Apple Revamps iPads, Disney Earnings, Tesla Probe

Published May 7, 2024, 4:50 PM

Watch Alix and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.

Mandeep Singh, Bloomberg Intelligence Senior Tech Industry Analyst, discusses Apple’s iPad launch. Geetha Ranganathan, Bloomberg Intelligence Analyst on US Media, joins to talk about Walt Disney earnings. Sandi Bragar, Chief Client Officer at Aspiriant, discusses her outlook for the markets. John Mandyck, CEO of Urban Green Council, talks about pressures to phase out natural gas. Craig Trudell, Bloomberg Global Autos Editor, discusses Tesla facing a July 1st deadline to provide US regulators with information about its biggest-ever recall. 

Hosts: Paul Sweeney and Tim Stenovec

Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Playing and Broid Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.

All right, Well, long term investors in and observers of Apple know that a big part of the story is product refreshes. New products. The newest versions of the iPads and the iPhones and the watches and all the kind of stuff is important for this company. And Apple had an event today where they unveiled some new iPads. So questions, is it time to upgrade your iPad? Man Deep sing Joints is here. He covers all the technology stuff for Bloomberg Intelligence. Man Deep, I'm you know, looking at Apple shares up about half a percent. Talk to us about the new upgraded iPad. How what is it and how important is it to the company these days? Yeah?

I mean, look, iPad line is about a high single digit contributor to their overall revenue, so not as big as the iPhone of course, but clearly you know they are trying to put their latest chip in the iPad. They showcase a new keyboard for the iPad, and there were other battery announcements new all at display. So all these are cool, but fundamentally you have to ask yourself, is it, you know, worth to upgrade to a new iPad with all these incremental features as I would like to call And that's where I think the market is anticipating more along the lines of what can you show me in terms of AI and the wow factor around LLMS? And I think that's what was missing at the event.

Well what could they show? I mean, when we talk about AI and Apple, what do we think about Because Mark German says that this is an AI focused pro model, So I'm wondering, apart from the chip, what about it is AI?

It's at the app level. So that's why that operating system upgrade. And they did talk about the iOS eighteen. Look right now, the current version of my iPad, which is five generations behind what they launch, can run the latest version of the iOS operating system. So why do I need to upgrade? They have to give me a reason to upgrade to the latest iPad because my current version can't run the operating system and it's got some cool apps. That is what was missing, Like what functionality can you show me around Siri, around image editing, around summaries, like all the cool stuff that we talk about from Nvidia at the data center level. That's what a small kind of version of it is what you want to run on device instead of going to the cloud. And that's what they got to showcase in terms of why you need to upgrade to the latest hardware.

Okay, so Paul, this is not our first rodeo. You and I have anchored before, and one thing that's different than versus a few years ago. When I would walk in here, you would have an iPad next to you. Yep, And the iPad you told me, was like a really big part of how you prepared for the show. Use the Boomberg terminal on the iPad. You also have the two screens for the terminal. You have no iPad anymore? Nope, why not?

I still have the iPad, although it's probably the original version, but now everything's on the phone.

So your phone has replaced your iPad absolutely.

And I have a very long train ride every day which I need a very engaging device, and.

Your phone is that it's not the iPad. So man, deep. How big of a problem is that for Apple?

I mean, look in their case, some of their newer products do cannibalize. You know, if the iPad is very good, it's going to cannibalize the max Hills, and if the iPhone is very it's going to cannibalize the iPad sales. So that's always been the case. But it's still a very sticky operating system and you know, just ecosystem overall. The only problem that I think people are trying to grapple with here is what is the refresh cycle? Because right now, the refresh cycle continues to get longer and longer. It's not as if, you know, people are moving out of the ecosystem, but they're not gaining more Android users because they don't have the best looking phones or the best features that Android phones can offer. And so that is the part that is hurting their refresh rate and also the share gain from Android users.

June meeting, their developer meeting, anything on the wow factor? I mean, are they going to is there a chance in your June developer meeting that they're going to come out with something that's going to blow the street away or expectations low?

I mean, I'm expecting more emphasis on the software side in that developer meeting, and clearly they need to showcase what they are doing around the LLLM strategy, whether an L and large anguid model will be part of their OS, and then how it influences the overall app ecosystem, because that those are the features. If you look at the latest pixel phone, they offer you a lot of those features already on Android, and that's what the Android ecosystem is looking to leverage more and more off look at the latest Samsung phones. They are targeting a lot of those JNAI features and Apple is really playing catch up over there, and they need to showcase that at the WWDC when they have all the developers over there.

