that, uh pull that launch of the affordable e V ahead. Now. I mean they've I mean it's not new to them, they've I think if you look at the Models three, they went through production Hell. They also went to through production hell for the Model X years ago. They're doing
they're doing the same thing with cyber truck. And by the way, cyber Truck, it's actually got faster than the market has anticipated, and cyber Truck has been a huge drag on earnings.
So anyway, Steve, Yeah, I mean part of the problem is execution, as you highlight there, and and it's management. We had two key executives leave the company now. Today Martin Vieca, who's the head of investor relations, announced his resignation on the call. Should we be concerned about management there?
Yeah, I think I think we we We shouldn't. I don't think I'm too worried about the management change. You know, these individuals have been with the company for a long time, since you know, the Model three launch, since the sn X launch, since the inception of the company. And you know, they have a very good team. Teamwork is I mean, it's probably one of the best in the industry, in
the auto industry. So you know, they still have very strong individuals that they've hired over the past you know, five years, they've been in a hiring spree in those past five years. I think it wouldn't hurt to bring some new blood into into UH, into the game and UH and and kind of kind of look at look in the future and and you know, maybe take take the company in a little bit direction and in uh in growing the AI and and and the in the rest of the auto business.
He's still, when I say, he Elon Musk is still committed to this idea of robot taxis. Do you think this is a smart bet given everything that this company is dealing with in terms of headwinds right now?
Well, I still think, uh, robo taxi is still many years away. I think in the call, one of the things that was discussed was, uh, you know, policy regulations around robo taxi and au Thomas driving. I think there's still a lot of work with the regulators that needs to be done to get that going. But look, it's even even the r N the development work that's been that's going on today. You know, I don't think they're
going to get to robo taxi anytime soon. You know, in our model, we actually don't think they'll launch in until as early as you know, twenty twenty seven, and probably won't able to gain you know, revenue and profits well into the next decade. So it's going to it's gonna take some time, but I think I think the launching of the affordable ev really resonated with the investors, and that's why you see the stock react to it.
Our own reporting, as you heard from Ed Ludlow, is that they have made some moves to be able to to produce these more affordable models early. But one thing that wasn't immediately clear was whether or not these models, whether this refers to the model too that has been talked about in the past. Can you clarify that, is that what they're talking about.
It's actually unclear. You know, it could take a couple of forms. It could be a new platform, which is the model too that you know the market has been talking about. But look, they've done a really good job in vertically integrating their manufacturing that have allowed them to cut costs and you know, allowed them to be the you know, one or two most profit or the one or two profitable EV maker in the world. Nobody's nobody's generating profits other than you know, Tesla and probably one
other Chinese company bid uh. So they've done a lot in vertical ingrading manufacturing that allows them to cut costs. So the other possibility is really adding an upgrade another variant to the existing Model three and Model hy and that allows them to actually sell that variant at a cheaper price. And by the way, this is critical. This cheaper model is critical because it allows Tesla to actually expand geographic reach very quickly.
Steve, before we let you go, you mentioned China there and byd give me your sense of the challenges that lie ahead for for Tesla in China.
Uh, it's it's it's really tough over there. It's it's a very very high, hyper competitive market. But I think what's going positive that's going well for Tesla as well as the Chinese ev maker is battery price has been coming down. If you look at c at L, one of the major global battery makers in the world, a Chinese glow battery maker in the world, you can see
their margins have improved while prices have come down. So that what it means is that, you know, the efficiency the costs of prices of battery are still coming down rapidly.
Yeah, it's a good thing, all right, Steve, thanks so much for joining us as Steve Mann there from Bloomberg Intelligence. Joining us now is Jasmine and Berg, principal advisor at E Marketer to take a closer look at what this TikTok bin would mean. Well, there's so many different angles to this, Jasmine. I'm curious about whether or not you think that this gets lost in court for a year or two, or whether we see some other sharp edged moves by China and perhaps a sale.
Yeah, it's a great question. TikTok has made it clear that it intends to launch a legal battle against this bill, and I expect it will be a long and drawn out and intense battle. So it's definitely not the end of TikTok here in the US just yet, even though it does certainly feel like the clock is ticking at least in terms of how TikTok operates now, because this battle could really last for months or even for years.
And you know, if TikTok does is able to divest, even that would be you know, another it would have up to a year to find a buyer and to make a sale. So you know, there's still quite a long road ahead before we see what truly happens to TikTok.
I'm wondering, given the connections that you have in the industry, whether there is an opinion that is developing here on what happens to TikTok. Is there a consensus developing or is it simply too soon to say so.
