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An m and a trade up you on the blocks on the rocks here.
Anglo American rebuffed a sweetened takeover offer from BHP Group divided at about forty three billion dollars US, leaving it up to the Australia minor to make a better bid or lose out of what could be the industry's biggest deal in a decade.
Let's bring in an expert on this stuff.
Alon Ulsha, Bloomberg Intelligence senior Metals and mining analyst.
He joins us from London. I did not hire him.
He's a recent simple check him out here, Aylon, what do you got for us?
What's going on in the global mining space? He says, with these names.
Looking for Copper is the most coveted metal out there in the mining industry. It's in short supply, it's expensive to build new minds, it's risky to build new mines, and demand is set to climb significantly because of applications around the energy transition. So mineers are looking for opportunities to grow exposure, and that's one of the main reasons Beuchp's gone after Anglo American, which Anglo American has been around for a while. They've got a bunch of assets
in they're not just copper. But it's always been a difficult business to buy because there's some assets in there that are problematic, that are unwanted. They've effectively served as poison pulls for a takeover. But buchb has now come with us, but it's structured in any interesting way, basically saying we'll buy you, but you need to emerge some of your South African assets, spin them off to your shareholders, and we'll pick up the rest.
And that therein lies the problem. Like that's why no one really wants that for Anglo American, right, because they're saying, you go spin this off, then will buy the rest of your company. Why don't they just buy the whole company and then.
Sell it off.
Yeah, you're absolutely right. It's one of the reasons shareholders don't seem to like it. It's a complicated structure. It basically introduces a whole lot of risk for those shareholders that will be inheriting these assets execution risk, value risk. But for BHP, it's also a headache that they don't want to absorb themselves. I don't want to take it on there effectively would be taking on potentially the value trap that has been plaguing Anglo American for so many years.
And remember BHP kind of has withdrawn from South Africa. The BHP was until not so recently BHP Bulletin and then and that was an acquisition of a business, a merger with the business that had a huge South African presence, and then they spun it off in South thirty two. So there goes to South African assets. So they don't really want to be there, and it's kind of understandable. South Africa is a difficult place to operate at the moment.
So for them yourself, well, I.
Know, I do feel bad saying it, but it's it's the truth. It's the truth, and we speak the truth.
And.
So it's yeah, I think it's just it's a tough it's a tough one for them to get the hit around.
I think that in.
Essence, what this just also boils down to, is the the money made in discovering new copper assets is minimal, Like the hurdle rates really high. So the way to do that is you have to buy competitors. It's very difficult to get the kind of scale right. Building a mind is really hard. There are a lot of different labor laws in different countries. Look what happened in South America all all of a sudden, like mining just was like, know what, we're good?
Like you can't take any copper out of here? I think that was in Peru. Does that just speak to that problem? And there? What is? What's the other solution to that?
The geopolitical risk premium for copper is a very different proposition than I feel like it's been the last few decades.
Yeah, that that's absolutely right. I mean, geopolitics has made things more difficult, but it's not really new. It's been a bit of a slow burn issue. It's also the reality is, you know, geologically, it's just it's tough to find the deposits that are close to surface in really high grades. And those deposits tend not to be in the US or Australia. They tend to be in some tougher jurisdictions like the Congo, the DRC or in Argentina, which is politically seems to be always always in flex.
So if you want to go after these assets, you would have built exposure and build these minds. You need to take on that risk, and as you say, the hurdle rate needs to be is very high, and at current copper prices it probably starts to make sense. But just a few months ago before kind of the resurgence we'd seen when copper was trading, you know, eight and a half thousand dollars a ton minusers couldn't make the
economics work. Now it's a little bit easy at close to ten thousand dollars a ton, but even still there in these questions as to how sustainable that price is in the near term.
So Ellen, you know, I'm just putting on my investment banker cap here. I think Anglo Americans got a great position. They don't have to do anything, and they don't. If I were them, I'd be like, no, if you guys want us, buy the whole thing and then you deal with it, you know, pay me a premium, or I'll just stay with my copper. Here, I mean there's really no reason for Anglo to cave in here, right.
