This is Bloomberg day Break Weekend, our global look at the top stories in the coming week from our day Break anchors all around the world, and straight ahead on the program. Another big week coming for bank earnings. I'm Tom Busby in New York.
I'm Stephen Carolin London with a Prime Minister and the Bank of England. We'll be hoping there won't be another unpleasant inflation surprise in store.
I'm Brian Curtis in Hong Kong. We look ahead the Tesla's earnings and the company's progress in China.
I'm Kayleie Lyones in Washington, where we're getting ready for Congress to come back to the capital after two week recess. Watch for fireworks when they return.
That's all straight ahead on Bloomberg day Break Weekend on Bloomberg Eleve Them three OW New York, Bloomberg In ninety nine to one, Washington, d C, Bloomberg one O six one, Boston, Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius XM one nineteen and around the world on Bloomberg Radio dot com and via the Bloomberg Business App.
Good day to you. I'm Tom Busby, and we begin today's program with all the first quarterbank earnings that began this past Friday and continue in the coming week. Bloomberg Wall Street reporter Shanalie Basic joining me now for some insight. Hello, shanale I, am all right. Well, let's start with some of the good news that we heard on Friday, particularly upside earning surprises from the biggies, JP Morgan, Chase and City Group.
Yeah, there are a few things. For JP Morgan in particular, not only did they beat on revenue, they also had some really interesting items within different lines of the banks. So, for example, they said they were going to make billions of dollars more in net interest income than was initially expected. Another thing that happened though, was that they beat on fixed income trading, and so you also saw an institutional business do very well here relative to what was expected.
That was similar for Citygroup as well. Remember, the markets are still very volatile, so the fact that they're still making money from institutional clients are a big deal as we watch some of the cracks in the market and how they affect both the consumer and institutional clients.
Now, speaking of those cracks, JP Morgan, Chase CEO Jamie Dimond told investors, you can count the number of troubled banks on your hands. What does that tell us?
You know, nobody wants to be in a banking crisis. Or you can use what Muhammad Alarian would say, and he says it's a banking tremor, not a banking crisis. And even with the struggles we're seeing with the likes of Silicon Valley Bank, a lot of questions still around for as Republic. But JP Morgan and City Group are telling you that this is fairly contained. Now. JP Morgan banks hundreds of banks in America as well. They're more
than four thousand of them. And there's a consensus here among even the largest banks which have benefited a lot from this kind of banking tremor crisis, whatever you want to call it. The thing here is those regional banks are really what touches a lot of America. They have a lot of exposure to commercial real estate, for example, small businesses which employ a lot of the American economy.
So if those regional banks face a lot of pressure, which is really what we're going to see the bulk of in terms of their earning cycle, the next couple of weeks there could be ripple effects to any pains those banks, the smaller banks would feel.
And in the earnings that we that we just had on Friday, do we see the movement of a lot of money, a lot of deposits coming out of those regional banks and into the biggiaest.
It was most notable at JP Morgan, where they supposed they posted a surprise increase in deposits. They had been drawing down for the last couple of quarters here because interest rates are still very high, people moving into money market funds instead. JP Morgan is telling you that don't expect this kind of increase in deposits to continue, even what they took in in the wake of kind of the Silicon Valley bank issue. They say that these are
not necessarily sticky deposits. They can go out the door just as easily as they've come in. Of course, we don't worry about deposits at JP Morgan. You know, I want to say that their deposit base is probably bigger here than the GDP of France. It's two point three seven trillion dollars we're talking about in deposits at JP Morgan. But again, you know, does that deposit movement cause fragilities in the smaller banks. That's where it becomes more of a question.
Now I want to touch on something you spoke about, and that is higher interest rates and how these banks benefited from the what's it been nine in a row of increases from the Federal Reserve and maybe one or two more to come.
The interesting thing about this is that if you look at City Group and if you look at JP Morgan, a lot of this is coming from their credit card portfolios. So they're really getting more because people are borrowing more from on their credit card debt. That's not the same, by the way, as we know for a lot of the regionals and for Wells Fargo, which is more heavily tilted towards, for example, the mortgage market, which has been facing a lot of pressures in this higher interest rate environment.
