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Let's bring in Steve Man, Bloomberg Intelligence Global Autos and Industrials research analysts to recap Tesla earnings, help us look ahead for this company.
Steve record quarter vehicle sales.
Which we knew, but operating profit plunged forty percent, and we're now looking at a fourth straight quarters of following earnings and no real sign that that's going to turn around anytime soon either.
Yeah, it was quite a surprise. Given the volume of production.
You would think that, you know, the fixed costs absorption would be higher this quarter than in the past, but it didn't happen.
Looks like, you know, looks like.
The appreciation costs increase for them, looks like the tariff costs impact is greater than expected. And then even below the gross margin line, the R and D costs went out quite a bit. That you know, that could be viewed as a good thing, because that's the You know, that's a sign they're pivoting to you know, the ROBOTAXI, the FSD and you know the optimist robots.
And Elon Musk, I guess towards the end of the call, made a plea for investors to approve this one trillion dollar pay package. Quote this is from Elon. There needs to be enough voting control to give a strong influence, but not so much that I can't be fired if I go insane. Mister Musk said, how did that go over on the call here? And what's the thinking among investor community about what may be a one trillion dollar pay package?
Yeah, I'm not sure if money is important to him.
He does have a lot already, so I do believe that it's more about the control of the company. Look, Tesla doesn't have the dual class share like some of the tech companies have.
Uh, so there.
Is he he does have that fear of getting uh pushed out. And you know he had that experience right with the open Ai. You know, he's one of the initial investors uh in open Ai and he he got.
Pushed out, So he he does have the concern. Uh it is his baby.
Look, the stocks, you know, the other thing is that the stock hasn't reacted, you know, too negatively to the weak earnings that we saw in the last quarter. Right, there's there's a battle happening between the the the bulls and the bears, the long the long guys versus the near term uh investors.
And you know, there are a lot of people believe it.
Who believes that the you know, he can achieve you know, the the getting the Optimist robot up and running, uh, you know, getting art physical AI going.
So there's a lot of believers out there.
There's a lot of believers in you know, what the company actually reports, especially when it comes to his vehicle sales, almost doesn't matter based on this idea that Elon Musk will steered the company in the right direction eventually maybe because you know, the robotaxis, which are you know, in operation, but the self driving vehicles, the humanoid robots, those are going to take a couple of years.
To pan out. If that we don't have any details on it.
So in the.
Meantime, what is the growth driver for this company?
Well, you know, he definitely in the call, he you know, he doesn't talk about cars a lot anymore other than robotaxing and FSD.
He's very focused on physical AI. But at the end of the day, right, and I think.
That's why the stock is still down a little bit, is that, you know, they he needs to sell cars. He needs to continued to sell cars to actually generate the cash to support his endeavors. Now he has launched cheaper vehicles, it'll be better. It would have been better if he is offering even a cheaper model, like something under thirty thousand that you know he we talked about in the past. He is expanding overseas, right, he had you know, record sales in countries like Japan and South Korea.
Now he's going into India, big market, big market.
So you know, maybe you know cars is still going to be important.
I think a lot of you know, the other habited investor knows, and that's why the stock is down today.
One could argue that they should produce less cars, fewer cars. I mean, why produce something if you're not making money on it when in the end of the day, this is effectively one could say, just a holding company for R and D for the other businesses.
That's an interesting question.
I think, you know, if we step back and think about Tesla, it's almost when you listen to Elon Musk, it's almost like he's resetting the company to make it look like a startup.
Right.
But the big difference is, the big difference between now and ten years ago is that he has a huge cash generator which is selling cars. Right, So I think that's something and also on the both of the investor investor's mind on the bull side that hey, you know, we're investing on this company for the long term, this physical ai that nob is really doing uh to the
extent they are uh. And now the big difference is is that you know, there's very low risk of it going bankrupt like it did you know when he was starting the car business?
Yeah, it's far from a startup. Now you mentioned how Elon Musk, you know, spend some time talking about his pay package is one trillion dollar pay package which is over the long term and involves him meeting a lot of ambitious targets. ISS institutional shareholder services as well as glass lists. These proxy advisors have recommended that investors reject this payout.
Does that matter?
I mean, are their votes are binding in any way or is this going to end up in the courts and MUSC is going to get his way.
It does It does matter because you know a lot of the funds out there are are index funds, so uh so it does matter what they say, and that's why he needed to address that, uh in the call. But it's gonna be tight. I mean it's gonna be up in the air tight because there are a lot of individual investors as well, retail investors as well. Uh and you know those people are focused on you know, the hope three or five years from now.
Uh, they he will able to kind of meet those targets.
Have a viable optimist robot and a lot of robo taxis you know, running around its own across the country.
What is the what is Elon and the company saying about China both as an end market and as a competitor globally.