Yeah, that seems to be the way they're going for the time being. But there is a lot of pressure on Anglo Americans. So at the end of last year they came out with an investor update. You know, Anglo American before the end of last year, before December, was the go to play in the mining space for growth.
They had a great growth profile, that had good projects, that had been investing through the cycle, so growth was coming in at the right point in the cycle when most of their peers had pulled back and had a bit of a growth gap. Then came December last year investor update and they slashed guidance the board. Share price was decimated, and that's why we're in the position that we're in now, and it's it's it's shaken the credibility or shake the confidence of investors in the in the
credibility of management. So yes, they can reject this, but but the onuses will then to come up with a credible strategy to unlock the value in the stock. And that's probably actually going to happen tomorrow in some way, shape or form. Where they said they are coming out with their standalone strategy. So that'll be really interesting to watch.
All right, we'll circle back with you and see what the see what the market thinks about that. Alon Ulsha he's his senior Medals and mining analyst Bloomberg Intelligence in London, the Pride of South Africa.
Although it's tough.
To be a miner, and so I don't know you knew all about the mining stuff too, You're not. Oh, you're just at the global energy space.
You know what.
No, I can all explain you that too, for sure. I started in gold, you started that. I went to copper, then I went to oil.
All right, very good stuff. You learn stuff every day.
Here.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business Act. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
The only big story that we're following is Paul alluded to Happy Monday everybody.
By the way, is.
Bill Huang's trial on our Keego's capital management. The real issue, of course, is that the accusation and what the prosecutors are looking at is if he actively lied to the banks that were helping him fund these swaps to bet on basically ten stocks that came spectaclarly crashing down.
On him in the last few years.
Janey Basik is Bloomberg television anchor and she is joining us outside of the New York City Federal District Court House.
Shanellie, what's at stake in this trial?
Well, there's a lot at stake for Bill Lang and of course his chief financial officer, Patrick Halligan, who we're being accused here by regulator and of course the Justice Department of manipulating the markets of racketeering, wires fraud and securities fraud are in particular the charges that they're facing. They could face significant jail time depending on how this trial goes. Of course they are planning to defend themselves
quite vigorously here. But there's also what happened, right, We know a lot about what happened in the sense of the banks had lost billions of dollars off the heels of this alex. But remember, as a family office, there was not required by means of disclosure for par Kagos and Bill Wang in the initial indictment. You did see prosecutors not to that fact, but said they did lie to the banks and indeed attempt to manipulate the market.
So it will be a trial unlike we've really seen before in the world of white collar crime.
Chanale.
The best I can tell from just reading into the story is that mister Wang's defense is basically, hey, I'm not responsible for the other.
Sides losses here. They're big boys too.
Does that does that have mary?
That is a fair assessment here if you think about Credit Suis in its own right, this is not the only place they've lost significant money tied.
To a client.
You have the banks saying that they were lied to, but you have Bill Hung saying, well, okay, his defense might bring up Credit Suise his own risk management report outlining its own failures in risk management at this point in time, So we can see that scuffle between the banks and Bill Hung's defense come up into this course of this child.
Yeah.
See, I think that's so interesting because it really is about the banks helping buy a COMCBS issue the shares, right, that's one part of investment banking that led to the selloff, that led to the margin calls that led to all of this unroundling.
So it's like the two sides shouldn't talk to each other.
The ones that are working with Bill Huang and the ones that are helping buy ACOMCBS issue shares. But in this case they probably should have been able to talk to each other to see what each other was doing.
Yeah, let's go back and talk a little bit about what prompted all of this.
It's the idea that he became.
A family office with an expected one point five billion in capital to more than thirty five billion in capital in a very short amount of time. And the reason he was able to amass these massive positions was really buying a lot of these shares on swap agreements. And what happened was he had amassed size so sizable in ViacomCBS that when the banks went on behalf of the company to try to offload or sell more shares on behalf of Viacom, that's when that created pressure on the shares.
That's when the banks started to really look at our chagos, how much they were holding their exposures and the needs for potential margin calls. Interestingly, on Monday, after those opening arguments, we may hear from the first witness for this trial, and it may be a counter party at UBS that was behind one of those first early calls that really talked through those margin calls and how quickly our Chagos would be able to put those up. So what do
they know and not know? What do they need to know and what do they need to know by law? I think that that's the critical part of this discussion here.
