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Each and every week, we provided that research and data on some of the two thousand companies and one hundred and thirty industries of our analysts cover worldwide. Today, we'll look at why restaurants are confronting a slowdown in consumer spending. Plus we'll discuss why home post sales fell for a fifth consecutive quarter. For first, we dive into earnings from the world's most valuable chip maker, in Nvidia reported fourth
quarter revenue that sailed past analyst expectations. It also delivered another eye popping sales forecast for the current quarter. This is thanks to insatiable demand for Nvidia's artificial intelligence accelerators. For more, co hosts Emily Grafeyo and I were joined by Kunjohn Sabani, Bloomberg Intelligence Senior semiconductor analyst. We first asked for his take on in Nvidia's earnings results.
Any earning surprise from Nvidia is no longer a surprise. We have come to sort of expect this to be a new norm. But there were a lot of positive reassuring things on the supply side. We saw supply coming up really strong. More importantly, supply getting diversified and the benefits for which we're seen in their gross margin, which beat the estimates. But more important was the assurance that demand continues to stay strong, and not just from the
large cloud players. We all are aware of how much money they're spending, but demand strength was broad based across their enterprise. Customers are different verticals, so that really reassures us. For the twenty twenty four what did.
You make of the CEO's statement that Generative AI has hit the tipping point. I saw that headline, and I didn't actually really understand what that meant. So what did you think of that?
I mean, look, it's really Jensen. If you have been following the company for the lat past ten years, at every junction, that's what his messaging always is in whatever they're working on. So but apart from that, I would really, you know, ask investors to look into the end data points rather than what just he's saying. I mean, he's a very important person right now, but we look at
the end data points. The customers are really increasing their AI spen right the IT total capex budgets are increasing, but the AI portion within that is also increasing. And it's not just at the chip level. The contracts that they have with their software customers, even those customers are guiding up their revenue targets.
Hey, Kun John, I love their customer list that they read off.
It's kind of a who's who of Silicon Valley, you know, Facebook, Google, whatever their new names are.
What's the next?
Is there a next set of customers out there above and beyond kind of the household names that we all know that maybe they're targeting.
Yes, an enterprise segment is sort of the new the next area that they're really targeting. Right, They already have the big large spenders, but now they want to diversify and expand the reach across enterprises. And the second big target now is sort of governments and sovereign governments and
sovereign wells. Right, that's what they're targeting that they believe AI will be, you know, because of geopolitical and trade issues will be more regional and every big economy will need to spend on that.
Are there any headwinds that investors need to be looking out for because I just looked on the A and R function on Bloomberg and there are zero cells for in video. There was one last thing from morning Star and now he's upgraded to a hold.
Yeah.
I mean, look, if you look at just what the data says, usually the stock price follows the analyst price. It seems here the price targets are following the stock pride. When we look at the fundamentals, right, there was really nothing that to highlight as a risk factor in the earnings and really in the near term for twenty twenty four. But if we were to form a bare thesis, a couple of things that would we would look at as risk factors for the long term. One is the China risk.
We did see China revenue almost reduced by half versus three q in this quarter, right and we know this problem is not going away, if at all, getting worse. So right now they are easily able to offset what they could have shipped to China while shipping to other customers in US and other regions. But at some point when the demand supply sort of normalizes and the growth rates become more of a normal run rate, you know, this is taking out a bite out of that opportunity
that they could have served in China. So that's one risk factor on the long term. The second being their largest customers, which are the cloud players, have started to design their own ships. So again this is far out, but at some point this still take a bite out of the apple that N media could have served.
So that's kind of where I wanted to go, John, I mean, just the competitive environment. Can you explain why these guys are the only game in town? That seems odd to me.
I mean, it's not by an accident. These guys were sort of the inventor, if you will, for the GPU. They have been working on a GPU for decades and out investing everyone being at the leading edge. So this was the same question when we talked about gaming and when we talked about crypto, right, the last two waves which drove the growth for this company. It was not
by accident. They have been at this forefront of these new applications where the application suddenly realized, well, GPU is the best case compute platform, and that's why they adopted GP. Same thing what we're saying with AI. So this was not by accident. If you look at that R and D spend, which they guided to be growing by mid thirties next year, that's a significant amount of rn NE dollars they continue to spend and to keep again being at the leading edge of the next cycle of innovation.