Made this is something you think about a lot. So lay out the ultimate vision for us. What does Apple want its devices to be able to do for us from an AI perspective, like how how is it going to interact with me using AI?

I mean, the biggest kind of UI upgrade they can offer is around this series. You know the fact that theory is so underutilized right now as a voice assistant if it has the right set of JENNYI features. Clearly that will have a big influence and how we interact with the next version offer of the phones they make. And also, you know, some of the utility inside the app, like you don't have to you know, kind of touch everything or do everything manually. In terms of giving instructions, there is this concept of AI agents that has to be front and center in the next version of software that Apple offers within their operating system, so that AI agent can automate a lot of the tasks, not fully, but pieces of it. And you want to see Apple making progress on that front.

All right, Man Deep, thanks so much for joining us. Appreciate it as always. Man Deep saying he's a senior technology channels for Bloomberg Intelligence giving us the latest. Again. Apple had their new product unveiling of the new Apple iPad, and I think what I've heard from Mandeep and an Aagrana also covers technology for Bloomberg Intelligence is in terms of new product launches and refreshes, it's really just evolutionary. They just iterate on the margins as opposed to something really radically new that I'll cause everybody to run out and buy a new product. Those days are probably behind Apple.

People have said that in the past though, Paul, So, I see where you're coming from. But there would be those people who said, you know what, they said that when Steve Jobs died, and look what's happened over the last ten years. I will say, I think they need to move the air pods from a hardware category to services because I am just it's like I need a subscription to these things because I lose them.

So much, Yach, Exactly, that's the issue, Yeah, exactly so, but it's interesting so forward. That's why. You know, if you do think that it's less of a product story, then you focus more on the services side of the business, which is about twenty percent of their revenue, and it's growing double digits, and that's and it's a higher margin business, and that's and that's a good story.

The German has talked to us about the air pods actually getting some AI features too, really okay, lenses, maybe we'll see, all right, we'll see.

It goes to me if I'm an investor in Apple, it's just all about China. I'm concerned that the demand there for my products and services is going to be less going forward. And that's a concern. That's one of the concerns for the stock. We'll certainly keep on top of that.

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Now.

I've been covering Walt Disney for thirty five years. There was a time when I got paid for my research on Walt Disney. So of course I looked at the results this morning, so I had this stock will trade up down eight percent? So what do I know? So let's go to somebody who's much smarter than any of us here about this kind of STU. That's Keitha Ranganath, and she is the media analyst for Bloomberg Intelligence. What does the street not like? I thought it was pretty good print there for the company.

It certainly was Paul. But what the street didn't like was the outlook. The outlook for the fiscal third quarter, especially for the theme park business, was definitely weak and not something that the street was expecting. So Consensus had a twelve percent growth in operating income for the parks business. What Disney said zero growth, Wow, and that kind of really spooked investors, and they talked about different aspects here. They said that they have, you know, three new cruise ships that are basically coming on board, and you know there are launch costs associated with that. They're also opening this new kind of private island along with their vacation club and cruise business. Of course that also, you know, is contributing to that. But I think what really has investors super nervous at the at this point is that they spoke about a moderation in demand. And this has been a constant, constant question for Disney. You know, can that park's momentum sustain and how long can it and will they have pricing power? And I think this is where you're kind of seeing, you know, that the negative reaction come in because people are not so confident anymore.

Is the moderation of demand about Disney's lack of exciting things to draw in people to the parks, to draw people to the theaters, or is it about a story that has to do with the consumer and the way that the consumer feels strapped.

I think it's a little bit of everything, Tim, So you know, definitely the consumer, the overall health of the economy and the consumer for certain, and you know, tremendous inflationary pressures. But of course for Disney, you know, one thing that they've done over the past few years is they've really raised prices in their parks pretty dramatically, and it's becoming increasingly increasingly expensive for you know, a family vacation, so you know, the to the point of almost becoming prohibitive. And you know, that's where kind of that whole pricing power question comes in. I think they're going to have to do it much more cautiously and gently in the future.

Paul talking to some neighbors the other day who recently took their kids to Disney. Yep, they were adding up how much it costs for just a couple of days down there. They were saying, probably about five grand is what they spent in Florida, two kids, a few days down there. Wow, it's a lot of money.

You need an advisor to like set all this stuff up because it's so complicated.

Yeah, So I've heard with these like I just.