He Shanan, just real quickly, what's the time you hear? How long will this trial is? How long is it expected to last?
It will be weeks. It will be a number of weeks. So we're expected to hear not only from two of his former employees, remember two of them also already pled guilty, but there could be a list of more than two dozen people from counterparties these banks that might step forward in the wake of this trial.
In the course of this trial, Hi, shanaa Bassek, thank you so much for joining a Shana on the basics.
She's downtown at the courthouse.
Our Chagos capital trial starting today could take several weeks. Big dollars involved a lot of big important investment banks in Vahome to here.
But this was certainly the news.
Oh my gosh, it was spectacular. I mean just I've never seen anything like that before.
No, And of course, you know, the biggest manifestation is it just contributed didn't cost, but it contributed to the demise of Credit Swiss, my former employer.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Affo card playing Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex Steel alongside Paul Sweeney. It's a Bloomberg Intelligence Radio. We cover all the top news in finance and economics with our analysts worldwide. They cover two thousand companies and one hundred and thirty industries. We also get the best in the brightest to come into the Bloomberg studio on a Monday and give us their take on the markets. And for that we go to Dryden Pence see io at Pence Wealth Management. Now typically Dryden, you're in California.
That's correct.
You know, why are you here? Isn't that fun for you? Good for us?
Well?
Yeah, Now I come to New York about once a quarter.
We have a lot of you know folks in this area, and so it's good to come here. So I'm really happy to be here today.
Thank you for we welcome to you yesterday with rain and coldness, so you're welcome on that point.
So there was a great piece in the Bloomberg.
They talked about how S and B five hundred companies are on track to post their best quarterly earning this relative to expectations in at least two years, because nothing disastrous happened, we didn't get that recession. And this dovetails with your note saying that this year has been much ado about nothing.
It's it is. I mean, people kind of dance on the head of the Fed's pen. But I mean the point is is that if you look at basic earnings, you know we're probably going to have record earnings across the S and P five hundred. And we started off with the Magnificent seven leading the market, but now the
rest of them are beginning to catch up. And and I think that we're going to see this four to ninety three continue to spread out and go, and that earnings are going to It's basically the beat goes on every time we come where the beat goes on.
What's the pin on your lapel? People on radio can't see it, but what's the pin on your lapel? That's a bronze star, Bronze star US Army.
That's correct. Thank you for your service, my friend, to.
Thank you for your taxes.
Yeah, exactly, that's what I'm good at. You don't want me in a foxhole.
You want me writing check.
You write those checks the way you buy body armor. And that says soldier's life. So thank you very much.
All right, total spent this earning cycle. We're just kind of getting through. We'll here from some of the retailers here, anything that kind of knocked you off your game one way or the other from this earning cycle.
Well, in the earning cycle, of course, we've got Walmart coming up at the at the end of the at the end of the week here.
But I think that what we're seeing is that, you know, consumers.
Are continuing to spend uh and and that's beginning to transfer into earnings. Everybody, you know, lowered their expectations and kind of put them down, and so we're coming in this thing. It's it's an easy beat cycle, and we continue to do that. But consumer, you know, yeah, wages are at an all time high. You know, earnings are at all time high. We've got more people working than ever before, and that drives consumers. And if you give an American consumer money, they're.
Going to spend it.
So I think that we're continuing to see that across retail. We'll continue to see that.
But it but people break break up. You have certain amount of trade downs.
When we mentioned the Walmart piece of it is that the largest fastest growing group of Walmart shoppers are folks that make over one hundred thousand dollars a year really and so oh.
Yeah, and then they get in there.
They get in there because you know, they come for groceries. You know, inflation is kicked up groceries quite a bit. People feel that they go in and then you know, so there really is an opportunity for continued increase in market share, and so you kind of get, you know, then you get the aspirational side is you have you know, the very high end is doing well.
I mean, gosh, I.
Mean forty percent of consumer spinning is done by the top twenty percent of the population.
So yeah, and Torsten Slot had a great chart out just and he kind of.
Recycles his chart every once in a while over at Apollo.
