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On Today's Bloomberg Intelligence Show, we dig inside the big business stories impacting Wall Street and the global markets.
Each and every week we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries our analysts cover worldwide.
Today, we'll look at why Tesla's first quarter deliveries missed Wall Street expectations.
Let's we'll look at why things are looking up for the shipping company ups.
But first we begin with the Walt Disney Company. This week's shareholders handed CEO Bob Biger, a big vote of confidence at the company's annual meeting.
The shareholders rejected activist investor Nelson Peltz's bid for a board seat and elected all of Disney's choices for the board. Peltz's Tree On Fund Management holds a Disney stake both more than three and a half billion dollars and has been pushing for seats to address lagging shareholder returns.
Also, when the news, Paramount Global, the parent of CBS and MTV, is getting closer to a deal to merge with independent producer David Ellison's Skydance Media. For more and all of this, we were joined by Githa Rong and Nathan Bloomberg, intelligence analyst on media. We first asked Githa for her take on this week's news.
Definitely a huge sigh of relief for both Bob Biger and the management team. I mean, it would have been, I think a very very publicly embarrassing thing for him if Pelts had had won. So this is definitely I think gives them some something to cheer about, at least in the near term. So I think it's really business as usual, right. They had their work cut out for them.
They know exactly what they need to do, whether it's it's finding a proper good ESPN digital strategy, whether it's getting the streaming business to profits, and more importantly for the board, whether it's chalking out a really bullet proof succession plan this time around.
And on that succession plan, is the expectation getha that they will hire from within or will they try to make a big splash by hiring an outsider.
How do you think Disney would like to proceed?
Disney has always kind of looked within, Paul, and you know this well. I mean the last time that they went external was back in nineteen eighty four. That's when they hired you know, Michael Eisner, right, the Barry Diller protege. But after that, it's always been internal, right, whether it's Bob Bieger, I mean it was Barb Biger after that for almost fifteen years, and then of course you had Bob Japek for a couple of years, and then you know,
we have Bob Bieger two point zero back again. So they've always kind of had, you know more, they've always looked internal, and they do have four solid candidates, so all the division chiefs kind of emerge as potential successor candidates. It's just going to be up to how they groomed them. Is Barbiger going to do something very similar to what he did with you know, Tom's tags and Jay Rizzulo kind of have that coo position for somebody whom he's kind of looking to to elevate.
What's the time frame here, KEITHA for this, it.
Has to happen pretty quickly, Alex. I mean barb Biger's term, which was initially when he came back in November twenty twenty two, was supposed to be two years. They extended that out to four years, so we have until the end of twenty twenty six.
Yeah, and he's been known to extend extend extent. I mean, he could do that because most shareholders are like Bob Biger's better than anybody else out there, will stick with that. All right, So things seem to be settling down a little bit of stability. Returning to Mickey Mouse, how about a Paramount Global?
It's almost the opposite. Are they going to sell the.
Entire company parts of the company super voting stock?
What's going on there?
Yeah, So it looks like now they have or they've entered this period of exclusive talks with Skydance Media, and Skydance Media has kind of been this on again, off again interested party in the Paramount company, but of course they didn't want to come out with a bid for the entire company at least up until this point. They always kind of wanted to do it in a slightly different way by kind of taking control of the voting stock with through National Amusements and the red Stone family.
Now it looks like they're kind of going to engineer like a two step process where they first take control of National Amusements and then go about and merge sky Dance with the entire company with Paramount. So still, I mean, there's just more unknowns than knowns at this point. There seems to be some report out there suggesting that they would need to do an equity deal raise of at least three billion dollars. That's going to be really dilutive
for the current shareholders. Again, we don't know exactly how much Sherry Redstone is demanding for her voting stock. There are rumors out there suggesting it's upwards of about two to two and a half billion dollars. She also owns about close to almost a billion dollars in economic stake in Paramount. So again, too many unknowns right now, Paul, But you know, we do definitely have concrete talks. That much is for sure.
So is the Apollo thing like off the table, right, because that would be more of a piecemeal approach to Paramount, right, even though the cash deal was better.