Can you talk a little bit also about the gaming revenue here, because I'm looking at your report you said gamings better than seasonal top line, But what was really driving that because I actually don't really know if I know anything about in Video's gaming involvement.
Yeah, so the last quarter was if you look at typical seasonality, we we expected it to be a down quarter at least by mid single digits, but it came in flat right, So and the strength the reason driver for there was better demand for their RTX products. These are their gaming cards you know in dex stops and what gamers get. So this is what came in better
than they had expected due to the holiday season. Now this is again a temporary move and sort of not no longer a big focus for investors, but that was still good to see that in a typical down seasonal quarters they were still able to do better than seasonality.
Thanks to Kunjan Sobani, Bloomberg Intelligence Senior Semiconductor analyst, we move next to a big M and a deal in the banking industry. Earlier in a week, Capital Won agreed to buy Discover Financial Services in a thirty five billion.
Dollars all stock deal.
This will create the large US credit card company by loan volume. To discuss this deal and the latest and consumer finance space, co host Bailly Lipschaltz and I were joined by Ben Elliott. He's a consumer finance analyst for Bloomberg Intelligence. Well asked him what Capital One is thinking with its latest deal.
So everything's driven by scale and the credit card business. And the big thought here from Capital One is that if they can acquire this sort of rare and valuable thing that Discover has, which is a discrete, proprietary payments network. Then they can sort of start to compete with the Visa and MasterCard on a much bigger scale over time, and they're paying a premium for it.
Ben is the timing at all surprise just given kind of the issues that Discover had towards the end of twenty twenty three.
It leaves Capital One with a potential legal overhang. The legal issues are not settled yet at Discover. They've had a couple of new issues that are sort of outside of the scope of of what they've been dealing with over the past couple of years. Discover's been talking about sort of a five hundred million dollar a year run rate of additional compliance expense. It's sort of a burden that Capital One is going to have to take on
with this acquisition. But I think it's probably pretty well understood the scope of that, and I think it's it's probably priced into the deal.
All right.
So give us a sense of the size of Visa. I guess the Visa network, the master Card network, and now this new combined network. Is it competitive to Visa and MasterCard? I guess even amics, So.
Historically it's completely non competitive. Visa and MasterCard together are about ten trillion in domestic US credit and debit card volume, and Discover is about five hundred and fifty billion. So it's always been this sort of the tiny, you know, red headed stepchild of the of the large payment networks.
But you know, if you add to that Capital One's hundreds of billions of dollars of credit card loans and you sort of extrapolate future growth there, it has the potential to sort of compete more like an American Express, which is closer to one and a half trillion.
Ben I feel like we can't talk about deals without the threat of regulatory scrutiny. What does this bring and what could the FTC raise any red flags about?
Overall, this deal I think will be relatively sort of non offensive to regulators. Discover is historically not been very competitive with the large networks, so actually bringing sort of the power of Capital One to bear will make it more competitive with the large networks, as the potential to give customers a real sort of fourth alternative, whereas in the past you really only had one option, Right you get a Discover card, it only has one sort of
set of rewards. It's got a relatively low credit line versus some of the other offerings. It doesn't have sort of, you know, high end travel rewards offerings. So I think if Capital One can start to issue some of its sort of higher end cards on the Discover network, that could be pro competitive and that might make the deal somewhat more attractive to regulators.
Ben in terms of kind of what these credit cards offer Discover from my understanding, mainly cash back. Capital One has a range of some of.
Those rewards cards.
How does that impact potentially acquiring new customers, new users of for both companies or I guess the folded end company.
Yeah, So I think that will make it a challenge for Capital One to issue some of its sort of high fee, high reward cards on the Discover network because historically the Discover network's only been used for a very limited cash back card with caps that I think it's like fifteen hundred dollars a quarter of cash back. So for your high spenders, people who are putting tens of thousands of dollars on a credit card, that's not a
very attractive offering. So that means that the brand has not been sort of in their minds as you know, a potential credit card they med aquire. So Capital One is going to have to do some relatively heavy lifting. And you see that in what is a very modest run rate synergy assumption in their in their sort of deal model which only cuts back discovers marketing costs about
ten percent. So you know, Capital One is going to have to do some pretty heavy marketing I think, to start to leverage that network on the credit card.
