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All right, let's get back to Tesla for a second. Dig a little deeper here. Craig Tudel, Bloomberg Global Autos Editor, joins us, Now, so can you play this out over the last like three days? So elon, Musk jumps on a plane, he goes to China. Then what happens?
Yeah, good morning. It has been a WorldWind a couple of days, a few weeks, I would say. Actually, so just to go back even slightly further. You know, Musk with the post to go to India a little more than a week ago and called off that trip said, you know, he had heavy obligations that Tesla is how he put it. You know, Tesla proceeds to release really
crumby for quarter earnings. But Musk kind of pulls a rabbit out of a hat in you know, announcing the change in strategy to get deeper vehicles to market faster, how exactly is going to do that is a little fuzzy, but the gist of it is to use existing manufacturing lines to make these new vehicles that could be ready as soon as the late this year or early next year.
In the process of making that pivot, he clearly needs to sort of, you know, get incremental revenue after you know, a first quarter where sales were really weak, they had the lowest revenue since early twenty twenty two levels. And in kind of one clear way that they could do that is by offering the system that they've marketed as full self driving in the US. Importantly, we should note it is not a self driving system, but they've market that hasn't stopped them for marketing it as for years now.
All Right, So Craig, let's focus on this weekend, which seems to be moving the stock today. Am I to understand that the getting the Chinese approval for this driver assistance was up in the air, like there's a risk that they wouldn't get it, and then Elon hops on a jet, flies over and saves the day.
Is that what happened?
Yeah, it wasn't necessarily the case that this was you know, kind of an overnight thing. Actually the last time that Musk was in China, this was something that we reported at the time was on the agenda. It's been something that Tesla has been after for quite some time, and it's increasingly a way that you know, carmakers are competing in China is you know, how advanced is your driver assistant system? You know, that keeps you from crashing, that keeps you in your lane, that allows you in some
cases to take your hands off the wheel. But in all cases you know you absolutely are responsible for or for you know, the car, and you know no companies are are taking responsibility legal responsibility if if you get
into a craft UH. You know, with the exception of of some you know, very small sort of limited fleets and and contained areas, and you know there are quirks as you might imagine, you know, buy market for what is required to be able to offer these systems that really need to be safe and also need to have you know, controls for UH data collection and and you know, the cameras used to navigate UH the surroundings that these
cars are going to need to to pilot around. And that's been a hang up for Tesla and other international companies that you know, they need to uh in you know, in all cases work with local Chinese companies for things like mapping and navigation. So one one of the key sort of you know takeaways from this trip was uh Tesla agreeing to do that with bay Do in China.
So who owns the stuff.
It is importantly you know, it's a matter of ownership and where it's kept. And so you know, this has
come up years ago. Actually, you know, Tesla had had a bit of a hang up where their cars were banned from you know, being in the area of military compounds and other sort of sensitive parts of kinda out of concerns about you know, any information that cars were gathering, and you know, there were concerns about whether any data was going from Tesla's China operations back to the US, and so Tesla needed to sort of reassert kinda that you know, any data collected in China will stay in China.
And so that has been you know, something that they've had to sort of acquiesce to as of you know, several years ago. But they they needed to still sort of you know, clear uh you know approval for for you know, making sure that their keys were crossed and eyes were dotted in that respect, and they needed this deal with BAYD. It does seem to be the case that they need other need to meet other conditions in
order for FSD to be offered in China. It's still not a done deal, but what you know, sort of hoops they still have to jump through are a bit unclear at this point. That's not stopping the market from getting very excited about this.
So how does this change, if at all, kind of the competitive landscape for Tesla in China? I know, you guys, you you guys have been reporting a lot of how some of the local EV makers have really become very good and very competitive.