So the Apollo thing was actually initially it was it was piecemeals. So, but they only was really interested in the film studio. They did not want the TV networks, They did not want the streaming asset. But it looks like when reports emerge about the Skydance deal, they said that Apollo actually had made a twenty six billion offer, an all cash deal for the entire company, which Sherry Redstone for some reason basically said note.
To So, what's the future. I mean, this is the Paramount studio, geeth that this is one of the prize jewels in Hollywood. I mean, what happens to this company? I mean, is it can remain a publicly traded company?
Is it going to be taken private?
I think the most likely out come at this point, Paul, is that it still very much remains a public company. You know, we know that David Ellison is really only interested in the studio portion of the business, and you're absolutely right. It's an iconic studio, there's no doubt about it. They have a very, very valuable studio lot right in the heart of la that's worth maybe upwards of one
point five two billion dollars. So obviously there's a lot of assets that he likes, but only with the studio business. So again the question is, yes, he can keep it a public company, but he might really kind of trim it down, try and find some buyers for the TV network, for probably the streaming platform, and just make this like a pure play kind of a film studio with production and licensing operations, very similar to what lions Gate is doing.
Our thanks to Githa Ranganath and Bloomberg Intelligence senior annals covering media.
Back in January, Bloomberg Intelligence came up with a list of fifty companies to watch in twenty twenty four, and now they're back with a list of ten companies specifically for the second quarter.
This is based on scenarios from our bi analysts who sort of threw the barrel to find the good apples across sectors and regions.
For more.
We were join by Tim craigkh Heat, Bloomberg Intelligence Research Director for Content. We first asked him to talk about the companies on this list.
A couple of things to keep in mind. We are top ten or two Q. These are part of a broader set of focus ideas that we've got. There's roughly seventy five to eighty of them right now, across sectors, across regions. These specifically have important catalysts coming up into Q that we think can bring the market around to
our perspective. All of these focus ideas have really strong, high conviction fundamental views that we think are different from the market, and these catalysts should bring that awareness around. It's a group of US companies. There's four of them, there's three in Europe, three in Asia, and they span the gamut from healthcare, medtech products to big financials to tires. So interesting group.
And Tim, one of the ones that you know, I've been kind of thinking about. I just think these Olympics in Parish are going to be just huge, and I'm thinking that ways to play it. You guys have one of them in the lodging space. Talk to us about that opportunity.
Yeah, we do at Core. It's a big French hotel company. You might not know Akor, but you probably know some of their underlying brands. And you know, anybody who's made a hotel booking as of late knows that the prices seem to be really high. Surprisingly, so that's feeding Akor's rev par they're pricing, which is playing through into profit margins. And the catalyst for these guys is, in fact, Paris Olympics. We should start to see early booking data over the
course of two Q heading into Summer Olympics. No, Paris is only one part of their portfolio. They're across Europe and Asia, and we're seeing a strong sustained travel recovery story that we think is better than consensus expects.
But apparently they have to like clean out the send.
Did you read that that there's so much to you, Like can you imagine being Olympic swimmer and like those garbage hitting you in the end. I mean they're working on it.
They're definitely working on it.
Okay, you your second one is in retail chow Tai fuk.
No one's going to know this company here in the US, So tell us about it and why this makes the outlook.
That and the next one on the list from an alphabetical perspective are both sort of interesting twists on the same underlying theme, and that's China. We all know that there's problems in China from the standpoint of the property market, and now that's playing through in terms of sentiment, the wealth effect on spending plans, et cetera. Chautai Fuk is arguably the best known Chinese retailer when it comes to jewelry, and it's a big market historically for tourists and travelers
coming into Hong Kong and to make those purchases. In fact, what we're seeing right now is Hong kongers are going out of Hong Kong across the border in the mainland China to shop for pretty much everything because it's cheaper. So you combine that with negative sentiment, we think Hong Kong retail sales are going to disappoint and Chautai Fuk
is a poster child. The other one, CSC Financial is one of the largest Chinese brokerages you know good old fashion, you know wealth management, and they are the investment banking business. We think is set for disappointment because IPOs and other new stock listings are way underwater. You know, we think you're going to see investment banking revenue disappoint You.
Know, I was looking through the list here, Tim, and I was looking for a name from Michael Dean and the European Autos team, and I think I found one in Perelli Tires.