Oh yeah, and we just saw, speaking of credit cards, retail sales dipping last last month. But still it's a big pot that you know, we're spending a lot of money.
Americans, and it makes total sense. You see them in the bank numbers. Also you see card spending up at these banks. How long that continues for remember a couple times this year. Jamie Diamond has said that the consumer will start to hit a cliff at the end of this year. So you have city groups saying that you can expect kind of a soft or shallow recession, if you will, maybe in the second half of this year.
But then you also have to take into account what Jamie Diamond and JP Morgan has said about the uncertainties that bake into twenty twenty four into next year. So we're talking about a long horizon of uncertainty here.
So so despite the upbeat earnings, they are very cautious. They are being cautious. They're telling investors it's not over.
Yet, certainly not. And even in their numbers alone, you see them really preparing with higher provisions for credit losses, even higher charge offs. The ninety day delinquency rate on for example, JP Morgan's credit card book has ticked a little higher.
They're well blow.
Levels we've seen that would be considered alarming. They're well below that. JP Morgan calls it a normalization. We're getting back to more normal levels. You're going to get more losses as you're lending more. But all in all, I mean JP Morgan is very profitable. In fact, in terms of revenue, they just had a record corridor. So that is pretty incredible considering all the worries that we had gone into the quarter with.
Right, and now the cavalcade of earnings continues this coming week and we hear from some the rest of the biggies, a lot of the regional banks, even the small ones. So what are we expecting to hear from Bank of America, from Golden Sechs, from Morgan Stanley on the Bank.
Of of America front. I think it'll be interesting to see what they say on that interesting income, given that there's such a big lender to the American economy. Do they say the same things as JP Morgan that they expect more? Remember City Group didn't really change their outlook for the year, and also JP Morgan City Group in particular,
their headcount has risen over the past year. How about Bank of America Wages have risen also, so we know that expenses tied to pay are rising, but how much can banks really take on with that much uncertainty ahead? There's also Schwab on Monday. Remember Schwab will be very interesting because they've had a large sell off. They you know, are very concerned and their investors rather are concerned about
people moving from deposits to money market funds. It's not a question of viability of the firm necessarily, it's a question of profitability and what will cause more pressures at a place like Schwab. You also have Goldman, Zachs and Morgan Stanley in the coming days after that. Like I said, the institutions invest in banking fees are way down, but Goldman in particular, if they find the same fixed income trading figures or beats that JP Morgan and Citygroup had,
you know, their bankers are just fine. Let's put it that way.
Now.
Some of the others, though, so that have truest is one that we just heard news from them last week. Fifth third key corpse, some of the second level or third level of banks, and are we seeing a similar thing. That's what you talked about. The ones that are the regional banks that are really vital to smaller communities.
This is where it gets so stressful. The big banks this quarter are they're very easy stories more or less. But the regional banks, line by line number my number, if I take a look at P and C all through Friday had been kind of up and down in the stock market. They were up, they were down, and remember they were stable in their actual numbers. When you looked at the deposit flows, they actually did better than
what Wallstreet had expected. So do we see the same from M and T and Fifth Third and all of these other regionals or did they for whatever reason face stiffer outputs and deposits from their clients? You know, P and C is based in Pittsburgh, some of them. Some people say that these are regional differences. It tended to be a lot of the California banks. People were concerned about the concentration and some of those you know, First Republic and Silicon Valley Bank kind of stories and their
balance sheets. But do you see those same pressures really start to come across from the client base, at least from a lot of these regionals. And then you have to add the other question of what did their loan books look like, which is another question that will continue to be a worry throughout the year. Is if you're worried about credit quality deteriorating, and some.
Of those regional banks obviously maybe on Jamie Diamond's list. You know, we saw wild fluctuations at PacWest, a big lender in the Los Angeles area, you know, which it could be spillover from Silicon Valley Bank. But do we have any idea what some of these where some of these banks are are? Which banks he may be referring to.