Yeah, I think it absolutely is something that's been missing for Tesla that, assuming all goes well here, you know, it will no longer be a sort of strike against them among consumers who really, you know, want the most cutting edge technology. It remains to be seen how big a deal it will be or Tesla from from a revenue standpoint, because we don't know at this point how much Tesla will be willing, uh will be looking to
charge for it. We don't know, uh, you know, to what extent they may have to share some revenue with some of their partners. It's not clear whether by Do maybe gets a cut. You know, in the US, Tesla and you know throughout the world, Tesla has made a point to really be you know, want to be vertically integrated.
Uh.
And that's you know, fancy talk for in control of its own destiny. Uh. They were willing to sort of acquiesce in this case. Uh, you know, I think because they they really could use this boost in China at a at a time when their their lineup is getting a bit tired and they're losing a lot of market share to companies like byd Well.
This also raises the question too, it doesn't take a lot of news to get Tesla stock moving. Not that a trip to China wasn't a big deal, but like you said, there's so many questions as to the actual revenue driver and what it's going to mean. I mean, you have to wonder, you know, it's not going to take a lot for any kind of shorts Craig to cover.
I think that's right. And this is also a name that you know, options traders absolutely love. It's it's sort of like the meme stock that has lasted as a meme stock as that craze has sort of faded away, and so you know, anytime to your point, you know, Musk is able to sort of get the momentum with you know, the narrative, it tends to lead to big swings. So you know, earlier this year, I think he lost
control of that narrative. And you know it's not it's not at all a mystery as to why that is, you know, looking at last week's earnings, but I think he was really able to sort of change what people were talking about last week. If it, I guess, you know, it will see whether or not you know, this is uh mostly talk as opposed to you know, going to to lead to real, sort of meaningful change in Tesla's earnings trajectory, which has not been trending in the right direction.
All right, Craig, thanks so much. We appreciate it.
Craig Tudell, Global autos editor for Bloomberg News, joining us from London.
You know, I follow it.
Bloomberg's own ed Ludlow on social media, and of course he just got a new testa and I think he uses that autonomous driving features that it has, so he's been reporting today for example, our boy Ed, who lives in San Francisco. His full commute about twenty five miles, three disengagements, but ninety percent of the drive was under their FSD in all smooth. His FSD made it all the way to the Golden Gate Bridge, but then had some problems about deciding which lane it wanted to choose, so Ed had.
To step in there.
But by and large, that's reporting this on a daily basis. He's putting his life on the line for his primary reporting duties.
He's the best.
It looks like it's working.
I guess is the question just becomes like how much you want to pay for it? Like, I mean, sure it'd be great, but is the average person, not just the tech reporter in San Francisco who are also anchors in tech show, like well, the average person spend eight grand a year for it or one hundred bucks a month.
I don't know. I mean that kind of goes to the bigger issue of car here.
I mean, you know, it remains to be seen for Tesla investors, you know, is it tough to make? Can they make a profit at a thirty thousand the price limit? There's a lot of concern that.
They won't be able to do that.
But again Elon put out some good talk on the earnings call, trying to masking over what was a week quarter and then of course going over and had this great successful event here in China.
The last forty eight hours.
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You got the SMP up about four tenths of one percent. But it's a really busy week between Eco, jobs data, the FED and then earnings as well. So you want to break down what is going to actually move the markets. Margie Pateel, senior portfolio manager at all Spring Global Investments that joins us now, So I know you're going to say all of the stuff, but let's just pin you down. So is it going to be Apple and Amazon and
all the companies reporting. Is it going to be the FED or is it going to be the jobs data?
Oh, I think the job will be more important because frankly, what the FED has done or not done, hasn't really had much of effect on the market either way. When they talked about three cups this year, the market was a little interested in. When the market is now saying, well, maybe they'll even race rates, it hasn't really affected the market.
The market's been hooping at earnings. That's what's important. Inflation has not been a negative issue for companies, So I think it's more of the same at looking at data that shows the strength of the economy, like the jobs data.
So are you concerned that this FED maybe maybe get a little bit reticent here about that FED pivot we had in December, and that maybe they went a little bit too far, and maybe they'll try to compensate here this week and may talk a little bit more hawkish than the market's discounting.