Yes, indeed, I started to say, if you're an F one fan, but that's more from a European perspective than NASCAR in the US. But Perelli is a well known tire maker and what they're doing is twofold number one upgrading their mix.
They're getting rid.
Of some of their lower end products. And number two, they've taken on a pretty big initiative to shift production from core Europe to places like Romania over here in Mexico over there, all of which is driving better margins. And we think that this is going to continue more than what consensus currently he bakes in.
Plus, it's from one of my favorite analysts over in our London office, Gillian Davis, doing some good work there, so good stuff.
Home building Taylor Morrison made the list.
That's not normally the company you think of when you think of like a homebuilder, right you're thinking lenar KB homes, et cetera. How does one make a list.
They're continuing to expand, specifically in some larger developments in Florida and Texas, and it just seems to be a case of good old fashioned running the numbers with those expansion plans feeding through and their order book coming through better than anticipated, where we think their positive surprises ad but it is a classic story from the standpoint of expanding order books, expanding volumes.
You know one name that's on here that surprising, but I think it's a potential rule opportunity is Tencent talks about that big Chinese e commerce because for a lot of people, Tim as you well know, China's kind of taboot right now.
From an investment perspective.
It is, especially when it comes to technology and regulat where he concerns and you know, Beijing focusing in on you know what the big tech companies are doing. You know, historically these have ten cents driven by online gaming and that growth rate is still somewhat muted, but there's more video that's coming through. There's AI assisted advertising that is growing. Both of those are drivers of their income statement that
we think are underappreciated. We think it's mid team's growth going forward, but if you do the math, the market seems to be discounting basically static to maybe low single digit growth rates. And so there it's just a it's just a case where we think the market doesn't realize that they're back to having good, solid forward growth.
Our thanks to Tim Craik, he had Bloomberg Intelligence Research director for content.
All right, coming up, we're going to discuss with Tesla's first quarter delivery mis means for the EV space.
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We look next at the EVS space.
So this week Tesla reported first quarter vehicle deliveries it felt fourteen percent short of analyst expectations, and this also represented Tesla's first year over year decline and delivery since twenty twenty.
This comes to us to EV maker.
Rivian reported that it delivered more EV's last quarter than Wall Street expected. For more on all of this, we were joined by Steve Man, Global Autos and Industrials Research analysts. We first asked Steve what Tesla's miss means for the company going forward.
I mean, it's a bad time. You know, they just actually raise prices on their cars, puts in the question about that strategy. There's a lot of questions out there, you know, with you know, the end market, the consumer hesitating a bit on buying evs. So what's going to be for Tesla going forward? Definitely their one point million target sales target for the year is definitely at risk.
Do we know why?
Like, what's the why behind it? They're going to talk about production misses in terms of supply chain issues, et cetera. But then Ruvian kind of crushed it, So so what's the real reason here?
Yeah, they actually you know, TESTA attributed to the RESC hostilities, and you know that's that's partly right, because a lot of their Model three and Model why they're most the best selling vehicles actually come from China. And you know, you know, you would assume a lot of these vehicles are shipped through the Pacific Ocean, avoiding the Red Sea. But we'll give them benefit of the doubt that it had some impact. Maybe it's not necessarily the shipment of vehicles.
Maybe the shipment of parts right through the Red Sea that's impacted the production in China. And remember they actually cut some of the some production in China recently as well, so you know that could be the reason. But like you said, Rivian sales have gone up. You know, is there anything specific to Tesla? I don't. I don't really think so.
One.
You know, one quarter is not gonna tell us the trend for the long term. I think Tesla vehicles are still you know, liked by a lot of consumer. We just did a survey actually recently, a buying intention survey. You know, Tesla has the greatest rand loyalty still amongst all brands in the in the auto industry.
Yes, the big question on investors' minds is what is the real demand for evs in general?
And Tesla in particular.
Look in I guess the near and intermediate term.
Do you have a view on that.
Yeah, I mean I've always thought that not only Tesla, but the entire eating market is going through a rough patch this year and likely into the next year. My long term view is still optimistic about EV's. I think there's enough policies out there to push greener vehicles, more greener vehicles on the road. I think the issue today is aboutffordability. There's actually not enough affordable EV's out there for the masses currently. A lot of vehicles are expensive.
They're over fifty thousand dollars. A lot of people can buy them, especially during high interest rate environments.