Side, the American Express. What's the investment call there these days?
Ben?
What are investors thinking about MS?
You know, MX is the super premium fashion of the highest spending sort of most financially sound customers. So that is a sort of a recession safe trade, if you will. So you know, when people are looking at the forward curve and they're seeing rate cuts, you know they're expecting a recession. Potentially they look at the AMS spender and think that this person will last the longest and have the sort of lowest level of charge offs through a
potential recession. So that makes it very attractive. And additionally, MS has a ton of momentum in acquiring millennial and gen z high earning customers, which is the most valuable sort of wallet chair that's out there, and MX does it better than anyone else, so that also kind of makes them attractive to investors.
What is the big competitive overview of kind of consumer finance? Are we using more credit, more debit, more venmo what a kind of the big trends there.
Yeah, so there's been a huge growth in credit volume over the last couple of years, especially sort of in the post pandemic period. There's been even more of a secular shift away from cash as for the various sort of channels. Right, credit is really attractive to higher end consumers, people with more discretionary income, because that offers the huge
valuable reward potential. And then if you step down to debit cards, there's some cash back, but for the most part, not a lot of rewards there, but there's some convenience.
And then sort of the lower tier kind of fintech payments systems, you know, they offer they're sort of targeted at sort of youngers or gen Z lower spenders, and they are the people who are exploring things like buy now, pay later, which is sort of a way to give credit to people who don't really have a lot of credit history or substantial earnings.
History thanks to Ben Elliott, Bloomberg Intelligence consumer finance analysts coming up a conversation with Geens Soroka, Executive director of the Port of Los Angeles, on why cargo volumes are picking up. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two that companies and.
One hundred and thirty industries.
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Let's turn out to the restaurant business. Restaurants are confronting a slow down in consumer spending. January same store sales fell across the restaurant industry, tough year of a year comparisons and cold weather.
Hurt customer traffic.
Co host Belly Lipschutz and I were joined by Michael Halen, Bloomberg Intelligence Senior Restaurant and Food service analyst.
We asked them about some.
Of the trends coming out of the pandemic and how much people are spending on restaurants these days.
Yeah, you know, obviously there's a couple of tough years due to the pandemic, mainly for the full service restaurants, due to you know, limitations on hours and different regulations on indoor dining rooms. Also just apprehension by customers. But there was a pretty strong bounce back in restaurant sales in twenty twenty two, and then they kind of got hit with that margin pressure, right, twenty twenty three started off pretty strong in early twenty twenty three, or lapping Omicron,
so the comparisons were very easy. So early twenty twenty three was very good. Sales started to slide in the second half of last year, and now that they're lapping those strong comps from a year ago. We saw some real weakness in January and so far in early February.
And when I look at Michael, when I go to the fast food restaurants, when I do eat out ball, I'm a cheap guy. Prices are high. I go to Chipotle and it's cost me seventeen bucks. How do price hikes in expanding margins. How are those things playing out and how are those going to continue to play out in twenty twenty four given this uncertainty around consumers, maybe some of the spending.
Yeah, you know, that's a great question. There was a lot of you know, Ruckus really online over the eighteen dollars, big mac meal and in some locations last week. So you know, this is something that we're looking at. And you know, same sort of sales were so weak in January. They were down over two percent for fast food, which we typically don't see unless we're in a recession. They
were down seven point seven percent at casual dining. Investors are kind of looking past it, saying that the weather was really cold, but people still have to eat, right, and so so there's kind of some worry here for us because like some of the economic indicators we watch when you look under the hood aren't looking great. So credit card debt is at an all time high one point one trillion. Credit card rates are at an all
time high at twenty one percent APRS. Delinquencies have been rising for auto loans as well as credit card loans, and they're now above the fifteen year average and pre pandemic level. So there is some concern, but right now there's just so many variables going on with the weather, with the tough comparison, and with these economic indicators to figure out exactly how much of this weakness is because
of what right and so. But one thing we've seen is customers are dealing with the higher prices and with the higher inflation by putting it on their credit cards, which is not a sustainable situation.
What are some of the names that you cover that if we do see the general consumers tightening spending, will be better positioned to continue to deliver sales.