I think there's a consensus around you know, the bill inevitably becoming law. I think people are still, you know, somewhat torn over what happens after that. There are still a lot of ifs and questions that need to be answered. And of course, this isn't TikTok's first rodeo. I mean, this is an issue that we've all been covering and dealing with for you know, the past couple of years, with several different attempts to ban TikTok. Of course, this
one is is very different. It's felt different from the start and the speed at which it passed through the House and now the speed at which it's advancing through the Senate. I mean, it just it feels like a different moment, and it's something that at least we are looking at much more closely, and the advertisers and the brands that I speak to on a regular basis are also looking at very closely.
Right now, Yeah, you wonder who would benefit the most? I think a lot of people are saying meta and it's interesting with the options that China has, it could conceivably try to sell TikTok minus the algorithm and keep it out sell it for a diminished amount. That would very much hurt American owners, American shareholders in ByteDance itself. How do you see the possibilities of a sale and whether or not you know that might be the most likely outcome is that it gets sold but no algorithm.
I mean, the algorithm question is a great one, right. It's one of the most coveted parts of TikTok, and I'm sure there are many companies here that would love to get their hands on the algorithm, and to your point, it would lessen the valuation of TikTok and perhaps expand a list of potential buyers. No matter what, though, I do think finding a buyer is going to be a
difficult task for TikTok. While there are a lot of companies again that would like to get their hands on the company, it is one that has been heavily scrutinized over many years, not only here in the US, but worldwide. So this buyer would have to have a strong pocket, a strong stomach excuse me, as well as deep pockets to be able to buy it, and companies like Meta as well as the rest of big tech would pretty much be out of the question because of antitrust and regulatory concerns.
Yeah, former Treasury secret see is Steve Menuschen has already said that he's assembling a group of investors that would make a move to buy TikTok's US operation. Now we know that Oracle is already hosting a lot of the data that TikTok has for users here in the States, which I think approaches around one hundred and seven million users. Does Oracle, I know they have about eighty seven billion in debt, But would that kind of emerge as a company maybe that could take over TikTok or should we
be thinking about other firms? I mean you mentioned Microsoft maybe as a possibility. Meta clearly out of the question. Is you know, obviously with antitrust concerns there, But are there companies like Oracle that you can see that may have a chance at buying TikTok in the US.
So one of the companies that I think would be a good fit, although I don't know how possible a deal would be, is Walmart. It did you know propose a deal I believe with Oracle in twenty twenty, so there is some history there, and TikTok and Walmart, of course, also have a long history of working together and partnering together. The two of them also need to fend off Amazon, so it would be a partnership that, at least in theory, would make sense to me.
You know, there aren't many Chinese companies that have such a massive presence in the United State, so it might not be all that unusual if TikTok was just sold. You mentioned Walmart. That's probably one company that has deep enough pockets to consider buying TikTok. But let's talk a little bit about how much this company might sell for. I might have gotten a little bit out over my skis.
I told Doug that I thought the company would be valued over one hundred billion dollars, and who could really afford that. There's only a handful of companies that could, and some of them would be blocked because of out of trust, as Doug suggested. So what sort of value does TikTok have.
Well, I've seen estimates that range anywhere between forty billion and one hundred and fifty billion, again depending on whether the algorithm is included. That's a little bit outside of the purview that I have. We focus more on advertising, which of course is a core part of TikTok's business. And if you think about the size of TikTok's AD business here in the US, it is by no means a small player. We're expecting it to rake in about ten billion dollars in US AD revenues in twenty twenty four,
assuming of course that it does not get banned. So it is one of the largest social media ad players out there and by no means again a small business.
So ten billion, how does that compare to what Meta rakes in in terms of AD revenue.
So based on our estimates, we are predicting that Meta will rake in about sixty four billion dollars in US AD revenues this year. So it is significantly larger still than TikTok. But if you think about the time that TikTok has been here in the US and how rapidly it has grown, it really has been able to cross
that ten billion dollar mark very very quickly. But back to the previous question about whether you know Meta would be one of the beneficiaries, of course, it would be, but thinking about again the size of its AD business versus the side of TikTok's ad business, any reallocated TikTok AD dollars would still be pretty much incremental to that is already expected to bring in.
Okay, briefly, the one difference between the House bill and the Senate bill is this three hundred and sixty days for TikTok to be divested by byte edance. Is three hundred and sixty a big deal?