Eh, which ones know? And you don't want to say them either, because you don't want to cause any alarm. But you know, it's interesting you named pac West. Something interesting about PacWest was one thing they did to kind of cooled down the market was they said that they instead of going out to the market and raising money, they got essentially, you know, credit facility from a private
firm named Atlas sp. This is a firm those started by Apollo in the wake of credit sue and they basically lent the money against a series of assets to weather the storm. And so you know, we could see more deals like that. It was a very interesting deal that I know that a lot of investors wanted to model. And it also showed you another thing that if these banks want to tap the capital markets, if they want to raise money. You know, when Silicon Valley Bank happened,
that wasn't possible. The market was closed to these banks. But now they're finding other folks comes at a cost, but they could raise money to make it through this difficult environment if they need to.
An alternative means of raising money. Yeah from the past, Thank you, Shanali. That was Bloomberg Wall Street reporter Shanali Bassic And coming up on Bloomberg day Break weekend in the UK, some key data coming our way ahead of the Bank of England's next interest rate decision. I'm Tom Busby. This is Bloomberg. This is Bloomberg Daybreak weekend, our global look ahead at the top stories for investors in the
coming week. I'm Tom Busby in New York. Up later in our program, watch for a lot of drama as members of Congress get ready to return to Capitol Hill. But first in the UK, we'll get some key data in the coming days which will factor into the Bank of England's next interest rate decision. Like the FED, the UK Central Bank is thought to be close to ending a hiking cycle, although the economic situation in Britain does
look quite different. Now for more, let's head to London and bring in Bloomberg Daybreak Europe Banker Stephen Carroll, Stephen Tom.
The Prime Minister Iscisinak named halving the race of inflation as one of his five key priorities for this year. He'll be hoping that the CPI print from March starts to show that trend after we had a surprise uptake to ten point four percent in February. To discuss this and some more of the data points we'll be unpacking from the UK in the coming days, I'm joined by Boomberg, senior UK economist Dan Hansen, and our UK correspondent Lizzi Burdeness in studio with us as well. Dan, this February
CPI number was a shocker. Remind us what drove that?
Yeah, so we had we had to pick up in a little well quite a big pickup actually. The surprising core goods inflation, so clothing and footwear and also in food inflation as well. They were the sources of surprises. And we were expecting a reading of nine point nine percent. It came in ten point four percent. The Bank of England was expecting a reading of nine point nine percent. So you're right, it was a big surprise. Looking ahead, I think it will probably be seen as a blip.
And there are sort of two parts of this. One part is you're just going to get these what economists called base effects. So these these effects, these big price rises last year falling out of the annual comparison, and that's going to be part of the story in March. It's going to become a more significant story in April and later in the year when we get the falls the rises in gas prices falling out of the annual comparison.
But I think looking to the March number we're going to we think we're going to see drop back from ten point four percent. We actually think we're going to fall a little bit beneath ten percent. So it looks like it's going to be a temporary blit a February figure.
Okay, And you mentioned the energy prices there, of course one of the big drivers that pushed inflation up to these levels in the end towards the end of last year. Where is inflation looking stickier now or where within the detail of the numbers should we be thinking about it?
Yes, I mean this is I mean it goes to the Bank of England's thinking as well. So you've got you've got this, You're right, you've got this energy component. And over the course of this year, if wholesale energy prices stay where they are at the moment, over the course of this year, you're going to get about four and a half percentage points off the headline rate of inflation,
So you're at ten point four at the moment. That's going to get you to six, partly mechanically through base effects, partly because we've had this fall in gas wholesale gas prices since the start of the year. Where the stickiness then comes, I think there are actually two bits of it. One is is services inflation, and that's what the Bank
has said it's very focused on. But actually what has probably been a bit stickier than most, including us, have expected is the good side of the basket and where the supply chain disruption really was the source of that inflation. But actually it hasn't come down as quickly as we'd been expecting all the Bank of England has been expecting, So there is some stickiness there which is cause for concern.
But I think the really key area to watch in terms of persistence, and going to your question, is services and services inflation, which again jump back up in February. We think it's going to ease slightly in March.
I mentioned as you see an max premise of having inflation by the end of the year. Your colleague Jamie Ross is scincly put it that you could put a suttling pig in charge of the economy and inflation would still fall by half by the end of the year. How does the pig look a little bit further out in terms of inflation.
Well, Jamie's got a much better wife of words.
I think he was a bit embarrassed after that.