What we've seen one of the weakest segments has actually been fine dining. A lot of that has been just a pullback and spending. People have been buying less expensive lines,
you know, cutting back maybe on appetizers. In a real economic slowdown, fast food and quick service tend to do better because they'll have value menu items, discountsable will be more prevalent, and so although you'll see a lot of low income consumers kind of trade down to the grocery store, the quick service change will see a lot of you know, middle and higher income consumers trade away from a higher price full service Asian and maybe dying at McDonald's a little bit more often.
Hey, Michael talked to us about the labor situation in the restaurant business. I know, for a long time, like a lot of industries, you know, the restaurant industry had trouble getting labor.
Where is it now?
Full service is pretty much where it was prior to the pandemic, So you know, think of Chili's and Applebee's and most of those casual dining chains that we cover. Cheesecake Factory, they're fully staffed right now, so they've recovered pretty nicely. Quick service has been slower. Turnover remains a lot higher, which is crazy to say, because it's probably one hundred and forty percent for hourly turnover heading into
the pandemic. Now it's it's probably about one hundred and seventy percent, So they're having a lot more of a difficult time holding onto employees. That being said, it's been improving and improved throughout the year. Last year, one of the toughest times to staff the store was that late
night portion. But chains figured out it's supplying demand and they have to offer more a higher way to those employees to attract good workers, and they've been doing that, and so that last kind of part of the day that was really struggling to hire is starting to come back to. So it's getting better. It's not where it was.
Two years ago.
Two years ago, it is very difficult. You know, there's a lot of people concerned that restaurant workers would never come back, but a lot of them have and it's much better than it was.
Michael to take the labor conversation and twisted just a bit. I was just in California for the last two weeks where minimum wage is going to be twenty boots in April. First, Oh went in and out twice, don't you worry. But so twenty dollars minimum wage. I'm seeing a lot of these self service kiosks getting rid of the kind of front of house, if you will, at some of these fast food chains. How does a higher minimum wage impact what these companies are going to do and impact their margins in turn?
Yeah, I mean you hit the nail on the head. It's going to be more technology. And it's no coincidence that the companies that we cover that have the highest exposure to California. So that's Jack in the Box, that's Chapotle. They're leading the charge when it comes to automation technology. Right now, Jack in the Box is testing AI automated friars. Chipotle has an automated makeline that they're hoping to roll out in the coming years, as well as automated AI
tortilla chip friars. Right, so, it's going to be more automation in the restaurant, but it takes time for that to be implemented because right now the cost for that automation technology is very high. Right but as the wage rates continue to rise and as the price of technology falls, which always does over time, eventually there's going to be an ROI and a lot of those fast food workers are going to be replaced by technology.
Our thanks to Michael halein Bloomberg Intelligence Senior Restaurant and Food Service Analyst, we move next to the Port of Los Angeles, one of the world's busiest seaports in a leading gateway for international trade in North America. The Port of La recently reported the second biggest January on.
Record for cargo volumes.
For More, co hosts Emily Grafey and I were joined by Jean Soroka, executive director of the Port of Los Angeles.
We started by asking Gene, how big this is going?
Business is really good, We're running it about seventy five to eighty percent of full capacity at the Port of Los Angeles. Anything but normal though around the world, with issues in the Panama Canal, with respected drought in the Middle East, with concerns around safety and security, and broader looks at how this US economy is going to continue
to propel itself thanks to the American consumer. So let's start off with where we're at right now, six consecutive months of growth, the second best January ever, up eighteen percent compared to last year, and our first quarter outlook is it about two point two million containers or a twenty percent year on year increase compared to Q one of last year.
So how would you assess, then, the overall health of the global supply chain relative to what we saw during the pandemic, because, like Paul said, it seemed like everyone was suddenly talking about the supply chain and where are we relative to just a few years ago.
Emily, I think we're in a lot better shape. We've learned a lot from what we saw then too, But we're front of mind now to so many people outside our general industry, whether it's us looking for our packages, what's on the store shelves, or just the general consciousness about how this port, supply chain and trade business impacts economies and jobs around the world. What we see in Los Angeles is that there are a couple things happening
right now. The stability of that labor contract has given us about a four percentage point boost in market share, So some of that cargo that we lost during the protracted negotiations has started to come back, not all of it,
much more work to do, but good trajectory now. With the Panama Canal suffering drought and the concerns of safety in the Middle East with respect to the Hohothy going after the ships and the cargo and oil tankers, you're starting to see more cargo shifted our way, not services being collapsed, not new vessels coming in, but higher levels of capacity and utilization, and importers and exporter are saying, I may not want to take that much time, but
the bigger difference is the gap between cargo that's moving east and Gulf Coast versus the West Coast is wider from a freight cost perspective. That's important because we're right now in the middle of our annual contracting season for freight.