And it's basically those that have either no mortgage on their home or have a mortgage below four percent, which to that point just freeze up all that cash.
Exactly if your if your mortgage is at four if you have a thirty year mortgage at four percent, you don't really work worry too much about mortgages going to seven or eight percent.
Now, if you're a millennial trying to be a first time home buyer, your brain's going to explode. But for everybody else it's really not as big an issue.
One of the names on your list is really interesting to me, which is Apple, because for the first time in a collective memory of a lot of investors, there's serious and fundamental headwinds for Apple.
And if you bull it down to one word's China. How do you guys get comfortable with that? We get comforted.
But I think people underestimate the massive size of Apple. If you take a look at the app Store, that's an environment of two point two billion active users, and they've got two billion active devices that are out there, So that's nine hundred million people more than the entire population of China. Why so sometimes when you think, okay, it's a China story, now it's a global story.
You know, if you take a look at the app Store, the.
Total merchandise value that's traded on that is over one point one trillion dollars. It's bigger than the Netherlands.
It's amazing how big it really is.
So, I mean, I guess the issue there for for Apple is, you know, it's can they manage around China? Number one? And I think there are a lot of people that are on both sides. And then the number two, what is their AI strategy? Again, do you think they're a tech company that has to have an AI strategy because really, at the moment, I don't know.
I think they have the luxury a because they're so big, they have the luxury to take a little time to make sure it's right. I mean, Apple doesn't make many mistakes, and I think that that you know, they really they're really to use of military parliance.
They're really about you.
Know, ready aim fire, and so I think rather than jump into just anything AI, they want to get it right. And I think that's why people trust that brand, They trust equipment, they trust all those things. So you know the fact that they're not rushing in to be the exact leader on integration.
Of AI means that they're going to try to get it right.
And I think that that's going to be important.
Well, you mentioned Walmart earlier. We talked about that. What about Amazon?
What why do you own a stock like Amazon?
You know, Amazon gets about you know, forty cents out of every dollar, four out of ten, you know, of everything online. And so when you think about how massively large that is, and we have a consumer that's moving more and more online. If you move from right now, we're going like fifteen percent of retail is online.
If they just move up to.
If they move to twenty five, which is kind of where the most of the world is going, that's a three hundred billion dollar opportunity that Amazon has. And so as behavior changes and behavior moves more and more online, you're going to see greater use of Amazon. And one thing we have to think about is on this inflation cycle. And even if you if you look at inflation, people being price conscious and things like that, the most efficient
way to bargainshop is online. Oh you're preaching the fire, please, and there you go, and there you go. So it's just going to increase utilization of that platform. They're so dominant, and so I think that we find that that, you know, long term, if we're thinking about this, that they're going to overcome whatever headwinds people are trying to imagine that they have.
You know, one of the many reasons we're like hearing from Walmart and we will this week is just it gives us a good read on the consumer. It feels like a broad based read on the consumer. How do you view the consumer here, because there's a there's definitely some cracks out there for a lot of folks.
I think that then when we talked about early on this trade down, right, if you break the consumer up into three groups, you have the the top tier, the middle tier, and then the lower tier. You know, the lower tier, inflation is showing up and it's and it's beginning to change some of their behavior. People having to pay more attention to pricing and things like that. They're going to move into more frequency of a Walmart or
any of the discounters. But then when you take a look at that middle group, like I mentioned before, that trade down, where now they're because grocery prices are so high. People are going to move in there for grocery and the next thing, you know, they look at the rest of the sore and when you and you hear it all the time, I can't find it anywhere else.
So I went to Walmart. And so I think that we're going to continue to see increased.
Traffic and that's going to translate, uh to increase increased growth in utilization.
But to the Amazon story, you're definitely buying it as a retail story, not as like a cloud play or an AI play, where you know, is that just like like a pony on a cake?
What is that?
I don't want my cake?
You want a pony on your cake? That could be a problem, but I think I think that it is.
It is you know, Amazon is It's got the cloud of course, and that's just going to continue to grow as we go through all this demand and AI and those things. But when we really kind of think about the consumer, because that's you know, what are people doing.
That's a very solid growth.