Called I just called Githa. She makes a phone call and I'm like the front line every time. Eithan. The other part of this story, and for the longest time, you know, the last four or five years, has been their streaming business and when will that business term profitable? They had some pretty good news on that front, didn't they They.

Did, Paul, I mean, we're just on the cosp of a major, major earning inflection point here for the first time ever in the in the streaming business's history, they actually posted a model that modest profit. Now again they said fiscal third quarter, which is the next quarter, is going to be a little bit choppy. But then what they've said all along is that expect some really good results in the fiscal fourth quarter, and then they're really going to build on that starting in you know, fiscal twenty twenty five and beyond. They have a lot of initiatives in the works. You know, they're cracking down on password sharing a la Netflix, and remember that has been a huge growth story at Netflix. The Netflix added almost thirty five million subscribers after they started cracking down on password sharing, So Disney can also hope to see quite a lot of success with that. And then of course they also have the Hulu integration as well as you know, the ad tier, all of that kind of contributing. So streaming, I think is going to be a considerable source of earnings upside in the next few years.

How's Bob Iger doing?

Does he having successor?

He spoke about that actually on the call that that came up, and he said that they're, you know, they're kind of actively considering. They have four internal candidates the all of the division chiefs chiefs that are kind of up for consideration, and you know, he said that they're looking at them very carefully and the announcement will come when the time is right.

Is this any replay of what happened a few years ago when Bob Jpek took over. I mean it kind of sounds familiar. A number of internal candidates, the person gets picked, the other ones leave, and then Bob Ager comes back because it didn't work out.

Yeah.

I mean, we've seen this movie play out so many times now at Disney. I hope and I think this time it really will be different. I mean, that was the whole bone of contention, you know, for the activist investors, including Nelson Pals, and I think having this new succession Planning committee suggests that this time they will do things probably a little bit differently, all.

Right, Githa. So clearly we're going at the stock down eight percent. The market clearly is focusing on that theme park business, and for good reason, it's become, you know, kind of on a kind of under the radars. Now become seventy seven zero percent of their operating income. So it is the business here. What did the companies say about their ability to potentially deal with maybe weaker demand. It's been a long time since we've seen them ever cut prices at the theme parks, promote, you know, at the theme parks, anything that would hurt profitability. It's been a long time since they've had to do that.

Yeah, I mean, the theme park business has been such a consistent story for them, Paul, as you just pointed out, they have twenty five percent operating margin in that business, and they are really looking at this as a future earnings growth driver, which is why you know, they're investing sixty billion dollars in the theme parks over the next ten years. Over half of that is basically just adding capacity, adding new attractions, and I think it's it's it's a really timely and a good strategic mode they're also bringing on those cruise ships that that's going to cost them about twelve to fifteen billion dollars, so you know, they're definitely adding capacities. So I think, you know, overall, definitely the business is in good shape, but in the near term, obviously the sentiment has definitely soured.

Well.

Speaking of souring sentiment, curious about the media business here, apart from streaming the legacy media business, talking ESPN, talking ABC, what do we learn about that business?

Bad?

Bad, bad bad?

So Legacy TV Networks the operating income was down twenty two percent. That's not surprising, but it's just the rate of decline. I mean, we were expecting, you know, you know, maybe high single digits. This is, you know, this really bad. And what gets worse is, you know, we're obviously hearing about all of the sports rights negotiations that are ongoing. If you look at the NBA deal for instance, that's basically looking at tripling the sports value. So their previous deal was twenty about twenty five billion, new deal will be over seventy five billion dollars, and so these companies are going to have to pay up just to kind of maintain the status score or maybe not not even maintain the status score and their TV networks business, which is really going to crimp profitability pretty significantly.

So, I mean it begs a question. Your costs are tripling, your revenue is not tripling. Is streaming going to pay for all these sports rights? How does the company even position out in the marketplace.

That's what they're betting on, Paul. I'm not sure that it's going to be Streaming is going to be able to reclaim all of that leakage that we're seeing on the linear TV side, but they're definitely betting that it will be able to salvage some of those losses. So you know, ESPN, for instance, they are having obviously their new standalone app that is going to come out sometime in twenty twenty five, and then they have this new sports JV that again is supposed to come out a little bit later this year, along with Warner Brothers Discovery in Fox, so they're doing different things. Again, not sure whether you know how successful it's going to be. That's a little still a little bit of a wait.

And watch getha.

We're so lucky we have you because you not just cover Disney, but you also cover Peloton and shares a Peloton hire by twelve percent right now. This after CNBC reported that a number of PE firms have been considering a buyout of the company. They cited people familiar with the matter. What could a private equity firm do with Peloton, Like, how could a PE firm make Peloton successful? Solve its problems?