That has been the rhetoric really for a bit, and Elon Musk seems to say, Okay, we're going to do the lower cost, but give us a second.
Right.
We had this wave of Model Y, Model three, et cetera, and now we're going to have another wave of.
More affordable EV's. Well, when does that wave happen.
A lot of it actually comes online at the end of twenty twenty five. Starts coming online at at the end of twenty twenty five. That's when you have a Model two. GM is also relaunching the more affordable Bolt. All of them are you know, thirty thousand or less. And then you have you know, GM will continue to roll out cheaper vehicles, and you have Rivian also launching the R two and R three, you know, in twenty twenty six and twenty twenty seven.
So it doesn't want a car Nambar two by the way, total side note, I mean everyone, but go ahead.
Yeah, but you know, a lot a lot of more affordable EV's coming in and the hope is that, you know, the addressable market for the EV, market for the EV industry expands as the cheaper cars come on the road and are available to consumers.
If I were an investor in this company, I'd be saying, Okay, you need to bring in a cheaper priced car for the mash market, but I'm not sure you can convince me that you could do it at a profit.
What's the expectation of.
Their ability to turn out lower price models on a per unit profitable basis.
That That's a very good question. I think scale is the most important thing. I mean, this is a scale volume game in the auto industry has has been like that for one hundred years. So the question is are the cheaper vehicles going to resonate as you push more production through an assembly plant. In the auto industry, the unicost does fall significantly in a logarithmic kind of trend,
so we're hoping that it will cut. But specifically to Tesla, I would have also mention that they've done a really good job in vertically integrating their processes throughout the whole value chain, right, and that actually does cut costs, especially in newer tech like this. You know, if I look at over one hundred years ago, Henry Ford basically did
the same thing. You know, switching everybody from horse carriages to automobiles actually required vertical required Ford to be to vertically integrate and able to manage costs and manage design and be nimble and flexible to react to consumers.
Our thanks to Steve Man Global Autos and Industrial Research Jonalysts.
Earlier in the week, we were joined by Matt Winkler, Editor in chief Emeritus at Bloomberg News. He's also been writing a series of opinion pieces on key swing states in the US.
And that's latest piece. His research focused on Georgia. His economy has been booming over the last few decades. We began our conversation with Matt by asking him to discuss his findings in Georgia.
Georgia population of more than eleven million makes it the eighth largest state, and it's booming right now like it never did before Joe Biden became the forty sixth president. And we know this because not since data was initially collected in nineteen ninety has there been a three year period when growth in the Peach States manufacturing payrolls came close to matching the eleven point nine percent increase in jobs since twenty twenty one, or its rate of employment
gains compared with the US overall. And that's according to data compiled by Bloomberg. So we are seeing a man manufacturing boom, job boom in Georgia the likes of which Georgia has never seen. And by the way, this is counter to the trend in the twenty first century. Every presidency in the New century except Biden's has seen a decline in manufacturing jobs. So this is a departure.
So how much of that do you attribute to the Chips Act and the Inflation Reduction Act, Because something that gets lost in all this messaging is with the IRA for example, so much of that money is actually going to Red States because they have the space to build stuff.
Well, there's no question that actually Red states are a big beneficiary. But it's not just the American Rescue Act of twenty twenty one. It's also the Infrastructure Investment Jobs Act, the Chips and Science Act again, the Inflation Reduction Act, all of which have helped Biden make a legitimate claim, which is he created close to eight hundred thousand manufacturing
jobs since he took office. And we know this is not an idle boast because those very careful fact checkers called PolitiFact actually took a look at this claim and they showed that the nation's manufacturing rebound is the strongest at this point after a recession since nineteen fifty one.
Is Georgia per se doing anything right versus I mean, is this all just the largest of the federal government met or does Georgia have just better incentives better tax incentives?
Are they doing something maybe some other states aren't doing well.