Well, you know that they're seems to have swung a lot more than their actual actions, and the actions that they've made, even raising rates for the last two years, didn't really derail the market.
The market really has proven to be not.
So sensitive to short changes in short term interest rates as we've seen in past cycles.
So I think the and particularly short rates, I think again.
Corporate America is pretty much immune to the Fed's decisions. They're not overlevered. So really, I HDA doesn't matter, but it really doesn't matter. And I think inflation at say three and a half percent is really a benign backdrop for corporate earnings, allowing companies to have the ability to raise prices a little bit and keeping those high margins. I think that's what the market's looking at, rather than what the FED is doing or thinking about.
In that case, what are we going to learn from earnings this week? In that you're at a date, you got energy and financials are number two in three in terms of sector is best performing on the S and P Communication services number one, But you could argue that it's a meta an alphabet thing and tech comes in at number four. Is it going to be cyclical leadership? Will that actually happen when their earnings deliver?
Well, I think all those sectors that you said are economically sensitive, and so they have all.
Reflected, frankly, a better economy. Last week's earnings were better.
Than the market expected, and we'll see this week if again we have better than expected. I expect that we will, and so I think that that's really what the market's telegraphing.
When you have those sectors that.
Are sensitive, even financials energy, that says to me that the market is not worried about economic growth.
It's looking at price and power or a little bit of inflation.
Right now, we're speaking with margattele portfolio manager at all Spring a Global, and coming up in just a couple of moments, we're going to listen into a Bloomberg television interview with Lamborghini CEO Stefan Winkelman, and Matt Miller is not here to participate in that.
I know who's going to miss that.
So Markie, here, what are the sectors we should be looking at here as we think about the second half of this year, where are you guys most.
Of these.
Well, again, we think economically sensitive sectors are going to do better for the year, so that would be technology.
Certainly, it's been a volable sector, but we still.
Think there are plenty of very competitive companies who are not priced too high that will perform better than the market. We also like industrials because we do think there's a capital expenditure cycle and expansion of manufacturing and investment by companies that were very positive. Some of the materials in fact, we think will benefit and energy, which has rather been overlooked.
Healthcare has been more a company come group of companies that's reacted to the down draft after COVID and the drawing up of money to be spent on tools and devices by log of.
The new companies.
So we think healthcare is attractive still, but very selective because some companies, say Lily for example.
Have a wonderful product.
Some of the tools and devices companies have had disappointing earnings because of destroyer and funding and also because of dramatic luring of China sales.
Margie, you didn't mention tech, and so I assume that if you don't own tech right now, it's hard to buy it at these levels. But how big of a part should that be of your portfolio?
Well, really, when you look at technology, there are first of all, many companies now pay competitive dividends, which I didn't used to do. And if you look at their price earnings ratio versus some sort of estimate of future growth, and then you look at other sectors price.
Earnings ratio estimates of growth, it always.
Seems to me that tech may be a little bit expensive on a price earnings ratio, but much higher sustainable prospects of growth. When you look at some sectors that are priced almost as high as tech, say consumered staples. Really, I just don't see the growth there. I don't see the pricing power there in an uncertain world. Just as to me, technology use is fairly valued and it will really depend on earnings, and so I think it'll continue to do better.
Right, market Ptel, thank you so much. We appreciate that.
Market Ptel's senior portfolio manager at all Spring Global Investments joining us via zoom Hearing.
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Let's go to Apple for a second. So that's not is actually up by about three percent to get an upgrade over at Bernstein. It sees Bernstein apparently sees China issues as cyclical, but the broader headline was that the European Union took aim at Apple's iPad. It's been hit by its digital dominance corrack down. I don't really know what that means, but luckily Anna Igrana does. He's Bloomberg
Intelligence technology analyst. He joins us. Now on a rock, what does that mean that the EU's digital dominant crackdown hits the iPad.