Good costs, I mean, that's what PE firms do best. And the Peloton really has had a huge cost problem. And the cost problem is because the costs haven't really been aligned to its revenue base. Its revenue has been steadily decreasing, just a combination of different factors. We demand, saturated market. Their new products haven't really taken off. You know, they've tried all kinds of different things with their whole new digital app revamp. Again, that's really not done the way that they've wanted it to kind of perform. They have all these other partnerships with Lulu, you know, they had this new hotel partnership. Again, nothing has really been a game changer. But the costs are still very very high, and that's just because it's cost them so much to manufacture their equipment, and so PE can kind of really come in and trim that cost space.

All right, Githa, thanks so much for joining us. Keithan Raganath and she is the media anuals the Bloomberg Intelligence folks. She is over the last fifteen years has built up an amazing franchise on Wall Street as being one of the leading research voices on that space, and it's been going undergoing a tremendous amount of generational change in the media business from the traditional cable TV satellite delivery mechanisms. This whole thing called streaming has required a lot of work and a lot of folks on Wall Street pay attention to Keitha's researching. Can you find Getha's research and all of the Bloomberg Intelligence research on the Bloomberg terminal? B I go is the function that'll get you there. It's good stuff. Disney stock down around the seven eight percent here again, concerns about maybe peak theme park demand there coming out of the pandemic, maybe getting back to a more normalized level of attendance. But you know what we've seen over the years from Disney is they really know better than anybody else how to price their theme park product and how to invest in how to generate returns so longer trim. I think a lot of people feel pretty good about that.

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Card playing en Broud Otto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.

Our next guest, Sandy Briggar, joins us. She's a chief client officer at Experience, joining us live here in our Bloomberg Interactive Broker's studio. Sandy, it's funny this market here. A lot of folks, you know, we had that nice run off those October lows. People felt like maybe the market got ahead of itself, and then we had the FED saying, gee, maybe we're not going to cut race, maybe we're going to hype rates. And people got a little spook there for a while. But it seems like we're back on a positive trajectory here. How do you guys think about the markets and maybe get away from that day to day type of view of the market.

Yeah, it's hard to get away from the day to day, especially when it's bouncing around so much and penning upon the day.

You have a different view of what's happening.

But our clients are corporate executives, family business owners, entrepreneurs, inheritors. They're really thinking about their portfolios for the long term and they're not so worried about what's happening on the day to day. So that takes a little bit of pressure off of us. Although we get questions about the day to day all the time, our best advice to our clients is really to be prepared for anything in this market.

So we're playing both offense.

And defense simultaneously in portfolios, just being prepared for a range of outcomes.

What are the types of questions that you're getting, like when your phone is ringing, when your email inbox is hanging on days when we're seeing volatility, what's the question that your clients are asking.

It's either should we raise more cash or should we put more cash in? And it might be the same question from different people in the same day.

And let's be honest. When the question is should we raise more cash, your job is to say no.

We think it's really important to be invested.

And because we're putting together an investment portfolio based on our client's financial plans, we have a good sense of how much cash they need at any given moment, so everything else that they don't really need for the near term, we are recommending that they invest, and we talk about why we're investing the way that we are and really help hold clients' hands through that moment. Now, for the clients that are willing in wanting to put more money in, that's actually a good sign because for a while, people are so excited about yields.

On money marketing funds.

You know, I hadn't seen any return on cash, and so long that people were feeling really comfortable bulking up on cash, and so now they're ready to get invested, and those conversations go well too. Interestingly, we've started having clients take steps into bonds. On the longer term side, we think that in this environment where rates are high, it's nice to lock in some of the current rates, and if we do see some softening in the economy, that should do well for bonds, high quality intermediate, long term bonds. And then on the equity side, we're really focused on where are the opportunities, and we think because of the narrow range of the market over the last six months, that there's plenty of interesting stocks out there that haven't rallied, and it does look in recent days like maybe that's opening up.

So we're excited about that.

When you say playing offense, what does that mean to you, guys?

So looking for opportunities to invest where there's a high likelihood of achieving a good return on that investment.

So for US today, that would.

Be in value stocks here in the US and overseas. I would say about fifty five percent of our overall equity allocation is overseas right now, with rare amountain emerging markets.

Yeah, because I.

Mean, the US has just been so strong, things are happening differently outside of the country.