Actually should be. It's not very becoming. But look, I think I think he's going to get He's going to meet his target. So I think Jamie's right, You're going to get there predominantly through these base effects as as we've mentioned, but I think there's going to be there is going to be somewhat of a slowdown in other components. So I think core goods will continue to ease in terms of inflation.
There.
Food inflation I think will come off a little bit. It's it's extremely high at the moment, and it's probably going to pick up again in the March report. But I think it's going to come off and on our forecast you get to three percent by the end of the year headline inflation. But I think what that masks is core inflation, which we think is going to end the year about four and a half percent, so significantly higher.
And that again reflects this mainly reflects services inflation, but also what I'm on the good side as well.
Another piece of the economic puzzle that we're going to learn more about next week is the labor market. We've got jobs data out the UK's had a particular problem with participation post the pandemic as well. Are we likely to see any improvement in that front?
So I think what you're going to see from the jobs the job's data is a steady unemployment rate. So this has been a bit of a theme this year of the economy doing a little bit better, the labor market's staying a little bit tighter than people thought and not cooling as quickly. But the sort of the interesting side of this is how quickly wage growth seems to
be cooling. So if you look on if you look at the headline measures of wage growth, we think private sector regular pay is going to fall from seven percent to six and a half percent, which is a big drop down. But actually if you look on an underlying basis, so the headline measures a year on year three months moving average. It takes a long time for the numbers
to sort of call and fall off. But if you look at sort of more timely time, more timely picture of the underlying wage picture, actually it's actually calling very quickly. Now that's obviously not consistent with a title what you would expect in a tight labor market and with expectations inflation expectations, pay expectations up at sort of five percent
mark at least in the near term. But there is a story there that is really important, particularly for the Bank of England, and that's something that we're going to be really focused on in the next jobs release.
Yeah, At Lizziebriddan, you've been waiting patiently to listening into this conversation as well. But I know the story that you've been following is that the change in the makeup of the Bank of Englands Monetary Policy Committee won't affect the next meeting. But tell us about Meghan Green who's joining the NPC.
Yeah, not the meeting after that. It's the replacement for Silvana ten Reiro. She is currently Global Chief Economist at the Crawl Institute. She's got a background in financial services, also in academia, and you know, it's a difficult, delicate moment to be joining the MPC because we're nearing the end of the tightening cycle. You've had eleven straight hikes
so far. And this debate currently is between Silvana Tanrairo, who Green's replacing, and Swatti Dingra at the duvish end, and then at the hawkish end of the spectrum Catherine Mann about whether it's time to pause. As Dan says, Dan I noted putting a foot in both camps, whether it's going to be a hold or a hike. But fortunately Megan Green is a regular on Bloomberg TV and radio, so we've had a bit of an insight into her
thoughts already. Recently she's said that she's concerned about the impact of tightening monetary policy on the banking system, and she said it more in the context of the US, but it's very applicable in the UK as well, because of course we've had the fallout of Credit Swee and Silicon Valley Bank. This was a question that was raised
around the last meeting at the Bank of England. Have financial conditions tightened so much that the work of the Bank of England has been done for it and so it's interesting that she has already had this view out there, and given her financial services background, we know that she's very aware of it.
How will her appointment affect the balance then on the committee?
I mean it's hard. I think as Dan's colleague Anna noted to be more dubvish than Silvana Tenreiro. She's voted to hold at the past three meetings. She's even been talking about cutting rates before she leaves the committee. So it seems that this appointment can be nothing but a tilt to the hawkish side, no matter how duvish Meghan.
Green may be.
But the reality is she isn't going to take her seat until two meetings time. As I say, the hiking cycle could be over by then. More interesting perhaps for our UK listeners then is her open criticism of Brexit on Twitter, and she might have to rein that in if she joins the now that she's joining the MPC.
Okay, Lizzie Burden, thank you very much, a UK correspondent under senior UK economist Dan Hansen as well. I'm Stephen CA in London. You can catch us every weekday morning here for Bloomberg Daybreak. You're at beginning at six am in London and one am on Wall Streets.
Tom, thank you Steven, and coming up on Bloomberg day Break weekend. Could be a contentious week on Capitol Hill, and we'll tell you why. I'm Tom Busby and this is.