Yeah, China is uh is a challenging market. I think that a lot of the policy over there, I do favor the local automakers. Look, uh, the Tesla brand is still uh highly regarded over there, not just by the consumer, uh, but the you know, their competitors, the buy d s, the x punk right, a lot of those companies, you know when they're looking at autonomous vehicles, autonomous technology. They are benchmarking Tesla, so uh in Tesla, you know, I think is being nimble as well.
They launch the longer.
Version of model Y that works over there, because if you look at you know, the other formum kids like BMW, Mercedes, GM and and the likes, they have introduced extended version of their vehicles that they sold that they sell over there. Uh, and it resonates with the consumer there, So you know, it's they're they're still kind of work in progress over there.
They're watching the market is changing very rapidly. They're still and they're still waiting for official approval of the FSD, which I think it will resonate well with the consumers and it has so far from beta testers.
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Broadband Thank you, Internet Broadband. Company to report is T Mobile. So we got to bring in our own John Butler, who covers telecom companies for us to get us his analysis, John, what's the verdict her on T Mobile?
So the verdict her Scarlett is it was a little bit of a mixed quarter for them. If you look at what AT and T reported yesterday, the trendsit T Mobile really mirrored what we saw out of AT and T, which is subscriber growth was up, that was strong, and pardon me, but pricing was a little bit weak. And so that tells everyone it's a promotional environment right now. I think probably the iPhone seventeen had something to do with it. It's actually turning out to be a pretty
strong cycle for that upgrade. And of course when you go out to buy a new phone, people always think about switching carriers. So a boost switching activity, the carriers all promote to protect their base. And Verizon hasn't reported yet. Well we can talk about that a little bit more, but they have a new CEO, and so the grand concern in telecom Land right now is that the new CEO of Verizon, if they lose share to AT and TEAM and T Mobile, they're going to get their dukes
up and start to promote. For the first time in a while, and that's bad overall for the indus.
So what's the T Mobile marketing positioning right now for it within a very competitive wireless business, John.
So, good question, Paul. They are you know, for years they sort of leaned into this consumer friendly brand, you know, where the guys that were the uncarrier, that is their tagline, and you know, they've done a very good job promoting a very strong brand image. They're now a lot larger, and I think what they're doing is starting to lean a lot more in their network quality. They've done a great job over the past three to five years of
really upgrading that network. Since they bought Sprint. They got a ton of midvand spectrum, which is terrific for download speeds, and so they're laying in coverage with that and they're getting as that coverage expands, they're getting a great high capacity footprint, and so network performance has improved a lot, and I think they're leaning heavily into that now to promote the brand you mentioned.
Verizon has a new CEO. T Mobile also has a new CEO coming up soon. A CEO, Mike Sievert, is stepping down on November one, so in a week and the Ceooh, Sheney Goblin will take over. How is he going to put his mark on this company?
I'll tell you, Mike is a tough act to follow. People were all listening for any sort of a change in strategy this morning because Schreeney ran the call, which I think was wise. Mike Sievert was on the call as well, because he's still on that seat until November first, as you said, But Schareny ran the call, and I really didn't hear anything different from him. I think they've got a winning formula going right now, and I think
they're going to lean into that. One thing, Scarlett that you mentioned at the beginning in the intro is broad bay and I think that's an area where T Mobile has been lacking a little bit, specifically on the fiber side. And on the call they mentioned the potential for further M and A and I think if they were to buy any companies going forward, it would be in the realm of fiber broadband. So if Streeney does anything different, it'll be to step up M and A on the fiber front.
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Let's talk about airlines, because two more airlines just reported results, American Airlines Flying High and then LUV Southwest.
Do you know why the tickers LUV No?
I don't because initially there flew out of love Field in Dallas.
Makes sense, Yes, they are based there. Well, let's bring in our own George Ferguson. He is Bloomberg Intelligence aviation analysts, and of course he also covers the defense sector and the aerospace sector to give us a little more insight onto what he sees. American is different from Delta and United in that it is much more domestically focused, so we get a better read of how much people are spending to fly inside the US, whether it's for leisure travel or business travel.
Yeah, and so from American, you know, what we saw actually in the third quarter was pretty similar, to be honest, to what United showed us. And I'm talking about sort of yields price paid for mileflown by their customers. Americans very important domestic you know provider of travel, So you know, I would say that I wasn't super impressed with what I saw in three Q. I think the flying high is about all about what American is guiding to in
four Q, a sizeable bump. And you know, when we look at some of the domestic capacity trends for four Q, we see a market that's probably going to see seat growth of around one and a half percent or so, which seems for the first time in a while, roughly in balance with where the economy is growing.
So something like.
That should support Americans earnings in four Q. I mean, it's still some of their guidance seems a little aggressive to me, but I guess sort of given the backdrop of supply and maybe some of the Americans initiatives as they try to retake some of the market share that they had previously, maybe seems more feasible than other guidance we've seen.