Is your argument that there's like a reverse into the mean here or because if you look at the past decade, I mean, the US is outperformed everywhere else.

Yeah, evaluations are so high and it's been ugly.

If you haven't been if you've been overweight international, it has.

But we think there are great opportunities, especially as things get pricey here in the US when we look at valuations, we really do see some great opportunities overseas.

Okay, Then conversely, on plain defense, what does that mean to you guys?

So defense today is a fair amount of bonds. You know, for the last several years, we weren't putting very much emphasis in bonds and portfolios as rates were increasing. We think we have no idea what the FED will do, but we think we're much closer to a FED rate shift than we are too more increases, and so we think fixed income is a good place to be. We think it's going to play its traditional role in a portfolio, helping buffer to volatility and provide some solid returns. And right now returns are about two percent after inflation, so not so bad.

Okay, So somebody comes to you with a pile of cash right now, they say, I need you to put this to work. Where do you put it to work? I know, it depends on their time horizon, how old they are.

Yeah, so we're going to do the visual circumshensive plan.

But assuming that there are folks with a long investment time horizon, we're probably putting about fifty five percent of the portfolio in equities, as I said, with about half of that a little more than half overseas. The rest of the portfolio we're managing defensively, so maybe thirty five percent in bonds and fifteen percent in liquid alternatives because we do think that they're nice buffers.

For volatility as well and provide a different did you.

Say liquid alternatives, liquid? Liquid alternatives, alternatives?

So what is it like? I guess I was surprised. We were at a doing a remote broadcast at one of our RIA sponsors, and I was surprised that the average RIA at there, they're saying that red shirt investment advisor. They're saying that their clients really have an interest in alternative investments, like more than the five percent ten percent open that I would suggest much higher. What are you seeing in terms of all demand for alternative investments, whether it's edge funds or private equity or that that kind of stuff. And then where do you steer your clients.

Yeah, so in terms of the more hedging, that's what we're doing in the liquid alternatives portfolio. So clients are feeling good about that. But we have seen in recent years and a bigger interest in private equity than ever before, and we think there is definitely a great place for private equity and portfolios, but we're really looking at portfolios that are twenty million dollars in up where people can really have a long investment time horizon and take some risk with their portfolios, because even though people have been really excited about p there's very few winners in that crowd.

But I wouldn't consider private equity liquid by any means.

No, no, no, no, So that would be in a liquid portion for sure, which is also why we're looking at clients with the much bigger portfolios for that.

Who is a typical client for you guys, So.

Corporate executives, family business owners, inheritors.

To say, how do I I don't remember that being a choice when I was check majoring in school, Like nobody ever said, hey, inheritor, it could.

Be I mean, do you guys buy off on this whole thing? Like I guess I had to read a lot about it, that the baby boomers have so much wealth and how do they get it to the next generation.

The great wealth transfer?

Yes, yeah, that is a motion And I tell my kids the last check I write is going to bounce, baby.

That's how you do.

That is a strategy. That is a strategy.

I like that.

But it is a conversation we're in with many many of our clients, and it actually presents some really interesting investment opportunities. Because when they are transferring assets out of their estate for the rising generations of their family, that's money that has a very long investment time horizon, and so they can get you know, quite risk loving if that's the direction that they want to go in.

Okay, typical portfolio size for for you guys.

Twenty five million, Okay, yeah, I think that's.

O is it?

Kind of sixty forty plus? We alc some alternatives. I mean, how do you start is I know it probably depends on the individual, but do you start like sixty forty then decide how much you want to take away from that put to alternatives.

So we do take evaluation driven approach, so our allocations are based on where we're seeing valuations in the market.

So we don't have a fixed asset allocation.

We have dynamic ones where clients give us the discretion to move within bands. So today, as I was mentioning, we're more like fifty five, you know, forty five sort of allocations.

On average, but there's a very big range.

And then for a client when we're looking at their investment portfolio, there's a lot of conversation with that we're having with them, not only about their goals and what's most important to them and their long term plan. But how are they feeling about investment markets? You know, how have they reacted in the past when markets have gone south? Really trying to help hone them in on what's the right place on the risk return spectrum for them?

Are you running in any challenges from clients coming and saying, look, I've seen how the S and P five has performed over the last ten twelve years. Howd I just put my money in Voo it would have outperformed my portfolio.

There are some clients that feel that way, and you know, a lot of conversation about again, where are you relative to your plan and was the objective to get the highest return? Because in retrospect, it's really easy to see how we could have gotten there. But we've been living through very interesting time periods and what we've seen in the recent past we don't expect to continue going forward. So lots of conversations with clients to help meet them where they are and get them through these markets.