All right, so you're again right on the Port of Los Angeles on the West coast. You probably have the best of you of anybody. What's it like now, what's your expectation for that important route of trade coming from China to your port?
Paul, It's still our most dominant trading partner. Fifty three percent of Port of Los Angeles business is with China.
Now.
That's down from fifty seven percent at the end of year twenty twenty two, and it may drop into the mid forties as many supply chain executives are continuing with their China plus one strategy, looking at other locations to source and produce goods in. But still forty five fifty years of supply chain relationships exist. You don't tear that apart overnight.
Just the other day, the White House said that they were concerned that more than two hundred ship to shore cranes at US ports are manufactured by China and can be serviced and programmed remotely, creating a cybersecurity vulnerability. What did you make of those comments. How legitimate are the White House's concerns.
It's also very important to us. The Port of Los Angeles, Emily was the first in the nation to create a cyber security operations center back in twenty fourteen with the help of the Department of Homeland Security. Today that system is stopping more than sixty million cyber intrusion attempts per month. It also gave us awareness to create a cyber resilient center. Also one of the first in the world to bring
in the private sector partners with us. That co helped with the IBM folks has now stopped to have a dozen cyber intrusion attempts to private sector interests that they were otherwise unaware of. This work must continue.
So is your business, I mean it's a GDP business? Is that how you kind of plan it out here? And so do you get a sense of are your customers are they telling you? What are they telling me about their sense of the economy?
Broadly speaking, most are upbeat. Seventy percent of our GDP is tied to you and me buying goods.
Now.
Although the consumer purchasing was down a little bit in January, it was not unexpected. Great sales for the holiday season nearly a trillion dollars, up three point eight percent last year. There was going to be a little bit of a lull in January, but the forward look is strong. The Atlanta Fed is currently estimating first quarter GDP around two point nine percent, healthier than some it expected, and fourth quarter GDP came in beyond expectations.
Again.
What we see in the forward look is an order cycle that runs about six months ahead of when we actually buy things in the store online. That inventory flow is a leading economic indicator. Appears good.
So Geene, I'm the captain of this big monstership. I got my containers all over the place. At how they don't fall off? I have no idea. I come into your port. How long am I there before I get back on my way.
I look at these vital statistics as I call of Paul every morning, and we're at or better than when we were pre COVID. The largest ships that come into the port of Los Angeles average twelve thousand containers on and off, best in the industry. Every call four and a half days is the amount of time a ship is in port working. That's right where it should be.
Our thanks to Gene Soroka, executive director of the Port of Los Angeles. Coming up on the program, we'll discuss why President Biden's electric vehicle dreams are making life more difficult for US car makers.
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We take a look next at the home improvement retailer home Depot. This week, the company reported revenue that dropped for a fifth consecutive quarter. For More, co host Belly Lipscholtz and I spoke with Drew Redding, Bloomberg Intelligence US homebuilding analyst. I first asked for his take on Home Depot's earnings.
Sure, so the three and a half percent decline in seamstore sales was pretty much free in line with what was expected. You have to keep in mind though, coming into the court the bar was pretty low for home depot. They continue to face the consumers who are pulling back in big ticket discretionary categories to think things like flooring, cabinets, countertops. Conversely, they're seeing rele of strength and some of the smaller scale projects, so there's big ticket projects are being deferred.
We do think eventually they get completed, but that may be more of a twenty twenty five story. But coming into this quarter, the real debate was around how twenty twenty four was going to shape up. So they offered guidance suggesting that same store sales would fall about one percent, and given what we heard from a handful of their suppliers over the last couple of weeks, which we're calling for a flat market, I think people it called people
a little bit off guard, ourselves included. We do think that the first half is going to be comparatively weaker than the second half as rates start to pull back, and we think you could maybe get a little bit bit of a boost from the housing market.