Well, there's no question that some of the credit has to go to, as I said, these acts, because the investments include, for example, South Korea's Hanwa Solutions Corp. Expansion of solar panel and manufacturing. They were already there. They got incentives to do a lot more than what they were doing. The same thing with Hyundai with EV vehicles, they're already there doing more. And then there's this battery company from Norway, freyer Or Battery, which is going to
make clean battery manufacturing in Coueda County in Georgia. So those things are definitely tied to the incentives that come out of these acts. There's no question state and local officials have been supportive. But interestingly enough, the governor of Georgia voted against or would have voted against, the Inflation Reduction Act. All of the Republicans in Congress voted against the Inflation Reduction Act, which is a big part of why Georgia is doing well. But they're not ready to
give the money back. Of course, they're very happy that it's all happening.
We have seen with some of these acts that we get all excited about the money that's being spent, but then getting the shovel in the ground and actually doing the hiring in the manufacturing gets delayed a little bit and gets pushed out or the plans get scaled back a bit. Are we seeing any this in Georgia or is the outlook particularly rosy.
It's more of the latter, you know. And then again the proof of that is that if you look at the unemployment rate in Georgia, it actually declined most recently and is several percentage points, you know, less than the national average. So you know, unemployment in the US actually has ticked up a bit. In Georgia, it's gone the other way. And that's an example that the boom is very much underway and shows no signs of abating.
You know, you have to remind yourself, I mean, how the economy in the South has really changed from you know, agricultural textiles, you know, very low technology touch types of industries to now it seems like every new autoplant that you know, international automakers, they want to build them in the movie studios. So much investments going to the Southeast. And that's again been a twenty third thirty year story. What's next on your state?
Yeah?
What state is? Next year?
We'll probably get to Nevada. So we've done Pennsylvania, Michigan, now Georgia, and we're working through the list.
So if you were advising President Biden his campaign about the messaging here, what would you say in terms of because I would argue that the messaging has not been effective, that this message of economic success has not been told.
Well, I'd say, actually, their messaging has been pretty good. A lot of this data that we've compiled at Bloomberg is available in various announcements from either the White House or the Treasury. But the saying is, you know, you can lead a horse to water, but you can't get the horse to drink. The horse in this case is our profession, the media, and it's pretty much ignored what's in front of its nose, which are the facts. So unless reporters find this relevant, I do uh for it.
You know, they'd rather focus on polls, and so that's perception not reality.
Before we went on the area, you made a comment about California. How big is that economy now? Because I used to to me it was the seventh or y largest economy, it's number four.
It's now numbers and it's poised to overtake Germany. And that's because you know, you keep talking about the Magnificent seven on this show. Ye if you look at Corporate California. Corporate California just dwarfs Corporate Anywhere, dwarfs Corporate Texas. It dwarfs Corporate Germany. Corporate California is still a juggernaut. And you know who those companies are. But it's not just the big companies. It's big and small companies alike in the Russell three thousand that make California unique.
Our thanks to Matt Winkler, editor in Chief Emeritus at Bloomberg News.
Coming up on the program, we're going to take a look at the expanded partnership between UPS and the United States Postal Service.
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We turn now to the logistics industry.
UPS announced this week that it had been awarded a significant air cargo contract by the United States Postal Service. This comes after FedEx said its agreement to provide domestic transportation services for USPS we'll expire on September twenty ninth.
For more, we were joined by Lee Classical Bloomberg Intelligence senior Transport, Logistics and shipping analysts. We first asked Lee for his reaction to UPS becoming the primary air cargo provider for USPS.
This is somewhat of a surprise.
I think most people were expecting the FedEx would lose maybe about half of that business, but they ended up losing all of it. It's about one point seven to one point nine billion dollars in revenue, makes up roughly around four to five percent of their express business, maybe two percent of their total business.
So it's a.
Big loss for fed X. And you know, while FedEx is losing, UPS is gaining. What's great about this is maybe not so much the revenue and the yields that it provides. It's the stability of the freight that it's going to be getting into its network, And when you
have any sort of freight network, you want equilibrium. You want to be able to predict what you're going to need in terms of resources, and this provides a good level set of predictability for them and they can build density onto these routes where the US Postal Service will be leveraging.
Why is the Postal Service making the switch?
That's a great question. They were negotiating with fed X.
I guess the two parties couldn't come to a conclusion in terms of an agreement, so therefore they just decided to part ways. You know, one would guess that this is maybe not the most high margin business for whether it's UPS or FedEx. But again, I think there is a benefit to having this because it does create a lot of density in their network.
Let me ask a silly question.