Sandy, thank you so much for joining us. Sandy Bregor She is the chief client officer for Experient based in San Francisco, California, but joining us live here in our Bloomberg Interactive Broker Studio. Appreciate her making the tip all the way across the country just to see us. Go figure.

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Play and Android Otto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.

John Mandyke Joints is here because we're going to shift gears. He's the chief executive officer of Urban Green Council. He joins here on a Bloomberg and Arctor Brokeer studio. Welcome for coming in. You get extra points for not mailing it. Mailing it. In Electrification of buildings, how do we power our buildings today?

Well, you know, in New York City, the largest source of carbon comes from furnaces, boilers, and hot water heaters. It's natural gas in the basement for heat and hot water. Okay, so that's our largest source of carbon. That's our biggest.

Podcast was in clean burning energy.

Well you know it was compared to coal.

Okay, but that's still not good enough, but it's not good enough.

Okay, Okay, So I recently moved from a hybrid electric powered and gas powered home where gas did our hot water and our stoven oven into an all electric place. And here's what happened. The oven doesn't work very well. The stove works incredibly well because it's induction the hot water heaters. It's kind of okay. Our electric bill is huge, but we got no gas bill. Our electric bill is so much now, it's more than it was before with gas added.

Right. Well, you know, there are artificial incentives built in the system for natural gas, and those are starting to be addressed. For example, in New York State, if you're within one hundred feet of a gas line, you can demand to have service and everybody pays for that.

Wow.

And so we have to get to where electricity has the true price and gas has the true price, and so those two can compete. And over time, you know, with conflicts around the world and where we see climate policies going, there's going to be a carbon price built into natural gas.

Okay, Well, how do we most sufficiently electrify a building?

Right, Well, we do it by installing heat pumps for for heat and hot water and that's that's the main way to do it in New York. Like I said, our problem isn't lighting. Our problem is the heating and hot water. And then of course you need the grid to green at the same time, and that's happening as well.

Is an electric powered hot water heater more or less efficient than a gas powered hot water heater? Same with like a dryer, for example, because you can get a dryer that's a gas has a gas heated element. But in these newer buildings where they don't allow gas, you're stuck with electric. Are they Is it as efficient? Right?

And they're they're getting efficient for sure, and they're getting to pair of.

Heat pump works really well.

The heat pump is very efficient. It can be way more efficient than the natural gas boiler furnace that you already have.

What about when it comes to the other appliances though.

They're getting there and you know not yet hot water. No, there are hot water systems that are there, okay, And we need more technology to come on board when it comes to hot water, particularly to scale across all the different type of building types and cities. But you know, we have the largest decarbonization market in the world now in New York City, and that's going to spur innovation to help serve this market.

The thing that's a challenge to me when thinking about this, and look, no question, I want to do what's right for the environment, what's right for the world. Where is this power being generated? Because it's not being generated at Indian Point anymore. That's shutdown, so it's not nuclear. Here in New York City, we're still relying on a lot of dirty sources to power. So whether or not we're heating with gas or electricity net net doesn't really matter if that electricity is generated by a dirty source.

It does because today's heat pumps are so more energy efficient that you're just using less energy, which means you're using less carbon and it almost doesn't matter what the grid is.

Right.

But at that same time, the grid is greening in New York. Right, we did lose Indian Point that was about a third of our power in New York City that was fossil fuel free. That's being replaced by hydropower and renewable power that's coming in as soon as twenty twenty six. So the grid is greening and that's going to help when we start to plug more things into that grid.

Is the grid? So I read the book The Grid. There is a book out there and I have John Tucker reading it now and it talks about the history of electricity in this country, which is fascinating. I look like a geek sitting on the Jersey shore too summer.

You got to read that. I gotta read this book.

No way to pick up girls. I think reading the book about the grid, you know, can our grid today handle increased electrical demand?

It can for heating, right, So our organization modeled all one million buildings in New York City against the local kind of deis and grid. What we found is there's a forty two percent headroom in the winter to plug things into the grid. So said a different way. Our grid is built out for the hottest day of the year, right, and when we turn those air conditioners off, forty two percent of our grid goes dormant. It's actually a very inefficient use of assets. So there's forty two percent room to plug stuff into the grid. Because our heating source is not electrical based today, it's fossil fuel based.

