Daybreak Weekend: Tesla Earnings, European Banks, Auto Show China

Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg day 0:00:11.880 --> 0:00:14.240 Break Weekend, our global look at the top stories in 0:00:14.280 --> 0:00:17.040 the coming week from our Daybreak anchors all around the world, 0:00:17.239 --> 0:00:19.880 and straight ahead on the program, a preview of core 0:00:20.160 --> 0:00:24.960 USPCE prices and GDP, also earnings from the US's biggest 0:00:25.000 --> 0:00:27.479 ev maker. I'm Tom Busby in New York. 0:00:27.800 --> 0:00:30.360 I'm Stephen Carol in London, where we're discussing what's in 0:00:30.440 --> 0:00:34.440 store for Europe's biggest banks as earning season gets underway. 0:00:34.720 --> 0:00:37.239 I'm Brian Curtis in Hong Kong. We look forward to 0:00:37.320 --> 0:00:40.880 what's referred to as Auto Show China in the coming week. 0:00:41.040 --> 0:00:43.280 Is it about the cars or the politics? 0:00:43.960 --> 0:00:47.239 That's all straight ahead on Bloomberg day Break Weekend on 0:00:47.400 --> 0:00:50.479 Bloomberg Eleve Them three Own New York, Bloomberg ninety nine 0:00:50.520 --> 0:00:53.920 to one, Washington, DC, Bloomberg one O six one, Boston, 0:00:53.960 --> 0:00:58.760 Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius 0:00:58.920 --> 0:01:02.160 XM one nineteen and around the world on Bloomberg Radio 0:01:02.240 --> 0:01:04.560 dot Com and via the Bloomberg Business App. 0:01:08.600 --> 0:01:10.480 Good day to you. I'm Tom Busby, and we begin 0:01:10.520 --> 0:01:13.400 today's program with a look at key economic data here 0:01:13.400 --> 0:01:16.920 in the US. On Thursday, we get core PCE for 0:01:17.120 --> 0:01:20.479 March GDP data for the first quarter of this year. 0:01:20.800 --> 0:01:23.920 What will this mean for the Fed's monetary policy going forward? 0:01:24.000 --> 0:01:27.280 Well for more, we're joined by Stuart Paul Us economists 0:01:27.319 --> 0:01:32.679 with Bloomberg Economics. Stuart, the PCE Price Index the preferred 0:01:32.680 --> 0:01:35.240 measure of inflation for the FED. What do you expect 0:01:35.280 --> 0:01:36.119 to see for March. 0:01:36.280 --> 0:01:39.840 We're expecting to see the headline PCE Price Index show 0:01:40.160 --> 0:01:43.479 about zero point three percent growth month on month. The core, 0:01:43.680 --> 0:01:45.880 which is more illustrative of what's going on in the 0:01:45.880 --> 0:01:49.600 actual economy, strips out energy, strips out food. We're expecting 0:01:49.600 --> 0:01:52.080 to see the core rise about the same zero point 0:01:52.120 --> 0:01:55.120 three percent month on month, and that's going to allow 0:01:55.200 --> 0:01:59.240 just a very slight moderation in the annual measure of 0:01:59.360 --> 0:02:02.720 core pc inflation. We're expecting about two point seven percent 0:02:02.960 --> 0:02:07.080 annual PCEE inflation. A big part of that inflation pressure 0:02:07.160 --> 0:02:11.080 is coming from core services in particular, and if we 0:02:11.200 --> 0:02:13.640 drill down and look underneath the hood of what's going on, 0:02:14.160 --> 0:02:18.040 we see insurance products are really helping to drive that 0:02:18.200 --> 0:02:19.600 inflationary pressure. 0:02:19.960 --> 0:02:21.679 Auto insurance, homeowners insurance. 0:02:21.760 --> 0:02:25.360 Everything that's right, So auto insurance, home insurance, and we're 0:02:25.440 --> 0:02:29.440 seeing those prices rise in large part because of rising 0:02:29.480 --> 0:02:33.079 prices that we saw for autos and homes post pandemic. 0:02:33.360 --> 0:02:36.560 So when the replacement cost of autos and when construction 0:02:36.720 --> 0:02:40.200 costs rise for homes, for example, so to do the 0:02:40.200 --> 0:02:42.760 insurance premiums that people have to pay. So this is 0:02:42.800 --> 0:02:44.720 sort of a residual effects from the inflation that we've 0:02:44.720 --> 0:02:47.560 already seen in the past. But that's not the full story. 