How about Southwest Georgia's They're starting to charge for lots of stuff like bags and different seats and all that kind of stuff which they had not done previously, that had kind of been in their core marketing strategy. We're the kind of the bare bones guys, what are they just seeing in their business?
Yeah, you know, I just got off the Southwest car in my head hurt. So there's a lot of initiatives going on here, right, And like you said, we're you know, we're going from an airline here that was bare bones, bags fly free, blah blah blah. You know, you keep you know, there's no breakage in your I think, you know, frequent flyer miles and if you buy a ticket, you
can't use it, there's no expiration of your credit. Now we're going to change everything, right, And so the call's full of a lot of discussion about how the initiatives in twenty twenty six are going to add a billion here, you know from premium seating and seven hundred million there. So there's a lot of big numbers being thrown around.
You know.
I think the I.
Think the marketplace is a bit challenged to get its its head around, you know, whether or not all of these really roll through the bottom line for Southwest. But what I will say is, I think there's some pretty strong opportunity out Southwest, given I think they have a pretty loyal brand following, and as they roll out some of the initiatives you're seeing at the full service carriers like United American and Delta, as they roll out initiatives
like branded credit cards, improving the loyalty program. They even talking on this call a little bit about hub cities and lounges, which you know, just kind of again through through my mind, there is I think an opportunity for them to monetize all of that as they turn into something that looks a lot more like a full service carrier. The question is on timeline. My guess is there's there's a decent timeline as they sort of retrain their customers.
But I think you know, in Fort they have some pretty aggressive bounce back inside their guidance as well, and I think the it's just kind of trying to get its head around, really how much of these initiatives are going to come to fruition and four Q.
So when it comes to Southwest, the activist investors really pushed it to change its business model from this one size fits all kind of offering. There was no checked bag fees, no prepaid seat assignments. Does this set of results kind of get that pressure off its back?
No, So I would say three Q results would not I thought three Q. They did okay. You know, their expenses came in a bit better than we expected. Their revenue was pretty similar. I think nothing impressive. Three Q is generally kind of I think blah across most of the airlines. It wasn't that exciting. There's a lot more sort of built into four Q and beyond. So no, I don't know that this necessarily gets Elliott sort of
off their back, right. I think they've got a lot of initiatives to perform on to keep Elliott happy.
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We'll take a look at what's happening in the cloud. We'll get some more cloud slash tech news coming. AI adoption in video games can push Microsoft, Sony and Nvidia to kill the console.
How about headline like that? Nathan Nadeu joins us here.
He is the Bloomberg Intelligence technology research analyst. Talk to us about the cloud and what that means for the gaming business. I'm not gonna have to go out and buy any more gaming consoles, well not.
For the long term. Thanks for the lead, Paul. Like I feel like I owe everybody explanation when I use word like kill because really in the tenures that could actually happens. Like what I meant if I were to unpack that comment a little bit, that headline consoles will decline gradually and that's what I mean, and you know, kind of remaining over the long term as a need
device for loyal fans, the really hardcore gamers. As advancement in cloud infrastructure, and we see what's happening with data centers as well as a wider spread of mobile gaming playing games or mobile devices, whether smartphones or tablets. As that game wider spread and people become less interested, you know, in playing games at an unportable gaming hardware that's stuck at home or living room. If they can do so and have the same experience on ale momil device, why not.
Right?
So, where are we in kind of that evolution in terms of really putting more and more of the content of the technology, of the capabilities in the cloud. How's that changing the gaming experien into the gaming business.
Yeah, So the key pain point to cloud gaming is network latency because that literally depends on the distance between the user's hardware, whether a mobile device or console, to
the nearest cell tower. And we know that five G network coverage are improving not just in emerging markets, but also becoming better in even developed markets including China and the US and so as that infrastructure and also cloud improved because this proximity to data centers also is a factor in determining the experience of cloud So far, you know, in emerging market there is a pain point, but we're seeing really huge uptick in coverage footprint whether five G
or four GLT in markets like India and Middle East and Latin America. So that just support our conclusion that you know, in the next ten years, the experience that pain point would become better. And also let's not forget that you know, mobile phones, mobile screens capture you know, a lot of our attention economy. Actually, there's a study according to Harmony Harmony Healthcare, it that it captures more than five hours of our time every day, at about
twenty percent of those times actually go to gaming. Among Generation Alpha and Generation Z and the other bulk of the gamers. And also, these gamers don't really care about playing games at home anymore if they can play on mobile, because what they care about is access and also being
able to do things on their mobile devices. So I feel like with this generation coming up and entering into the workforce, and they're the one who would see spending power increasing, and I feel like there's a lot less inclination to actually play games on a console. If down ten years downline, you can have the same experience playing games on a mobile on a mobile device.
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