Yeah, it's to be very honest, it's not much, frankly, only because the EU wants to make sure that these ecosystems or the operating systems are open and allow third party apps and you know, the opening of the payment system, et cetera. Apple's already said they're going to do this for the iOS for the iPhone, so which is a bigger deal. And no, now they have to do this for the iPad operating system too, which they're going to
do anyway. I mean, it's not going to be a big deal again mathematically because as you know, iPad revenues are tiny compared to what they generate from the iPhone. So the services associated with iOS iPhone is far bigger than the services associated with iPads. So in our view, not a big deal. But you know, we we we follow whatever the news stays, all.
Right, an rag big big seven or eight days coming up here for Apple. Thursday they report their earnings and next Tuesday they have their I guess, so develop a developer conference on the seventh. Let's start with the earnings. What can they say or what does a market want to hear about China? About what type of headwinder it will be in for how long?
So if you hear the word China stabilizing good, if you say China's still bad, not good, that's it. I mean, there's there's not a whole lot other than.
That.
Those are the only two things you'd be looking for, because the AI stuff's not going to happen for another month or so. When they're when they do the developer conference back next day in June, the main event is about the iPads, the new iPad's coming out, which is again exciting, but again not a needle mover financially.
Yeah, I was gonna say, I'm okay, fine, what did you make of this Bernstein upgrade? So they upgraded the Apple target to apperform for market perform. They have an unchanged price target of one ninety five. But the reason behind it I found interesting. They said the China weakness. They see it as more cyclical than structural, and they say that overall Apple's business in China has been more volatile than the wider company and everything's kind of already
priced into that point. Do you agree with that based on your research?
See one of the things I would agree is yes, it is cyclical. But one of the things I don't know is how far is the bottom for these you know, do you know we're going to see a double digit decline in China?
That's going to happen now.
I do not know.
Whether next year we're going to see the same thing or not, because you know, what is going to drive that iPhone cycle in China if things are still weak, if consumers still weak, and Jami is still giving them a hard time. So I think it's tough to time when this thing is. But I do believe that Apple's a premiere brand and people are not getting rid of
it to the sake of something else. The Jamie Phone just came out after a very very, very very long break, and which is what doing I apologize Jaweve phone, not not Jami.
So we had Dan ives on earlier today on surveillance and those surprise books about AI and Apple's ability to capitalize on AI despite the fact that they really do not have any dedicated offering it.
It appears to most investors. How do you think about Apple and AI?
Will they at some point become an AI play for investors?
So I think the most important thing is when they announce in June. Is it going to be a tie up between them and Google again or are they going to license some technology from open ai or are they going to build something in house. I think the in house is probably the weakest at this point, because you know, if they would have had something, they would have already
talked about it. And the second thing is they're just pushing a lot of resources in the last six months and it's not easy to come up with those things. But I think I'll be I'll feel far more comfortable if they announced a deal with Google and say we're going to license some of Google's technology to build our own products or improve our products with that technology, because they already have a deal with them on the search
side of things. So that would make me more comfortable than them trying to push out some of their own stuff.
Would you categorize as Apple being behind AI or is this just what Apple does, like they let everyone else kind of front run a little bit. They see where the good and the bad are and then they kind of make their own decisions.
I would say almost everybody was caught off guard with open AI, and I you know, I would say Apple was behind.
So again, but if your Apple, you're not behind in very many things for a very long period of time, right, I mean, do you envision AI becoming a big part of the Apple story, because one could argue without it, it's a lot less attractive.
No, I completely agree with you. In this particular case. What could happen is, let's say you build a lot of the GENI features or search features within the actual iOS or you know, you were to ask CD that question that currently you go into an app and you input that information and then get it. But what if you were able to do it just on the operation system? And I think that's I mean, that has a powerful way of solving that problem. But again, you need to have their technology to do that.
What else do you What else is on your docket this week? What else is front and center for arag?