Story, and it's a behavior story of the American consumer, and I think that it's one that that we really need to pay attention to because remember too that that pricing online has kind of gone down over over the you know, past ten years, whereas CPI and everywhere else has gone up. So you get better competitive pricing online, better competitive pricing in an inflationary environment.
And that's just going to continue to.
Play right into that ecosystem that is part of I've yet to find I very rarely find somebody who hasn't bought something on Amazon.
Yeah, and it just continues.
Yeah.
Absolutely, We'll hear from Amazon Thursday, Port with earnings. I'm sorry, Walmart Thursday. Dreda Pence, thank you so much for joining us. Dreda Penci is the chief investment officer Pence Wealth Management, based out there in Newport Beach, California.
Joining us here in a Bloomberg Interactive Broker studio.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa, playing Bloomberg eleven thirty.
I'm Alex the alongside Paul Sweeney is Bloomberg Intelligence Radio. We bring you all the top financial and economic news through the lens of our Bloomberg Intelligence analysts. They cover two thousand companies and one hundred and thirty industries worldwide, and every Monday at this time we dip into our
Bloomberg NIF research team. So this is basically a research team that has the best data sets and models built by analysts and industry experts all around the world, and they cover everything commodity, power, transport, industry, buildings, AGG related and it's really all.
The cutting issues of our.
Time in my personal opinion, because you know how I like the whole green stuff, energy transition stuff. If you look at any report, they all quote the EV data that comes from Bloomberg NIF. And we have one of those individual analysts here with us now, Corey Kanter, is being at Bloomberg NAF lead US electric Vehicle analyst. It's great to have you here at Corey, thanks for joining us.
Great to be here, guys. Happy Monday, Happy Monday.
We made it so you told.
Your latest note is about how Tesla's there's recent stumbles, not necessarily government policy or anything like that, but Tesla's recent stumbles creates some adoor opening for the other EV makers like a GM and a Ribbean.
Can you talk us through what your latest research says.
Yeah.
So, if you look at last quarter, both globally and within the US, Tesla hit a bit of a rough patch. You saw globally sales down about nine percent year on year. And when you're looking at the EV space and the automotive space, year onyar is usually the best way to take a look at this market.
To see how things are changing and growing.
And so when it comes to GM, when it comes to Rivian, Yuendi and even Lucid, there's just an opening here for them to expand their market share. Each of them has a different strategy as it pertains to twenty twenty four. And this doesn't mean that either of them are going to or any of them are going to pass Tesla in this year. But from yours working in the EV space, all you would hear is we're always
competing for number two. We can never surpass Tesla. And whether you're looking at the kind of EV car space or even EV charging, the fact that Tesla's taking a step back birth both in terms of where they're focusing their sales as well as their EV charging network efforts, it means that other people, if they are able to step up can make in roads.
It feels like after an initial surge over the last five, six, seven years that there's been a lull in demand for evs, And I don't know a do you believe that's the case in b Why is that? Do you think?
So?
Last year we saw in the US about fifty percent year on year growth for electric vehicles from twenty twenty two, So, if anything, that was a really strong and successful year. We did begin to see some of the challenges around adoption as you move from that kind of early adopter's phase to more of the mass market, and that's where consumers are going to be less patient with the technology and with the upfront cost as well as charging infrastructure.
And I think what makes the US different than other regions like Europe and China is that charging really hasn't been figured out to the same extent, and the heavy reliance on Tesla means that when Tesla steps back from charging investments, you know, lays off many of the supercharging network team, it means it's to be more of a uncertainty for the consumer here. So data in the first quarter, you know, we're finalizing We've seen a lot of data
come up outside of Tesla. Other automakers like Ford, Hyendai, Rivian all did quite well, but GM, Volkswagen and Tesla took a step back and that has a big impact on the market.
In the first quarter. We'll see how Q two goes.
We are looking down the barrel here this week of some tariffs that will be imposed on China EV's imports into the US, just knowing what we know about how these car makers operate and look at losses per vehicle when it comes to EV's, what would be better for Rivian and GM, like more competition to kind of light a fire or less that gives them more time to do stuff.
Yeah, that's a really good question, Alex.