Bloomberg Broadcasting live from the Bloomberg It a active brokers studio in New York. Bloomberg e levon free oh to Washington, d C, Bloomberg ninety nine one to Boston, Bloomberg one O six one to San Francisco, Bloomberg nine sixty to the country, Sirius XM Channel one nineteen to London DAB Digital radio, and around the globe the Bloomberg Business app in Bloomberg Radio dot Com. This is Bloomberg Daybreak Weekend.
I'm Tom Busby in New York with your global look ahead at the top stories for investors in the coming week. A lot of travel this weekend for many Senators and representatives as they make their way back to Capitol Hill after more than two weeks of spring and Easter break. The House and Senate will be back this week for what could be a ten session. Now for more, let's head to our Bloomberg ninety nine One newsroom in Washington and Bloomberg Sound on host Kaylee Lines.
Kaylee, thanks Tom, that's right. Guess who's back back again? Almost. Congress is going to get back to work here in Washington next week after a two week hiatus around the Easter and Passover holidays. But as we well know, there are a lot of issues that Republicans and Democrats don't agree on, so there remains a question of how much work really can get done. We're joined now by Bloomberg Government reporter Emily Wilkins for a look at the top priorities as we get back to business on the Hill.
And Emily, I say the Hill, and I'm talking about lawmakers being back in DC. But actually we're going to start the week with one key lawmaker in New York. How Speaker Kevin McCarthy getting said to give a speech to the New York Stock Exchange at ten am on Monday.
Why so, I think with the debt limit coming up, it is certainly the biggest news in Washington, and I think McCarthy is really trying to make that clear connection to Wall Street and to Washington to say, hey, look, this thing's coming up. Republicans are going to hold firm. We absolutely demand that's spending be cut, and that's the only way that we're going to move a deal forward.
So this is him kind of doing a little bit of expectations setting really kind of think going up to Wall Street, because sometimes I think Wall Street and DC don't always communicate as well as they could with each other, and I think McCarthy is really trying to make a statement here by delivering this speech up in New York. At the same point. You know, we learned last week that Republicans are planning on putting out a more detailed
debt limit proposal. It'll be packed with conservative priorities. We certainly don't think that this is going to be the thing that actually winds up raising the debt limit. But Republicans say, hey, we're going to put something together. We'll put it out there, and then the ball is in the White House's court. They really want Biden and Kevin McCarthy to sit down again and begin negotiating, and the White House said, hey, if you want to negotiate, we
need an actual plan. And so this is the Republicans working to deliver on that.
Okay, so maybe maybe a first step forward I will bring the focus to Washington, specifically Emily, I promise, but we have to talk about the other thing that's going to happen in New York. Also at the beginning of the week, Jim Jordan and House Judiciary Republicans holding a field hearing in Manhattan, talking in theory about the crime policies of District Attorney Alvin Bragg. But this is basically about the Trump indictment, right, This.
Is absolutely about the Trump indictment. Alvin Bragg was not something that Jim Jordan was interested in before the indictment came down. And this is really what Republicans strategy has been in terms of how they are addressing the fact that one of the leading nominees for their party's presidential can and it is currently under the process of being indicted. And so with that, they've they've really honed in on
Alvin Bragg. They've really honed in on his policies. And it's also interesting to note, Kayley, the strategy that Republicans have taken up of doing these field hearings. This is the thought that Republicans have had sort of making sure that they are going out to various communities and places around the country that they're kind of getting FaceTime with voters,
that they're able to have these events. This is kind of a way, you know, Republicans, they're not going to be able to move a lot of their priorities through with the Democratic Senate and of course Biden in the White House, and so this is a way for them to kind of almost in a way, hit the campaign trail early. And of course New York is absolutely key
for Republicans. Republicans would not have the majority that they have right now if a number of Republicans representing New York had flipped seats, and so it's really a key
state for them. It's not surprising that that they picked to go there, and certainly with Alvin Bragg, that plays right into the narrative that Republicans are trying to put, which is kind of lots of a focus on what Trump did and more of a focus on what Alvin Bragg has done and whether or not he should have pressed those charges to be in with.