I think Amazon announcing tomorrow night is a very big deal. I think that's going to tell us whether Amazon's going to surprise us on the cloud side or not, because we've seen Google's done well Microsoft's done well, and if Amazon does not perform, it's going to raise all sorts of question if they're losing market share, if Google's ahead, if Microsoft already you know, showcasing its AI products. So I think it's really focuses on Amazon in my view, more than I honestly in Apple at this case.
All right, So I think the one of the questions here ANURAG is just technology in general, I mean, and it's all about AI. And the question I have is just how much of this incremental or how much is this AI spending, which is kind of people so excited about any company, does any expert AI? How much of that do you think is incremental from spending on AI for example, taking money just my IT budget.
This is the single most important question for this year, and for what we have seen, it's more of a transfer of budgets at this point because when you see your results from Accenture or IBM, you see consulting being really weak. So people are taking money from that pocket and putting it in you know, hardware or AI related hardware.
Now we think it's going to drive incremental spending. It is, I mean driving it, but at the expense of consulting, but we think it's going to come back, and it may come back next year.
That's interesting.
So it's like one big pot that's just kind of moving around and then how you wind up playing it. Is there any indication that Amazon's cloud won't be good in the same way that Google's was? Microsoft were well.
There are certain you know, you could see that he leaves. Is the way we want to think about it is Microsoft did well because it had its open AI relationship. Amazon does not have that. Amazon selling a lot of the nuts and bolts at this point, and it's really large in terms of size. It's the biggest cloud of fault. So maybe it takes them another two or three quarters to get that big push on AI and they are
still stuck in the old non AI technology. But I think that's really they have to come out and prove that they are a viable player, you know, in the current status. In the long run, I'm very certain that Amazon will get the benefits of a lot of incremental spending on AI.
All right, good stuff on a rog Rana. Thanks so much for joining us on a rag Roanic. He's a technology channels for Bloomberg Intelligence. Joining us from Chicago, so we get you know, we have Apple Thursday after the closes, Amazon like gu Tuesday after the close, So a couple other big prints coming out of technology. I would say some of the technology numbers have been good kind of
so far this quarter. So be up to these two big guys to continue, because it just feels like when you look at this market, if technology is not working for you, where does the market go?
Industrials and energy? I Like I mentioned earlier, like if you look at you're to date, it's communication services, then it's industrials and energy, then tech and the communication services as a Google and Amazon story at the end of the day. So you have to wonder can the cyclicals really take control? Which leads me to energy and the idea that how many energy stocks do you actually want to own? Or is it just going to be the big guys and the rest of them are going to be scrambling anyway.
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We want to talk to fixed income market coming up, but I'm just looking at the news. Boeing announced today they look to sell bonds after reporting a cash burn. They want to do about eight billion dollars of a deal here, and I just see another.
Bloomberg story coming across.
Just recently Boeing seas seventy seven billion dollars in demand for its six part bond sales. So even after that really tough quarter, it just shows you how strong the corporate bond market is and how much they're looking for bonds to invest in.
So that's a perfect time to bring in.
R J.
Gallows, senior portfolio manager fixed Income at Federated Hermes, joining us from Pittsburgh via Zoom. I'm sure a phone call went in from the underwriters into Federated Hermes for some Boeing bonds. But boy, Rj, it just shows the demand out there in the strength of the corporate bond market, doesn't it.
Yeah, corporates have done very well this year high yield, in particular on a total return basis. Issuance of IG has also have been very strong. I think the fact that the economy has proven to be much more resilient than many would have expected in the face of a bed funds rate between five and a quarter and five point fifty has underpinned strong demand for corporate credit. Risk
fundamentals are good, Earnings have been generally favorable. Obviously there's some concerns now is the FED is pushed back on the prospect of rate cuts, you know what's next. But the theme year to date has been resilience in the face of a tight FED and that has certainly underpinned strong demand for corporate credit.
So would you take credit risk or duration risk then, or I don't know, like both.