I think everyone that you speak to in the automotive space knows that the Chinese EV makers are out there, your bid and other brands. I mean, we even saw Zeker last week a public right, Hio public and.
So the pressure should be there.
Tariffs, you're not seeing really too many Chinese evs really imported into the US. Volvo and Pulstor might be the exception,
but really what those tariffs looks like. I want to keep an eye on the battery portion because I think that could have more of an impact than the couple or you know, the thousands of evs from China, specifically, given that the battery supply chain is still very heavily reliant on China, particularly for those lithyan iron phosphate batteries LFP, which is used to help bring down costs and electric
vehicles for GM. You know, GM is competing in China already, so they have a good sense of how competitive that space is. And really there you're seeing great technology and upfront cost at a low level, which eventually you'll see here.
I mean, if anything, you know, maybe the tariffs help stem the gap a little bit, but if you fall behind and don't invest in electric vehicles now, you know, we could be having the same conversation in two to three years with those Chinese automakers aiming to come to the US.
So do we have a sense that the US OEMs forwards, the GM, Stilantis or the world have pulled back on their commitment to EV's or maybe they're timing of investments on EV's.
You think that's happening.
I think the timing on investment in evs is happening right in terms of their overall strategy. They've been I think approaching the market in a different way. Ford has been pushing towards this new EV platform that they're beginning to kind of produce in next year. GM of course has its Ultium platform, And for Stilantis, they don't actually have any fully electric vehicles here yet, although they have the highest selling plug in hybrid electric.
Vehicle, the Jeep Wrangler.
A lot of this is un timing, but what I always like to say is that timing and the investment is one thing, but you have to produce ultimately, and so if it's a delay of six months a year, that's okay, but the cost of inaction gets higher. And if you really say, not just to the Chinese automakers, but other automakers like Handai and Kia, really could make up a lot of ground here, and that's why there's such a big opportunity for Rivian to kind of step in.
Ford and Tesla remain the number one and two EV makers here in the US, but they don't really have any near term goals for twenty twenty four, and so when analysts are taking a look trying to see what they're doing next, having a clear product roadmap could kind of clear up a lot of that uncertainty, and we don't have it right now.
When am I gonna be able to buy a sixteen thousand dollars EV that helps me go from here to the Berkshires without a charge?
You know?
And I think there's a lot of interesting EV startups out there, and you seem pretty well attuned. I think we're going to see starting next year, more EV's kind of coming down to the low thirty thousand dollars price point. The big question is how many of them are going to have that seventy five hundred dollars tax credit. And of course there's a lot of policy questions, and then an election this year that'll have an impact on that too.
And takeaways is not yet colple of years. Yeah, of course, I.
Think the seagull is tw thousand books.
I'm going to look at this thing, all right, Yeah, right, it's the BYD's, but.
That's the whole point that's byd.
Okay well tiny yeah, in that car, it's about twenty thousand dollars in Mexico.
So the ten thousand, I think is.
Maybe not the price that I would be paying. Only one Winshield wiper.
How many do you need?
How does that work?
I mean to be fair, did the two really make a difference, Corey, Thanks a lot, Corey Kanter Bloomberg any US electric vehicle analysts.
But if you put one hundred percent tariff on that, how much is that going to cost me?
That's not going to help.
But if I could get a ten.
Thousand dollars one that can get me from here to the Berg heres with one charge, I would definitely consider something like that.
This is why, Oh that's.
Right, the real cold, all of a sudden you have to, like, you know, walk home, take your seventeen days. It's just basically the batteries don't work that well in the cold. They got to figure that one out, all.
Right, Thanks a lot, Corey. Really appreciate that.
This is all the pressing stuff that we get you here on Bloomberg Intelligence and Bloomberg an EF.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple car Play and Android 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.
All right, last week I was visiting our good friends at Boston Consulting Group BCG UP in Boston, I tended the Boston Consulting Group Edge Expo in Boston. Had a lot of great conversations with executives at BCG. One was with Sessha iiro North American co Chare. He focuses on helping clients think through the levels of value for new artificial intelligence and the role of ai'm moving forward. I began by asking him to tell us what he thinks AI is today.