So what would you say is the biggest thing holding us back when it comes to widescale adoption of more electricity versus and less gas. Is it because these legacy systems are going to take so long to replace?

It's that we have laws now in New York State and New York City and actually about one hundred jurisdictions around the country that are forcing the transition.

So what that does is it tells developers, Okay, if you're gonna build this, you can't include a gas line here.

It has to be all electric, right, correct, So in New York City, starting this year, buildings under seven floors new buildings have to be all electric, and then in twenty seven all new construction needs to be all electric in New York City.

I've talked to developers who say, Okay, the regulations are not there yet, but it is such a pain for us to deal with gas these days that we're just going all electric.

Are there? And so what are the incentives today for Like I'm just thinking of Jamie Diamond building that new building on Park Avenue. I mean talk about going to be state of the art when it's finished. I'm guessing he's gonna hang all the plaque how it's this compliant and that complaint and we won this award and we're triple green this what's a new building like that today? What are they trying to do for their energy?

Well? Sure, but there's the heart of your question on incentives. There are way more incentives now than there's ever been the history of this issue, right primarily from the federal government through the Inflation Reduction Act, but also by states around the country that are you know, putting their mouth putting their money with their mouth is when it comes to public policies.

Are you optimistic about the greenification of the grid, Like, is this something you know we talk about offshore wind for example, look at all the politics around that and look at all the issues it faces. We just talked last week to Will Wade, one of our reporters here, who wrote about nuclear power plants around the country that are coming back online potentially because they turn those things off. And they were like, oh, wait a second, this is actually a green source of power, anan point, not one of them because they're dismantling. It is the timeline here, realistic, I think it is.

Look at you know, offshore wind went live at the end of last year off of Long Island. For a part of Long Island, there's two big mega projects for offshore wind. We're getting Canadian hydro power in there's upstate New York excess renewable power. We actually have a bottleneck and we're building transmission lines to get that into New York City. So I'm confident that that the grid is going to green. The impetus is there.

Is that a state or is it a federal mandate, because I could see this breaking on political lines political you know, red states maybe being more open to green, you know, so on and so forth.

Yeah, sure it does fall along political lines. But the renewable energy that's happening in New York is state driven. The offshore wind is controlled by the federal government. But those were cited years and years ago, and so those projects are moving forward.

What about solar and solar efficiency? You know, I talked to some neighbors who are like, Okay, we want to do solar, but the payoff is it's a very expensive capital expense. Financing is really high now because of rates, and they're like, yeah, it pays off in like twelve years. That's a long time.

Yeah, it is, And but we need all of the above, right, And so the issue in big cities is we just don't have a lot of place to put solar panels, right, and so offshore wind is going to be the future of renewable power, and that's where you see the projects going.

We looked into covering it at our old apartment building, which was like five floors ninety units, and the assessment we got Paul was like, it'll cover five percent of your monthly usage. Really if you did the whole roof. Yeah, yeah, just because it's a big building and not a lot of roof space.

Yeah.

Well, Bloomberg, I mean our Bloomberg, our Princeton campus in New Jersey, huge wind solary down there. Yeah.

So, and just depends on the location.

Yeah, so they're all in. So I'm not sure we're Sunday get in New Jersey, but we'll see, all right, John Mandike, thanks so much for joining us. John Mandyke, he's a chief executive officer of the Urban Green Council. Join us here in our Bloomberg Interactive Broker's studio talking about I mean, you know, electric vehicles get a lot of the headlines about energy transition, but there's a similar trend going for buildings around the country, and so we'll see how that technology develops.

You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on on Alexa from our flagship New York station just say Alexa playing Bloomberg eleven.

Tesla more news out today that I think is buffeting the stock here, first and foremost, Tesla autopilot probe escalates with US regulator's data demand, so that's an issue for the company. And then also reported today that Tesla is going to have some April decline in China shipment, so again goes to that demand issue. Let's bring it all to bear here. Craig Trudell, Global autos editor for Bloomberg News. He joins us from London via zoom. Craig, again, a lot of issues, a lot of cross currents for Tesla. Let's start with issue number one today, which is just this autopilot probe here. Give us the background here and give us kind of the lay of the land on this particular issue.