You know, it's funny that you say that. For our investment process, we sort of break things up into you know, sort of different components of a fixed income portfolio. We deliberate on duration, yield curve, and what we'll call credit or sector the allocation of a multisector portfolio across different portions of the bond market to include say, treasuries, investment of corporate's high yield, emerging markets, et cetera. And our playbook year to date has been one of somewhat low
conviction on the rates side. With respected duration, we're neutral at this point in time. We think that means that there's symmetric risks that yields could rise or fall from here. That's proven to be a fairly safe place to be. We're not adding alpha by being neutral, but we had been more constructive expecting yields to fall at the beginning of the year, and the simple resilience I was just
mentioning has made that not the case. With respect to credit risk, we've been a little up in quality into places like mortgages. We like the evaluation and mortgages better than we do and investment grade corporates. In high yield. We're somewhat underweight investment grade corporates and a little bit more underweight high yield. We own them, but we're below
the universal index in terms of our allocations. The corporate credit risk, in part because of the strong rally, has driven valuations to a place where we feel like there's not a lot of upside left from here. You know, that's not calling for panic or recession, but we think there's opportunities for spreads to widen on event risk or volatility, and we revisit those underweights in that timeframe.
All right, So I mean I could go, I mean, what should I do here? Should I go buy a two year treasury darned near five percent? Should I take that phone call from my city group salesman's trying to sell me some of this Boeing paper?
Here?
Do I take the credit risk? Just buy and large?
It's a it's a great question. The I think that it's important you think about acid allocation. To step back a little bit. Uh, there's a lot of question right now about where are equilibrium yields? What where is the Fed going to tell us in the next summary of economic projections? Where do they see the long run FED funds rate? Where is our star? And our star, you know, conceptually, should give some underpinning to bond investors in terms of expectations of where yields will be pulled to over an
economic cycle. When you don't have a lot of confidence about our star, it makes it a little bit harder tactically to say, yeah, the bond market looks real cheap right now, let's add duration, let's add interest rate risk to our portfolio. And you know, in that context, that's why being at neutral sort of dissatisfying as a bond investor. It's almost like you don't have a view on the market, but one thing we do have are some of the
highest yields in fifteen years. And I am one who believes that our star is probably not two and a half, it's not five either. I wouldn't be surprised that the Fed is increasingly going to be migrating your long run dot upwards. That suggests that yields won't probably go as low perspectively as they have in the past, say ten years, certainly outside of the context of crises like a pandemic. What does that mean to a bond investor, Well, it's just to me that the FED funds rate north of
five money market yields north of five. That's a good place to be for your very risk averse investor, but for someone with a little bit of a longer term horizon, the bond markets valuation, the level of yields has been restored to a point where you can add duration to your portfolio and take some more balanced investing as opposed to do I own cash or do I owned stocks.
Bonds are sort of back in the sense that they have a role in a diversified port folio because they have been reset higher and yield even if I don't know those yields will go down in the next three months.
It's such a good point, which leads me to the refunding announcement. So we're going to get the amount today and then where Treasury will issue on Wednesday, and then just hours later we'll get questions on will to Fed back off on quantitative tightening. What do you think the combined effect of all this is going to be.
Well?
I think the Yellen Treasury has been pretty careful. The amount that's being financed is near record proportions, I think, only surpassed by the depth of the pandemic and the borrowing that was going on at the time. As a result, they've relied a lot on the short end of the curve, with short yields being high and money market balance is being astronomically high. I think they're at a record there's plenty of demand at the short end of the curve.
I don't expect any sharp turns away from that strategy in the upcoming announcement. I do think the Fed's QT program, you know, we're getting closer and closer to the point the Fed is telegraph this where they're going to want to slow down the pace of balance sheet reduction, you know, slow down the pace of QT, I think, as it's come to be called, which is a rational thing to do.
As much as there's uncertainty about our star, there's also uncertainty about the right level of reserves in the system, and the FED doesn't want that uncertainty to sort of spill over into financing market pressures, which is what happened the last time they were trying to reduce their balance sheet.