0:02:47.600 --> 0:02:49.840 The fact that people can afford to pay those higher 0:02:49.840 --> 0:02:54.200 premiums is again just downstreaming the fact that the economy 0:02:54.240 --> 0:02:57.960 continues chugging long and if people are doing relatively well, 0:02:57.960 --> 0:02:59.680 and we're going to see that exact same thing in 0:02:59.680 --> 0:03:01.760 the person income data that we get at the same time, 0:03:02.040 --> 0:03:04.680 we're going to see March personal income growth about zero 0:03:04.720 --> 0:03:07.920 point six percent. Again, it's just too hot for the Fed. 0:03:07.960 --> 0:03:11.280 It's too hot for the FED to have confidence that 0:03:11.440 --> 0:03:13.240 inflation pressures are truly waning. 0:03:13.680 --> 0:03:17.080 Well, we've seen wage growth, and we've seen the labor 0:03:17.120 --> 0:03:20.200 market to an upside surprise almost every month, well certainly 0:03:20.200 --> 0:03:23.600 every month this year. How could it not, that's right, Yeah, 0:03:23.680 --> 0:03:25.840 the labor market has been resilient. We saw it just 0:03:25.880 --> 0:03:27.720 in the month of March, three hundred and three thousand 0:03:27.760 --> 0:03:29.880 jobs added. We saw an increase in the number of 0:03:30.040 --> 0:03:33.000 hours worked on average, We saw wages rising on an 0:03:33.000 --> 0:03:38.120 hourly basis, and to our best estimate, employee compensation, so 0:03:38.320 --> 0:03:42.520 that's both salaries and other additional benefits. Our best estimate 0:03:42.560 --> 0:03:46.360 is that employee compensation rose about zero point eight percent 0:03:46.480 --> 0:03:49.400 during the month. That is a hot labor market that 0:03:49.560 --> 0:03:53.280 is really helping tabooy spending, and that PCE spending that 0:03:53.280 --> 0:03:54.600 we're going to see is probably going to be on 0:03:54.640 --> 0:03:58.800 the order about zero point seven percent. Retail sales was hot, and. 0:03:58.760 --> 0:04:01.520 We're expecting to see the same thing in March PCE spending. 0:04:01.640 --> 0:04:04.080 Let's talk about then, the other reading that we'll get 0:04:04.120 --> 0:04:06.640 on Thursday, and that is economic growth. What do you 0:04:06.680 --> 0:04:09.000 expect to see? This is an initial reading for the 0:04:09.040 --> 0:04:10.360 first quarter of this year. 0:04:10.680 --> 0:04:13.880 We're very likely to see robust growth to start the air. 0:04:14.040 --> 0:04:17.080 I'm estimating two and a half percent real GDP growth 0:04:17.120 --> 0:04:20.080 that's on an annualized basis in the first quarter. That's 0:04:20.120 --> 0:04:23.520 really supported again by consumer spending, which is creating that 0:04:23.600 --> 0:04:28.040 inflationary impulse but about two point nine percent annualized consumer 0:04:28.080 --> 0:04:30.599 spending growth on a real basis in the first quarter 0:04:30.960 --> 0:04:35.960 is very impressive. Fixed investment a bit weak. Investment is 0:04:36.000 --> 0:04:38.680 really coming from residential investment because of a bit of 0:04:38.720 --> 0:04:41.280 a housing shortage because people are staying in their homes 0:04:41.320 --> 0:04:43.640 they locked in low rates. So we have a little 0:04:43.640 --> 0:04:46.320 bit of a housing shortage with very low inventories and 0:04:46.400 --> 0:04:49.760 a lot of investment in intellectual property. Right, this is 0:04:49.800 --> 0:04:52.760 all downstream of the AI boom and people really looking 0:04:52.800 --> 0:04:56.359 to improve the software and intellectual property that they have 0:04:57.360 --> 0:04:58.720 so that they could take advantage of that. 0:04:59.160 --> 0:05:03.840 Let's go back to housing and the challenges not just 0:05:04.000 --> 0:05:08.280 home buying, but also rents surprisingly a little higher. I mean, 0:05:08.320 --> 0:05:11.320 how is that affecting things for the overall GDP. 0:05:12.279 --> 0:05:16.000 So the fact that rent prices are up is not 0:05:16.400 --> 0:05:20.400 directly pushing GDP one way or another, but the fact 0:05:20.400 --> 0:05:24.920 that rents are up is encouraging additional investment in housing. Right, 0:05:24.960 --> 0:05:28.120 there's clearly a shortage of a housing stock. People who 0:05:28.200 --> 0:05:31.320 are homeowners are not listing their homes because the average 0:05:31.400 --> 0:05:35.080 rate being paid on mortgages, not new originations, but existing 0:05:35.120 --> 0:05:38.760 mortgages is still below four percent. Right, So the fact 0:05:38.800 --> 0:05:43.120 that homes are not turning over encourages more construction of 0:05:43.240 --> 0:05:47.080 rental units, which is providing growth in the form of 0:05:47.360 --> 0:05:50.760 residential fixed investment, and so we are getting some of 0:05:50.760 --> 0:05:54.080 those tailwinds again. You know, rent prices are a signal. 