Let's listen, Sylvia, really looking at how we can really leverage technology and when we say intelligence, being able to really interpret data, apply data to really drive change, to create value inside of organizations. It's how do you take the data apply it against processes to really get rounds of value around either productivity, around cost, around top line, around customer impact, around customer intimate, see and delight. So how do you essentially use data to generate that insight.
So in a simple way, that's what he is about. A lot that we are clearly observing right now. Is also not just predictive AI, which has been around for a long time, but the emergence of generative AI. That then adds four specific things. The first is the synthesis of information and large reams of information. How do you synthesize and get the right information in the right construct
to the right person. There's a lot around generation. We actually can generate not only text, but we can generate voice, we can generate videos. The third is it's very conversational, right, so you can actually engage with very low friction. And then the last is it has the ability to reason, so it can actually have a good dialogue with you. So we are starting to see these additional attributes in gen AI that are actually bringing a lot more value front inside.
It's interesting.
I think there is Bloomberg ran a story a quarter or two ago. Every company in the S and P. Five hundred on their earnings conference.
Call mentioned AI. It has come out of nowhere.
How receptive are your clients to discussing AI, making the investments in AI, whether that's upping their technology budget, reallocating their technology budget.
How do those discussions go?
So we did a survey earlier this year. We are clearly seeing seventy percent of execs increasing the payment okay, and then within that that seventy percent. We are seeing, you know, fifty percent of execs say that JENNYI is going to be a top priority. So we're clearly seeing more investments going against leveraging this to deliver to value. Now that being said, the other thing that we're also observing is there's only one in ten executives who's are
companies that are truly pioneers. Okay, right, the other nine and ten are I would say doing a bit and watch. But what we're really observing that are amazing characteristics in these pioneers. One is they are massively ambitious. They truly see the potential of the technology. They want to get the value from it, they're investing in it. They're very
business value driven. That's one. And their ambition, what we observe is anyway one point three to one point five times the ambition of the folks who are not investing. The second is we clearly see upskilling and reskilling to be center of their focus. Forty six percent of people will need to be reskilled. It's bigger, it's a big number.
It's a big number in organizations. You think about organizations that are you know, fifty hundred thousand people, you're drunging about thousands and thousands of people that need to be reskilled. Also related to that are senior executive Sixty percent of senior executives need to be upskilled so they know how to be good sponsors to actually apply the technology. The third thing is intimately understanding costs. I mean, many folks
understand derect costs. Indrect costs are still not fully in the equations understanding the cost of what the stakes not only on the build but also once you deploy to operate it. The fourth is partnerships. Are you truly engaging the right partners in your ecosystem because this is not a one partner solved, this is a multi partner solve. And then the last thing is which is very important to us at VCG, is leading with responsibile AI. You can apply the technology, there are a lot of downsides
to it. How do you put the right controls in?
If you come into my office or when you come into my office and really make the case that I need to invest in AI, I'm going to ask you, okay, but is it going to make me better?
Is it going to make me more efficient?
Because I'm gonna have to up my tech budget.
You just explain to me how I'm probably gonna need to up my.
Tech budget over a long period of time.
What's the payoff for me from a P and L perspective? Can you make that ROI case?
Yeah, So there are three pathways to value that we observe. The first is what we call deploy, where existing solutions already have GENII features. So if you think about Office three sixty five pilot, or you think about giub copilot, or you think about Zoom, the video application that can generate a transcript from a call, it's turning on those features and you can start to see value that's tend
to twenty percent there. The second pathway is what we call reshape, which is driving end to end transformations of specific functions. You think about the marketing function, you think about the finance function, or you think about the customer service function, or let's say the underwriting process in an insurance company. That's thirty to fifty percent in terms of not just productivity unlock, but in terms of speed of performance, in terms of value delivery that happens to the customer
that is at the end of that process. And then the third thing that we're observing is what we call invent where it's completely new business models. So you think about creating a new beauty assistant? Do you think about creating new molecules? V Recently and on the invent side, we have now done a longitudinal study where AI generated molecules have two times the success coming out of clinical phase one trials compared to molecules that are created in
the latter. Look, that's amaze, it is right, And you think about ROI there, I mean, the r I is so obvious, so we are seeing specific sectors and you know, specific functions really go through massive change.