Well, it's one of the reasons that it was able or that it has more support now in the Senate. I mean it does give you know, TikTok more time to find a potential buyer. So I think it's one of the reasons that it was able to be pushed through into the Senate and one of the reasons that it's more likely to become law now.
Yeah, and it gets this past the election. I guess that's good. Jasmine, thanks so much for joining us, Jasmin Enberg, Principal analyst at eMarketer Stosh Graham joins us managing director at Graham Capital Wealth Management to take a closer look at markets. Stosh equities seem to regain some of the momentum that was lost in the month of April. Most of the month we were trending to the downside and
more acute last week. But these two days of gains have recouped about half of the five to six percent pullback that we saw. City Group says stocks are more attractive as the slide removed some of the market fraud.
How do you see it, well, Brian, in regards to market movements, say, for the rest of the year. Certainly this pullback has been a point where by the dive, by the dip, buyers have come back. I think looking into the near term future, you're looking at largely two things financial conditions primarily, and then secondarily, can investor sentiment
still be very positive? We know it's not as positive at where it was three to four weeks ago, but certainly sediment is still positive compared to historical norms.
What about purchasing managers sentiment? We had the flash April composite PMI from S and P Global. Today, I mean we're almost flirting with the line between expansion and contraction. In fact, if you look at the measure of orders, I mean we dipped into contraction for the first time
in six months, So the economy is softening. Is that enough that would cause the FED maybe to give the equity market a little bit of relief here and begin to cut rates, let's say, twice before the end of the year is out.
That is the big question, certainly amongst institutional money managers, I know, just being on the terminal, that has been a primary point of discussion because we have seen a material amount of rate cuts come off over the last quarter and a half. Look where markets are right now and where they were or how they were reacting really last five to six months. In this remarkable rally, you had a dynamic of which you indirectly referred to it.
In some situations you had bad economic news being seen as good for markets, and then second early you had good economic news being used as good news for markets. Again, when you have those dynamics, you get a little bit. You get worried that markets could be throthy, and when you look at investors sentiment and how strong it's been over that period of time, the market's taking a breather,
I think is a natural reaction. But again, looking in the near term future, financial conditions are still pretty loose, and right now capital markets again are very favorable for companies that have strong balance sheets.
Well, I think Doug raised an interesting point because if you think about it, interest rates are not the be all and end all. Their one input into the cost side of doing business, and inflation is sticky, so we're not expecting the FED to really cut. So why would stocks you go up? Well, they would go up if one of the other inputs, which is growth, is higher. And even more important than growth is how the companies manage are their earnings higher? So if the earnings are higher,
you're probably feeling pretty good here. But then if growth is faltering, as suggested with the latest uh, the latest ism numbers, then it is something to be concerned about. I'm not sure that that's entrenched yet, about a weakness in growth. How do you see growth?
No, absolutely, And I would say that is for personally, for us in our firm, that is the risk that
the market is not fully appreciating. I think one of the difficult dynamics with using various economic data points, whether it's the variety of reports from the jobs report, uh, you know we referenced PMI, A lot of these reports get revised at a later point in time, and how the data is collected, and you're specially you're seeing this with the labor market where you have an initial jobs report and then a month later, three months later, the
numbers have been getting revised and generally speaking being revised lower. And it's not necessarily due to some nefarist mean, it's just the way or the inefficiencies of how the numbers or how the data is collected. So while I think in the short run, again largely because investment sentiment and financial conditions are very favorable, and historically that has been your your your most or that's been your strongest variables
for near term market movements. What we're talking about, which would be you know, concerns about a week economy and how that can impact financial asset markets and especially equity markets. That is that's your intermediate term. So I would say six to twelve months that is the risk because earnings growth, as you've been alluding to, generally have been pretty strong so far this quarter or this earning season.
So do you seek shelter in companies that have very strong balance sheets holding on to a lot of cash and I'm thinking of big cap tech, Does that make sense to get a little defensive here, under the umbrella of big cap tech. Are you just frightened the evaluations being too high.
Exactly for us in terms of information technology, which to be fair, has seen the strong over the last six months has seen the strongest earning's revisions higher of all sm P five hundred subsectors, and it's largely it's tied to artificial intelligence and the expected spending in that respective technology. But again, valuations are very rich in the information technology space. A sector that we have been watching for some time
that is generally unloved is energy. Now the recent price movements in WTI or various other commodities has produced a nice wind or tailwind last thirty days.
Yeah, we'll see if it continues. Stash, Thanks very much, Stosh Graham, Managing director at Graham Capital Wealth Management.
This has been the Bluemberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg business app,