When I'm looking to mail package, the United States Postal Service does not even come into my mindset? Oh god, no, no, who still uses the US Postal Service versus FedEx? Or or you know a UPS store that's right next to the Starbucks in town. I can go, you know, get my cafe mocha there.
I'm not going to the post office. Who uses a post office these days.
I mean I do. I guess I'm you do, but I do sometimes. But but the reality is the postal service.
You know, obviously you were not sending letters to Grandma anymore.
But you know what we are doing is we're.
Ordering stuff online and the US Postal Service provides a lot of the final mile delivery. So you might be ordering from a department store or a dot com etailer, and you know, they might be using UPS and FedEx for the line haul, but they might be leveraging the postal service for that final mile deliver because the postal service at the end of the day has to go to everyone's address, and it's a cheap way to do it.
And as more and more people are willing maybe don't need that T shirt overnight, you can wait a couple of days, you know, injecting that freight into the postal service that makes sense. And Amazon's is a big user of that final mile delivery as well.
My daughter does send letters to her grandmother. I'm just putting that.
Out there on the flip side, and I should point out they mentioned the margin part of it. So we talked to the UPS CEO last week on television and their whole pitch is that going forward, they want to focus on margin and pricing over volume. Does this fit into that strategy?
Yes and no, so yes, because so what they're going to be focusing on are verticals like small to mid size shippers, and those shippers come with very high margins relative to you know, large enterprise companies that are out there, so they're going to be really focused on that type of business. But you know what the volumes from the postal service brings is a level of density that you can leverage because it's all about operational.
Leverage, right.
You know, no matter what you are in transportation, operational leverage is pretty high. Because you add like one more piece of freight, that piece of freight tends to have higher margins than the first twenty pieces of freight. And so what this will do is this will probably help them provide a base level of cost coverage and you know what a profitable cost coverage at that and then all these additional volumes that they're getting from higher margin
might even carry higher incremental margins for ups. So long term, it could have a very positive impact on margins. Near term, it might have a negative mixshift, if you will, but you know, we think that it.
Does make sense for them to take this volume.
Other verticals also that they talked about during their analyst day, or the healthcare vertical, which tends to be highly profitable just because of the high touch nature and the high service level of that freight that goes through their network.
So Lee looking at the air freight companies to the FedEx toups, how is business?
How are volumes these days?
Are they kind of peeled off from the pandemic or how is volume?
Yeah, so you know, we're coming off those highs that we reached during the pandemic when everyone was sitting at home and ordering toilet paper online or at least trying to get some toilet paper online.
You know, we're back to a more normalized level.
You know, the reality is what the pandemic has done, is it really increased that e commerce penetration. Kind of brought the penetration forward by three to five years, which is.
A net positive.
But you know, we have to go back to this quote unquote normalization process, which feels like a negative, but it's really not. Because once we get this space, which I think we're building right now, you know, we should see positive growth from.
Here on out O thanks to Lee Klaska, a Bloomberg Intelligence senior Transport, Logistics and shipping analysts.
This week we took a look at the Big Take story Huber's at Hurts doomed its massive bet on one hundred thousand Teslas. It's about how two finance veterans bought Hertz out of bankruptcy to save it.
The Big Take piece takes an inside look at how their big idea to go all in on EV's and Tesla went wrong in almost every way. We were joined by Eric Shasker, Bloomberg New Economy editorial director, who co wrote the Big Take piece, and we first asked Eric for some context.
The experience of a Tesla owner is very different from the experience of a Tesla renter, and going into this big bet on one hundred thousand Tesla's they placed in order for one hundred thousand Teslas. In fact, back in twenty twenty one, the new owners at Hurtz didn't appreciate that there were no data to be fair on what it was like for our rental car company to have
evs in the fleet, because none did. Hertz was going to be the first, and so they did look at the data how to Tesla's perform when they're owned by individuals, And generally speaking, Tesla's perform well. They don't require a lot of maintenance. Obviously, refueling the car, so to speak, is a matter of plugging it in. But if it's your Tesla, it probably sits in your garage, or it sits in your driveway, or maybe if you live in a city like New York, it's at a parking garage
and you've had a charger put in. That's all fine, and these people tend not to get into a lot of accidents, and they don't have range anxiety because they own the car, they made the decision to buy it. It's a totally different story when you get off of a Red Eye flight and stroll up to the Hertz counter and are told that no, I'm sorry, the car you reserved is not available, but we're giving you a Tesla. If you've never been behind the wheel of an EV it can be a terrifying experience.