Yeah, this goes back quite a way. I mean, we saw federal scrutiny of autopilot almost from the beginning when there was a fatal crash the way back in twenty sixteen, around the time that Tesla started to market this technology. It sort of, you know, gives people the impression from the name, at least among some people, that you can maybe tune out, or that the driver will the car will run on autopilot. In this case and in the case of full self driving, however, you the driver are in control and are responsible for the vehicle. And one of the big problems that Tesla has had has been keeping drivers in control and attentive, and so you know, in August of twenty twenty one, the National Highway Traffic Safety Administration opened a probe into whether autopilot was defective. While it closed that probe recently, it opened a new one having to do with a recall. In December, so Tesla tried over the air software update to guard against misuse of the system, and there have been twenty craft is just in a handful of months since that over the air software update. So NITSA is looking into whether or not that recall was effective and whether more needs to be done.

Here is there is there any feeling from Tesla or any statement from Tesla about how they plan to either fix this or maybe update the autopilot and improve the autopilot technology.

I think we we will keep a close eye on Elon Musk's X feed that seems to be this sort of you know, only means in which this company communicates uh to some degree. But he I mean, I do think one of the interesting things here is we have seen him in the past sort of rail against you know, outdated uh you know language around recalls, and in the case of autopilot, you know, I mentioned the over the air nature of the fix that they ployed in December. I think one of the keys for investors is a concern as to whether or not that's going to be sufficient. Do they need to install a different type of camera or in some vehicles, even just a camera at all to pay attention to whether the driver is paying attention and monitoring the driver and doing more to to sort of measure and evaluate engagement. And you know, they're really being asked to cough up quite a bit of data here and are being given a deadline of July first to hand over that information, to give n it, you know what it needs to determine whether whether this recall did enough.

Yeah, And This feels really important for Tesla because I think Tesla that in terms of the investment narrative, they're trying to get away from focusing on the number of vehicles sold, thinking more about Tesla as a AI company, as a robotaxi company, as just the technology that can maybe be used across the industry. So they need to get this stuff right, don't they.

They do? And I mean to Tesla's credit. I mean, the over the air capability that they built into their vehicles was really novel when they were first, you know, sort of coming onto the scene. I'll never forget that. You know, the Model three was coming out and the break distance was was not up up to snuff for Consumer Reports, which was evaluating this, you know, new car that was really important to test at the time, and uh, you know, speaking of Musks, I guess then Twitter feed, uh you know, he you know, sort of said I'm on it. They they didn't over the air software update. Uh, Consumer Reports retested the car and and threw in over the air update they were able to shorten the breaking distance, and uh, you know, the question here is whether autopilot, if they do need to come up with a hardware pollution. To fix a defect with autopilot, that's going to be expensive or has the potential to be very expensive, especially since the company that doesn't have a franchise dealer network, they would have to you know, deploy service vans uh to to cars and and go fix the stuff, which is going to cost a heck of a lot more money than flapping a thoughtware update over the year.

All right, issue number two, at least for today as it relates to the stock Preliminary data from the China's Passenger Car Association showed shipments from Tesla's Shanghai factory dropped eighteen percent year on year in April, even as the broader market for new new energy cars grew. Not good news for Tesla. What do we know?

No, and it's it's been the case that this is a company that tends to have a lot of up and down months in terms of how they you know, build their cars. They've tried to move away from this, and I don't think we've necessarily seen a whole lot of follow through there where you tend to see you know, rolls in the beginning of each quarter, followed by a sort of end of quarter push and so you know, March December. You know, these end of quarter months you tend to see an uptick, but but then a sort of drop off in the squit months. I think in this case though, you know, the year over year change is you know, in and of itself plenty alarming, especially when you compare Tesla against you know, some of its Chinese competitor. A lot of these companies really are not having the demand problems that we're seeing Tesla have. And I think it's also problematic in the sense that, you know, wholesales from this plant in Shanghai are also a reflection of demand here in Europe because this this is a plant that has been a export hub for Tesla, and so it's not only an indication of some softness in China, but potentially in export markets including Europe.

Interesting. Interesting, So that kind of goes to that. I think probably the overarching concern for Tesla and just for the EV business in general, is this the end demand, ultimate end demand for evs here. So I have to see how that plays out. Craig Trudell, thank you so much for joining us. Craig Trudell Global all those editor for Bloomberg News. From our beautiful New York headquarters in London, Queen Victoria Street. Coming at us via zoom again. Tesla stock off two point eight percent today, off twenty eight percent year to date on a trailing twelve month basis, eking out about a five and a half percent gain here. So there's definitely some concerns there for Tesla across the board. I think they're pretty well known, but again for me, it kind of all comes down to where is demand for evs in general, not just for Tesla. I think that's a big concern for a lot of investors and a lot of for the traditional automakers as well. Market cap five hundred and seventy billion dollars for Tesla.

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