Okay, so if the House Judiciary Committee is focused on Alvin Bragg and the Trump issue, let's talk about what the Senate Judiciary Committee may be focused on as well, and whether or not that really translates to the House. While Congress was away, the pro publica peace on Supreme Court Justice Clarence Thomic ethics around him and his dealings with a billionaire. We know that the Senate Judiciary is
saying they want to hold hearings about it. They are highly engaged with this, it seems, but the House is under different leaderships, so could anything really happen there.
I'm not really sure we're going to see a big focus on this in the House. Republicans have plenty of other things that they'd like to focus on at this point in time, and I just don't really see what motivation,
if any, they would have now. Certainly that kind of when we're talking in terms of hearings an official legislation moving on the floor, I would not be surprised at all if Democrats tried to make this a talking point, if you saw them reintroduce legislation that deals with transparency and reporting for judges in terms of what donations they're getting, kind of trying to bring some more transparency there. There
was something that was discussed in the previous Congress. It didn't wind up go moving through, partly because there are just so many other priorities at this point, but it certainly could be something that we wind up hearing more about. I just think at this time, between the debt limit, between border security, between nominees that need to go through the Senate, between just other issues in general, this is one that I can easily see falling through the cracks.
Yeah, it's a very good point on how there's all these competing priorities here potentially. But it strikes me as well, Emily, that the piece about Clarence Thomas was just one of the real kind of news making events that happened while we While Congress was on recess, you also had a meeting between McCarthy and Taiwan's president saying Wang. You had another mass shooting in Louisville, Kentucky. You had the expelling of lawmakers in the Tennessee House, who of course now
have returned. There has been so many things, including competing court rulings on abortion pills as well. Is any of that likely to get immediate attention in Congress or are these bigger, overarching issues that have been hanging over their heads for a while going to take priority.
I think at this point, when we look at what we know that the House that Senate are going to be handling next week. They're kind of almost picking up
where they left off several weeks ago. So these are things where the House they're planning on doing a vote on a bill about transgender student athletes, trying to ban them from playing sports and schools that receive federal funding or at least you know, not on the it would have to be to the team to the gender that they were born rather than the gender that they identif fi as, And you know, that's something that you know isn't really you know, one of the big things that
happened over the last two weeks. I mean, we know that the Senate is going to be holding some hearings on trained derailment bills. They still have to deal with that from a couple months ago. And we know that they're taking a look at authorization for military funding. So a lot of this stuff, I think sometimes with the House and the Senate just Congress in general, it takes a while to get up and running, especially since everyone
wants to go through regular orders. So they hold the hearings and the bills go through committee and then they come to the floor. It just takes a little bit of time, So I don't think we can count out that we're not going to be seen or hearing anything
about some of these issues. I think, particularly in terms of the pristone pill, the pill that is used in some medically induced abortions, that might be something that we well see taken up by Democrats in the Senate and potentially becomes a rallying point for Democrats in the House as well.
But just in terms of what we're going to.
See with the next couple weeks, I think, you know, the priorities that we're already on the play are going to be big.
And I think of course the dead limit too.
You know, Republicans are serious that they want to move something within the coming month.
They have vowed to do so via regular order. That's going to take a couple of weeks to get legislation together, move it through the process, get it to the floor, do the amendments like that, that's really going to have to be their main focus rather than a number of the news events that we've seen.
But on the subject of the dead limit, Emily, I mean, really we're not quite at crunch time in theory right If we're talking about an X state in the summer. So does that take some of the pressure off or is this just self inflicted pressure Now?
I think to a certain extent, some of the pressure is not on yet, And I wonder if that's kind of why McCarthy is headed up to New York when he is. Because Congress they love to move at the last minute, they love to move on a deadline. But McCarthy knows, and I think Biden knows that that's not great. That when we've moved too close to the deadline in the past on raising the debt limit, that's when the US credit gets hit and gets impacted.
All right, Emily Wilkins of Bloomberg Government, thank you so much. We're excited for the next week coming up here in Washington, Tom, and I'll send it back over to you.