0:05:54.200 --> 0:05:58.760 There are signal to builders that we need more construction, 0:05:59.080 --> 0:06:01.240 and I think that that's going to show up a 0:06:01.279 --> 0:06:04.200 bit in residential fixed investment in the Q one GDP numbers. 0:06:04.320 --> 0:06:07.240 Well, let's hope. So you have a rather upbeat out 0:06:07.240 --> 0:06:10.680 look for the GDP PCE leveling off a little bit 0:06:10.720 --> 0:06:13.359 two point seven percent on an annualized basis, which is 0:06:13.680 --> 0:06:15.920 it's not two percent, but it's getting there. Add it 0:06:16.000 --> 0:06:18.920 all up. The FEDS coming up a meeting later this month, 0:06:18.960 --> 0:06:21.400 the thirtieth and May. First, what do you think is 0:06:21.440 --> 0:06:23.800 going through their heads? What is the FOMC thinking with 0:06:23.839 --> 0:06:24.080 all of this? 0:06:24.400 --> 0:06:28.440 I think here really the three items that the FED 0:06:28.680 --> 0:06:30.919 is looking at that they need to synthesize into a 0:06:30.960 --> 0:06:34.120 monetary policy view. Growth has remained robust and there is 0:06:34.160 --> 0:06:36.840 a bit of momentum there. The labor market has been 0:06:36.920 --> 0:06:41.080 tight and that's created upward pressure owned wages and inflation, yes, 0:06:41.240 --> 0:06:43.440 ticking down a little bit. Certainly an out of the 0:06:43.480 --> 0:06:48.240 two percent target, and it's that disinflation progress is stalling out. 0:06:48.240 --> 0:06:51.279 So you have robust growth, tight labor market, and stalling 0:06:51.480 --> 0:06:54.320 disinflation progress. That's going to allow the Fed to keep 0:06:54.320 --> 0:06:56.320 their foot on the brakes a little bit longer. I 0:06:56.360 --> 0:06:58.400 think that as we get to June, we might end 0:06:58.480 --> 0:07:02.040 up seeing a revision to the famous FOMC dot plot, 0:07:02.320 --> 0:07:05.760 which shows monetary policy makers forecast for where rates are 0:07:05.760 --> 0:07:08.320 going to go. Right now, they're showing seventy five bases 0:07:08.360 --> 0:07:10.760 points of cuts in this year. In twenty twenty four, 0:07:11.160 --> 0:07:14.040 I think that the risk is really toward a revision 0:07:14.080 --> 0:07:16.920 where even policymakers have to admit they're not going to 0:07:16.960 --> 0:07:18.840 be able to cut rates as much as they once thought. 0:07:18.960 --> 0:07:21.400 Yeah, maybe not seventy five, but we may see something 0:07:21.440 --> 0:07:22.560 by the end of this year. 0:07:22.440 --> 0:07:25.360 Fifty twenty five. It's possible. But then we're getting close 0:07:25.440 --> 0:07:26.800 to the end of the year and we're getting close 0:07:26.800 --> 0:07:29.440 to election season, and it gets really difficult to navigate 0:07:29.440 --> 0:07:31.240 both political and economic conditions. 0:07:31.360 --> 0:07:33.720 Oh boy, a lot to look forward to. Well that 0:07:33.840 --> 0:07:37.600 March pce Q one gdp out this coming Thursday in 0:07:37.640 --> 0:07:41.920 our thanks to Stuart paul Us economist with Bloomberg Economics. Well, 0:07:41.960 --> 0:07:44.520 we turn now to the first quarter earning season with 0:07:44.560 --> 0:07:46.920 a ton of big reports this week. One company though 0:07:47.000 --> 0:07:51.520 getting a lot of attention, the world's most valuable electric automaker, Tesla, 0:07:51.680 --> 0:07:54.520 posting its latest results on Tuesday. And for more on 0:07:54.560 --> 0:07:56.880 what we can expect and all the challenges that Tesla 0:07:56.960 --> 0:08:00.520 is facing, we're joined by Steve Mann, Bloomberg and Intelligence, 0:08:00.560 --> 0:08:05.120 Global Autos and Industrials Research Analyst. Now, Steve, let's start 0:08:05.120 --> 0:08:07.160 with what you expect to see with the results, and 0:08:07.200 --> 0:08:10.040 then we'll get into everything else with Tesla's So what 0:08:10.040 --> 0:08:11.480 do you expect to see on Tuesday? 