So I think both parties, the Treasury and the FED, have been very careful about these these key variables, how much Treasury is borrowing and where on the curve, and how the Fed is going to alter their their balance sheet. I don't think either one of these is apt to be very market moving right now because of the sort of deliberation and the signaling that has gone on both from the Treasury and the Fed on both of those fronts are.
Chie I'm going to jump in front of Alex here. I know sure what they ask about this? How about municipal bonds?
How about segments?
Man, exactly, how do you think about muni's in this environment here?
Well, yeah, munis have The absolute yield argument has motivated many investors to buy bonds in general, certainly on the corporate bond side and also on the meuni bond side, investors have been putting money to work into SMAs. The mutual fund flows on the uni side are positive. They're
not huge, but they're they're meaningfully positive. I think the point I was making a few moments ago about relatively high yields and restoring fixed income as a component of your balanced in diversified investment strategy, it resonates with people, and you can see that in the behavior in the muni market. Interestingly, however, that that has meant that munis
have held up better on a year to day basis. So, for example, if you look at the Bloomberg Muni Bond index on a year to day basis, I'm getting updated number here, it's down one point seven percent in total return. At the start of the year, we expected that would be positive by now, so that's been a little bit of a setback, but that's still a lot higher than the Treasury index, which is down three point two percent, or the aggregate index, which is down three point also
three point two percent, just about the same. You know, why is that, well, munis have outperformed given that strong demand, and the MUNI market is underpinned right now by the fact that the value of the tax exemption goes up at today's higher yields relative to the last decade when
yields were much lower. So tax exempt income has helped to attract investors into them munity space who might not be so worried about whether yields are going up another thirty or fifty basis points or down thirty or fifty. They like the valuation in a longer term sense in the here and now, and the credit story is good.
Munie's credit story has been very, very fundamentally strong given the economic expansion and sort of the long tail of some of the fiscal transfers that went from federal to state and sort of bleed through the unique credit system. That's still very much a positive dynamic there as well.
All right, RJ, great overview as always, really appreciate getting some of your time.
R J.
Gallows, Senior portfolio manager over there at Federated herme C.
Municipal bonds can be cool.
Muni's cool UNI moment.
Cool thanks Joe, mysec very cool.
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I see, guys, this is my damn. The news from last week that I did find interesting, that I did key in on, is that a bunch of panel makers and polysilicon producers are trying to get tariffs increased for equipment coming from Southeast Asia. Basically, there's a lot of stuff. There's a lot of equipment coming on. Solar cells and modules are coming on, and that is lowering the price of those which are then hurting US companies. The problem is you kind of need all that stuff if you
want to greenify or decarbonize your economy quickly. So let's get to some of the analysis here joining us now as Paul Licenzo he is Bloomberg nif a senior associate, can we impose tariffs on the stuff we need to decarbonize quickly? Decarbonized quickly?
We should not, And the US has been doing it for a while, actually very quietly since twenty twelve, so it's not a new thing. And it's really made solar more expensive in the US and everywhere else in the world. So the difference is the US has very generous has had very generous subsidies for solar for a long time, and that upsets some of those higher input costs. But is it the most efficient way if you're trying to decarbonize quickly and grow sector quickly. Probably not. So what are we.
Talking about here?
The panels the more than the panels, What are we talking about.
Here, Yeah, we're talking mostly sales and panels.
So the panel gets the sun, converts it puts it into a where's it go from there?
Correct, it goes into an inverter, which is the brains of the system, and the inverter translates that direct current power that the panels produce into alternating current power, which is the one that we use.
Thank you for exp because I represent like ninety nine percent of our listeners, It's true.
Sorry about that.
Yeah, So what part of that would be taxed with.