Kaylee Lines, reporting from our Bloomberg ninety nine one news room in Washington. Thanks Kaylee, And coming up on Bloomberg day Break weekend, Tesla's coming earnings and how Elon Musk's company is faring in China. I'm Tom Busby, and this is Bloomberg. This is Bloomberg day Break weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. Some of the focus is going to be on Tesla's earnings in
the company's big opportunities and challenges in China. For more, let's go to Hong Kong and Bloomberg Daybreak Asia host Brian Curtis and his colleague Doug Tom.
We look forward to Tesla's earnings in the coming week, with at least part of the focus on China. The numbers of the commentary from executives will be coming after a slew of recent developments involving the company.
Yes, we've seen big price cuts by Tesla and its competitors. We've also seen relentless gains in the share price of Tesla and recently the announcement of a new megapac battery plant in Shunghai. Now this will build seals for grid scale energy storage.
In addition, the Biden administration is in the process of rolling out the toughest ever curbs in the United States on car pollution. Joining US now is Dana Hull, senior reporter in San Francisco covering Tesla and its chief Elon musk So. Dana Doug mentioned the price cuts and the stock price gains there are trying to put those two together.
On the one hand, the cuts make the cars more competitive and more affordable, particularly in places like China, But then on the other hand, it speaks to perhaps weaker demand. How badly will these price cuts hit margins.
The fact that they've cut prices, you know, so much in the first quarter and then again just last Thursday, does kind of spook people about the demand question, like how much farther are they going to go down? And if you're a consumer thinking of buying a Tesla, I mean, are you going to buy one now? Or are you going to wait to see if they lop off another
one or five thousand dollars? I mean, that's that's sort of a big question for the consumer, like why, you know, I don't want to buy a car if Elon Musk is going to turn around and cut the prices again next week.
One of the things that was also interesting in this note that I read is that the move here on the part of Tesla may be about expediting the demise of gasoline vehicles. And when I read that, I was reminded of what happened with some of these ride sharing companies where they were purposely under cutting the market for taxis as a way of pushing them out of business.
Yeah.
I mean, when you're when you're aggressively chasing volume, you will pull out all the stops to kind of gain as many customers as you can. And you know, policy incentives are on Tesla's side. I mean, the world is transitioning away from gas powered cars. Tesla doesn't make a gas powered car, so there's only sort of upside for them.
And you know, at their investor day in March, they made a huge show of how they're going to relentlessly focus on costs across their supply chain in their operations, and you know, their average transaction price has been kind of you know, coming down over the years, and they and they really feel like that's the path that they're on and it's a part of their whole mission.
I mentioned China in the intro. Byd is out selling a Tesla in China. How's that competition going.
Certainly BYD is a formidable competitor in China, and you're seeing Tesla cut prices in China as well. I mean, Tesla does have kind of this aspirational brand allure in the country, and the fact that they just announced that they're building this megapac facility in Shanghais is a sign that they're really kind of doubling down on their investment.
We did see some political pressure coming from Mike Gallagher, the congressman, on Tesla and its commitment to China. You mentioned that commitment earlier with this megapack factory. Is that something that investors will be paying close attention to or not so much?
Yeah, I mean the Gallagher's comment was that he was concerned. I don't know how much pressure that really, you know, holds. But China has always been a big part of Tesla's business model, and they just announced that Tom Ju, who kind of led operations in China, is now an executive officer.
Dan, we mentioned the pollution curbs coming from the Biden administration. What can you tell us on that front?
It's great for Tesla. I mean, you have a Biden administration that is trying to accelerate EV adoption. Then you have Tesla, which is like the pure player EV carmaker. There's a sort of only there's only upside from policies kind of designed to accelerate this.
Danna, thanks for helping us look at Tesla as we prepare for the earnings in the coming week. Dana Hall is senior reporter in San Francisco covering Tesla and Elon Musk. I'm Doug Prisoner along with Brian Curtis. He's in Hong Kong and you can catch us weekdays here for Bloomberg day Break Asia beginning at six am in Hong Kong six pm on Wall Street.
Tom, thank you, Brian and Doug. And that does it for this edition of Bloomberg day Break Weekend. Join us again Monday morning at five am Wall Street time for the latest on markets overseas and the news you need to start your day. I'm Tom Buzzby. Stay with us top stories and global business headlines coming up right now.