You don't know.
You don't want to have to find a charger in the wild. You don't know what this instantaneous breaking is like.
Turn the car.
You don't realize that it has rocket like acceleration, and as a result, Hurts with its Tesla fleet, started running into all kinds of problems. They were crashing and it's very expensive to repair a Tesla. In many cases they have to be junked because insurance companies are worried about the damage that might have.
Occurred to the battery.
People didn't want to rent them, so the demand wasn't there, And then of course Elon Musk cut Tesla prices by thirty percent and kind of blew a hole into Hurts's balance sheet.
Economic mod How did Hurts get into this position, It's a good question.
This was a rental car company, the only major rental car company that went bankrupt in the early days of the pandemic.
I'm a gold circle member of Hurts. By the way, I just strolled right up to my car, John.
Some people have very good experiences with Hertz, including Paul Sweeney. Evidently, so Hurts went bankrupt. It was bought at a bankruptcy in June one by two professional investors.
Tom Wagner runs Nighthead Capital and.
Greg O'Hara is the founding partner at Satari's Management. They raised a billion and a half dollar fund. They wanted to find travel and leisure companies that had been crushed by the pandemic, but of course which in theory would soar once the economy reopened, and Hurts seemed like a great candidate. And actually that part of the thesis played
out perfectly once the economy reopened. In fact, before the economy reopened, when people realized getting into a car and driving somewhere doesn't put me at risk of COVID at all, demand for rentals went sky high, and so coming out of this acquisition from bankruptcy, Hurts was crushing it. But they had a transformational plan to turn it into a largely electrified rental car company, and that's where everything went
pear shaped. I talked about it, the demand, the damage, the price cuts, and we say it's a tale of hubris, because in many respects it is.
Of course, everything looks clear.
In hindsight, it did sound like an incredibly good idea of the time, and I think for the sake of the planet, it would be nice if you could electrify a rental car company and save you know, the environment from all the gasoline that gets poured into rental cars. But it just doesn't work in practice, and whether it's arrogance, whether it's hubris, whether it's blind optimism, it could be
a combination of all those three. These new owners, these professional investors, one who runs a hedge fund, the other who runs a private equity firm, thought that they had an answer for this industry that the industry itself had ignored for years.
And the truth of the matter is running any company in.
The industry is tough, right, requires some experience maybe, And.
The funny thing is, well, not for them, but is that they could be right just either a little earlier, a little late, depending on how you look at it.
Like you know, whenever we talk about it early right, it's the broken clock thing, right, broken clock is right two times a day.
And the case of being early.
I thought it was a great strategy when I first heard it. Just sound to hit so many buttons there. But I guess it kind of goes to the bigger question which we asked the auto industry have we seen peak interest in evs?
But this is why I found the article so interesting, because there were things that I didn't think about, in that they don't have dealerships, right, they don't have a relationship with dealerships. So like when my super retire gets, you know, messed up, I did just drive it in and then they fix it and then we drive out. Kind of thing.
You can't do that with a Tesla.
I never thought of that. For example, I never thought of how difficult it would be to all of a sudden get off a plane and go sit in a Tesla. It's weird enough getting in the morning to a Tesla and getting in the back seat. I can't imagine just being shoved into the front seat and having to drive it at the same time. And these little details I found to be very provocative.
Well, they are, as you say, something of an indication as to why demand for EV's right now is slowing.
Hurts.
You know, we can play on the fact that it even has yellows. Part of its logo was the canary in the coal mine for the EV industry. True what began to happen it hurts is what the rest of the industry is beginning to wake up to that all of the evs that are being cranked out right now may not have a natural buyer because people aren't enough chargers out there. People haven't gotten over this idea that it's a different driving experience.
People, as we all know.
Are very personal about their cars. Right, It's an extension of themselves. And you don't want your arm to feel like it doesn't belong on your body, and that's in some respects how people feel about getting behind the wheel of an.
EV all Right.
Thanks Eric Shasker, Bloomberg New Economy Editorial Director.
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