I think most people as they've come up the AI curve and just understanding, are concerned about responsiblity, this responsible use of AI, the risk to AI.
Will AI take over the world? War, the machines take over the world?
How do you frame that risk out and what do you suggest to your clients.
So one of the things we tell our clients is clearly, there's so much of value when you adopt this technology, but you have to do it in a really responsible way. So what is your responsible AI framework to put against it? What is your responsibili strategy? How do you really think about responsible II governance. What are your lines of defense? How do you actually implement the right structures in place?
When you think about processes, your product development process or your portfolio monitoring process, how you really including responsible AI in it? For example, when you're building GENI solutions that have lms in the middle of it, are you really doing proper verification and validation to ensure that llms perform to your objective function and they don't start doing something you don't want it to do. Do you have things in place for that? So there are a number of
these different pieces of the entire responsible AI framework. So we have a comprehensive framework. We'll lead with that at our clients, and it is a capability built So just like you have a capability built around risk and compliance, there is now a capability built around responsibily.
Am interesting?
I know at BCG you have the ten twenty seventy U.
Yeah, what is that?
So when we think about truly driving transformative change with technology, at the core, our ten twenty seventy is ten percent is the algorithm, twenty percent is that data and the technology components, and seventy percent is the change management processor engineering, the adoption of the technology. So to drive real value you need all three. Right, were many organizations I would say focus on the ten and the twenty yep, but
not fully focus on the seventy. And we lead with the ten twenty seventy that really drives, so we deliver I would say impact and outcomes, not systems.
Right.
So I mean it sounds like in order for a company to really champion AI within your business, the commitment has to be from the board to the c suite.
Down all the way through the organization.
Because it sounds like, A it's a big financial investment, but B it's a little bit of a different way of thinking about your business.
How do you achieve that?
I think it goes back to if you think about the unbroken chain of why, why does the company exist? What value does it add to its customers? What value does it add to it employees, how does it contribute to society? If you really unpack the why, I think this does need to start at the top. So what is the competitive differentiation that technology or GENI can drive
for an organization? It starts from there, and that is a CEO level point, and then it migrates into what does it do for my customer, What does it do for my product? What does it do for my processes? What does it do for my employees? All of that then follows through. So if you think about value, customer intimacy, value. We have a car manufacturer that has integrated GENI into their cars. They sell two million cars a year. That is changing the way in which consumers experience their product.
You think about product lines. Google recently came out with Google Wids, where you can actually now create videos on demand. The marginal cost of creativity has dropped substantially. You can build not only images, but you can build presentations, you can build videos. It's so easy to do it. You think about process excellence. We already talked about our software development. You have a large financial global bank that is looking
to imp productivity by thirty to forty percent. I mean, these things are real, and I think the CEOs clearly know that they can drive differential competitive advantage across all of these different dimensions.
What's the biggest pushback you get from your clients about this?
Is it the cost?
Is it the I don't know, I'm just technology concerned about technology.
What's the pushback you get?
I think the biggest thing that we see. If I think about CEOs, their entire focus is on how can I get to this value fast? So is it going to really change the trajectory of my business? Talk to me about outcomes that I can deliver too. So when we think about the three dimensions of you know what really matters to these folks is can I deliver outcomes at scale? Don't talk to me about an experiment to talk about it at scale? Can I combine JENNYI with
predictive AI and other technologies? Automation? Show me the end to end, not just the once sliver of this. And then I think the third is the ten twenty seventy. A lot of folks need with oh this is such cool technology, but can you really show me the impact? Will my people be better off when they adopt the technology?
That's a big part of our PC. So I think those are the three things outcome at scale, predictive plus plus generative AI plus automation and then the third pieces of ten twenty seventy.
All right, that was my conversation with Sesshire, he's a North American co chair of the Boston Consulting Group. Talking about AI. We were up at their Expo condors up in Boston last week. Can't say AI. It was front and center as BCG talks to their clients. That's what the CEOs want to talk about in one strategy, about how to invest and when to invest and how much to invest. So it was good to check in with some of the smart folks at BCG.
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