Drew this may be a dumb question, but when I look at some of the consumer data that we've been seeing, we are seeing a rising ninety day credit card delinquencies. How do things like that? What does the normal spender at home depot look like? You're mentioning kind of a pullback on some of those bigger projects. What kind of demographic does home depot really see in terms of driving sales and kind of putting those numbers together.
Yeah, so about eighty percent of home depots customers or current homeowners, they typically have higher incomes, so they are higher spenders and they're a little bit more resilient of a customer. I think where we're seeing the relative weakness is in some of the low end spending, which has kind of gone away on the DIY side. But you know, if we look big picture, what's happening in the home improvement market is we're seeing a reversion to more typical
spending pattern. So if you think back to the pandemic, we had the share of PCEE that went towards household durables was at an all time record, and we've seen that moderate since really the first half of twenty twenty three. So we think that there's a bit more of a reversion that needs to take place or the remainder of this year, which is going to keep total industry sales muted. You know, But you talked about the consumer, you also have the consumer out there who's battling with the cumulative
impact of massive inflation over the last couple of years. So, you know, while we look at that head headline number and we see that it's moderating, it's really the cumulative impact that's kind of pressuring spending in the category.
Hey, Drew, what's the what do you think is a normalized top line growth rate for like a home depot. I'm looking you know, pre pandemic was kind of mid single digit grower, then of course exploded, you know during the pandemic with some you know, big double digit gains. What do you kind of model out here for top line growth?
Yeah, I think I think in a normalized environment, which we think we get back to in twenty twenty five, is probably in the three to four percent range as a baseline. You know, there's a couple of industry factors that we think will support that. Like I mentioned, we think as rates start to moderate, perhaps as we get through this year, we think that you could start to
see a boost from existing home sales. Remember, existing home sales are the lowest level more than twenty five years, and we know that people who move spend about twice as much on remodeling as those who don't. So while we don't see total housing turnover returning to you know, kind of that five and a half level anytime soon, we do think the fact that the have been so depressed does serve as a tail and as we move
through the year. At the same time, you know, we've had over forty percent increases in home prices since the pandemic, so homeowtor's equity right now is at all time tighes. The average home has about three hundred thousand dollars in equity, So we think that's a source of pen of demand for big ticket projects that once again as rates start to moderate, people will get more comfortable with tapping that equity.
And drew With that in mind, you mentioned some of those big purchases, bigger projects. How much of that was pulled forward though during the pandemic when people were buying homes, we saw a booming market around the US, and it did seem like cash being relatively free with the surplus spending and stimulus checks that people were putting money into home improvement.
Yeah, great question, and I think that goes back to the share of personal consumption that was spent on home improvement. It was a lot of that stimulus money that was out there for everybody. In terms of the big ticket project, we think more of the pull forward was probably done in the DIY segment. That's really where you saw the boom early in the pandemic. That being said, we have seen contractor backlogs over the last couple of years be
elevated compared to more traditional levels. So to some extent it has been in both the DIY and big ticket category. But we do think that the big ticket categories where we're likely to see more growth for home depot as they go after the professional contractor, as they leverage you know, the age investments consumers are making because of the age of the housing stock that penep equity they have in their home.
Our thanks to Drew Reading Bloomberg Intelligence US Home Building Analyst, we move next to the auto industry. Recently, President Biden has been using his multi billion dollar Inflation Reduction Act to try and create a more US centric electric vehicle supply chain. One of the goals is to reduce China's influence over global metals markets, but US actions have only made life more difficult for its carmakers.
From more On this.
Co host Billy Lipscholtz and I were joined by Craig Trudell, Bloomberg Global Autos editor. He co wrote the Big Take column Biden's EV dream are a nightmare for Tesla and the US car industry. We first asked Craig for some context on what's happening.
I think this is a really challenging thing that the Biden administration was trying to do right, they were trying to jump start the EV industry in the US. I would say, you know, you can give them high marks for what they've done in terms of the amount of manufacturing investment they've attracted. It's it's really been remarkable the
response that we've seen there. On the other side of the equation, the demand side, I think, you know, the marks are way more mixed, and I think, you know, the challenges that we're going to see in the years to come, you know, assuming, of course, Ira, you know, stands up. If we see a change in the White
House later this year. But whether or not manufacturers can sort of pull off what Biden you know, is asking of them, which is to really set up a EV and battery supply chain that is less reliant on China, and it eventually is just not reliant on China. And that's proven to be an extremely difficult task. And that's what we try to lay out today in ways that are you know, really it's a it's a complicated issue.