The taroff the panels? But what typically those tariffs target are the cells, which is the sales is essentially what composes those panels. You stack them together and you assemble them, because the cells is really the true, the true technological component of the panel. The panel is just like cells
assembled basically. So what's what the US is trying or what some of these companies are trying to do, is impose a new set of tariffs on Like there's already tariffs on panels coming from Southeast Asia, and there will be new tariffs coming in June, but this would be an additional set of terrafts that they're trying to impose why.
Can't these companies, like a I don't know, First Solar or something make these panels themselves.
They do First Solar, so First Solar sits in a different league. First Solo has a different technologies. This we're talking about crystalin silicon technology. First Solo uses a different type of technology called thin film, and they fist. Sola has been producing their own panels for a long time, and they have really ambitious plans in the US.
But I guess that's the point, right, because they don't want the cheaper ones coming in and diluting what they're able to sell. So why can't I guess the better question I should have is why can't they make it for as cheap is the ones that Southeast Asia is selling for.
Yeah, the question is probably the answer is not going to surprise you. Just higher input costs, higher production costs, higher labor costs. You cannot really reach the same scale that you can in the Asian countries in the US. It's not just about the factory that you have that you where your assemble or making the cells or making
the panels. It's about all of the adjacent supply chain and China and some of these Asian countries, and by extent from being so closely to China, they are able to ramp up all of the adjacent supply that they need in a very efficient way. So typically those megabases in China have massive solar factories, and if you go across the road, that's where your aluminum prime supplier is going to be. If you go in a little bit further down the road, that's where your glass supplier is
going to be. So it works in and in coordination quite quite nicely, and that helps improve efficiencies and lower costs.
It doesn't seem high tech to me.
Why would I care if China is producing them other than if at any time they could stop producing them and screw us.
But I mean, because.
You're saying that there's no like cybersecurity or security measure for that.
Don't I just want the cheapest panel?
That's That's correct, And that's exactly what we've been trying to say for a long time. Solar manufacturing is a terrible business to be in. It's it's really fear compet compet Competition is really fears where typically go through all these swings of overcapacity, a bunch of bankruptcies and then new companies arise from from nowhere, and there's again over capacity. So there the IP and really that the technological know
how there is really not that difficult. And I really don't understand, we don't understand why you would want to throw so much money at building this industry in the US unless it's a geopolitical hedge, which is something that obviously begs a very different question and a very different set of analysis.
What kind of Let's say that these tariffs do go through, So this request could raise the prospect of tariffs as high as two hundred and seventy one point five percent later this year. Let's just pretend that that happens. Yeah, and I want to install a solar panel on my house in Massachusetts. What's that going to cost me?
Now, it's going to cost you a ton more money.
A ton I don't like a ton.
No, I mean, the two hundred and seventy one percent is very unrealistic. So what's happened Typically in these petitions, this is a little bit of the boring stuff. But what happens is what happens is they file this petition and then if the US agrees to investigate these companies or these they go, they try to they open their books to companies, they open their books and they have to prove that the amount of subsidies that they receive is not as high as what that country wide tariff
would look like. So typically they get a tear raise that is much lower than the two seventy one percent that you're referring to. And it can range from like thirty to fifty percent. It just really it just really depends. But the bottom line is if that were to happen, obviously imports from Southeast Asia would be completely ruled out in the US and that would really trigger for you know, would really trigger the renaissance of the US manufacturing industry.
But you would have to pay more for your panels.
Just real quick, thirty thirty seconds.
What percentage of our panels here in the US come from China today?
About from China?
Zero?
Okay, So the US has been singling out China for a long time. Southeast Asia more than eighty.
Percent in the more than eighty percent, And these tariffs are just for China or for all.
For Southeast Asia, for Vietnam, Malaysia, Thailand, and Cambodia, which represent that eighty percent number, that I just quote it.
Paul, Thanks Lott. This is really interesting stuff, and it's just that when you want to put a solar panel on your house, there's a lot more that goes into it, and if you want to sort of decarbonize quickly, why wouldn't you want the cheapest available. Paul to your point, all right, thanks a lot, really appreciate that. Paul as Kano joining us from Bloomberg n EF.
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