You know, Tesla everyone thinks about, as you know, being a very sort of made in America car brand, and and you know, they sort of are recognized as one legitimately. But you know, when given the opportunity to import batteries because of the fact that the IRA you know, didn't really necessarily grow some teeth until the beginning of this year, we saw, you know, just in a matter of months, Tesla import two and a half billion dollars worth of EV batteries from China.
Wow, and Craig, that's happening because it feels like every time we talk about GM for Tesla, a lot of these companies are losing money making their evs. So what was the point of the IRA if not to kind of streamline. I guess the kind of inputs of of these batteries.
I think what you have here is a situation where you know, Joe Mansion was you know, the player who Washington really just had to sort of bend to his will, and he was really reluctant to you know, allow for
electric vehicles to continue to get tax credits. He was opposed to them, and he said, okay, industry, well we'll give you these tax credits, but you build me as a supply chain that of course, you know, sort of didn't take into account sort of you know the complexities of the supply chain and the fact that China is just so dominant in this space and they've really sort of, you know, methodically, you know, for a time quietly, you know,
built this, you know, staggeringly strong position in terms of you know, the control of you know, the inputs, whether it's you know, nickel and lithium graphite. You know, these inputs are going to be really really difficult to source, not only just you know, whether their mind in China, but whether they're sort of processed and refined, and you know the sort of cost difference that that the West is going to have to sort of overcome really just can't be you know, sort of overstated at.
This And folks, if you want to see this article, it's fantastic article. Really deeply reporting great graphics makes it easy for me because I like the pictures. Bloomberg dot Com slash a big take is kind of where you find it.
Big team effort.
So you know, Craig, I see in your reporting here. In twenty twenty three, the IRA required that at least half of the value of battery components had to be assembled in North America and that forty percent of a raw materials had to be sourced from the US, And in twenty twenty seven, that raw material requirement is going to double to eighty percent. Those numbers can they be achieved in that timeframe?
I think that's one of the things that you know, it sort of depends on which company you ask, And I think, you know, some of the concerns that the industry is having here is the fact that some of these raw materials the prices have really collapsed, and that you would sort of think, oh, that's a good thing for the auto companies, But if you're trying to build a supply chain in North America for these raw materials and the prices for them have absolutely, you know, sort
of the bottom has come out. Think of lithium in particular, You've seen this dramatic drop in prices that significantly undermines the economics of those projects. And so I think the raw materials in particular are a real challenge. I think battery components will be less of a challenge, but even there it is a matter of you can't just sort of snap your fingers and open up a bunch of
plants for these various components. It does take time, you know, to dig up the ground and put up these plants that are coming but are taking some time.
And graig across the auto makers. I'm looking at the reporting again, seven of Tesla's twelve models sold in the US fully cleared the IRAS sourcing hurdles and qualified for the tax credit. What percentage of evs being sold in the US are clearing that hurdle?
I think, because Tesla is still so dominant in the US, we're at a point where, you know, the evs that do the most volume are largely qualified at the moment. But I think the fact that those raw material requirements that kick in next year and then escalate in the years that follow. That's really where we're going to see even more of a sort of level of screws put on the industry. But I think, you know, the other carmaker that I think is particularly well positioned, I would
just call out to General Motors. I think the fact that they have a localized supply chain four batteries, they have a joint venture with a Korean battery supplier. We're seeing, you know, more and more of those partnerships, you know, for the following suit. Stilantis, the maker of Jeep and Chrysler a similar deal where they're setting up battery plants
in North America and sort of on and on. But those projects, I would say are much further behind where we have Tesla, which you know for years has been making batteries out Nevada with Panasonic, and GM, which has a partnership with LG.
In us our Thanks to Craig Trudell, Blueborg Global Autos Editor. That's this week's edition of Bloomberg Intelligence on Bloomberg Radio, providing research and data on two thousand companies and one hundred and thirty industries. You can access Bloomberg Intelligence via Bigo on the terminal.
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