0:08:12.680 --> 0:08:16.160 Oh, it's not going to be pretty for Tesla. They've 0:08:16.280 --> 0:08:19.400 announced a cut ten percent of their workforce, and you 0:08:19.440 --> 0:08:21.680 know they announced it right beginning of the second quarterer, 0:08:21.840 --> 0:08:25.800 so it may be signaling that things are a lot 0:08:25.840 --> 0:08:29.480 worse than the street anticipated, maybe a lot worse than 0:08:29.480 --> 0:08:32.880 what they anticipated. So, you know, first quarter earning, it's 0:08:32.920 --> 0:08:35.520 not going to be pretty. You know, we're thinking it's, 0:08:35.640 --> 0:08:38.280 you know, based on a scenario analysis, likely a miss 0:08:38.360 --> 0:08:40.320 versus consensus. 0:08:39.720 --> 0:08:43.280 And we've seen a few misses from a Tesla lately. 0:08:43.800 --> 0:08:48.600 We saw the deliveries missed. You know, there's a laundry 0:08:48.600 --> 0:08:50.880 list of things we could talk about, and we'll also 0:08:50.920 --> 0:08:52.880 talk about some of the good things. So well, let's 0:08:52.880 --> 0:08:55.720 get more on those job cuts. Ten percent of its workforce, 0:08:55.760 --> 0:08:59.280 fourteen thousand jobs worldwide. Like you said, not a good sign, 0:08:59.520 --> 0:09:02.160 not a sign of confidence for employees or for investors, 0:09:02.240 --> 0:09:02.480 is it? 0:09:03.000 --> 0:09:07.400 No? No? And and interestingly, they actually raise prices in 0:09:07.440 --> 0:09:11.560 the US and they cut incentives in China. So you know, 0:09:11.679 --> 0:09:13.520 I think journey earnings call, it's going to be a 0:09:13.640 --> 0:09:17.760 huge earnings call for Tesla, and hopefully they're prepared for that. 0:09:18.880 --> 0:09:21.960 They're going to have to set you know, real expectations 0:09:22.040 --> 0:09:26.320 for the investors and how to move forward because you know, 0:09:26.360 --> 0:09:30.199 they cut prices earlier this month. You know, the fear 0:09:30.240 --> 0:09:32.679 is that they're going to reverse it. If they do, 0:09:33.160 --> 0:09:35.440 you know, we're going to probably see more downgrades on 0:09:35.480 --> 0:09:39.000 the stock, earnings downgrade and ratings down grade by the street. 0:09:39.360 --> 0:09:41.840 And that's about forty percent just a year to date 0:09:41.920 --> 0:09:42.800 right on that stock. 0:09:43.120 --> 0:09:47.240 Yeah, forty percent. Now, they're not alone at this This 0:09:47.280 --> 0:09:51.600 is an industry wide issue, particularly in the US, more 0:09:51.640 --> 0:09:54.079 so in the US, but we're seeing it globally as well. 0:09:54.559 --> 0:09:57.680 I think the early adopters for evs have pretty much 0:09:57.720 --> 0:09:58.320 tapped out. 0:09:58.800 --> 0:09:59.000 Right. 0:09:59.080 --> 0:10:01.440 A lot of the evs today that are offered today, 0:10:01.520 --> 0:10:04.520 especially in the West, in Europe and as well in 0:10:04.559 --> 0:10:09.160 the US, they're well above fifty thousand dollars per vehicle. 0:10:09.600 --> 0:10:12.640 Above fifty thousand, you're pretty much at the premium and 0:10:12.760 --> 0:10:17.280 luxury segment, So the market for that segment is relatively small. 0:10:17.679 --> 0:10:21.600 What we're also looking for Tesla to talk about in 0:10:21.640 --> 0:10:26.320 their earnings it's their next model. It's dubbed the Model two. 0:10:26.880 --> 0:10:32.440 It's a compact subcompact vehicle supposedly under thirty thousand dollars. 0:10:32.720 --> 0:10:35.600 It's a critical product, not just for Tesla but for 0:10:35.679 --> 0:10:40.000 the market because, like I said earlier, the luxury segment 0:10:40.360 --> 0:10:43.160 is pretty much tapped out, so we need to bring 0:10:43.200 --> 0:10:47.680 in new buyers for battery electric vehicles and more affordable 0:10:47.720 --> 0:10:50.240 evs is really what the market needs right now. 0:10:50.440 --> 0:10:50.600 Now. 0:10:50.600 --> 0:10:54.280 There were reports that that Model too production had been delayed. 0:10:55.240 --> 0:10:58.640 Tesla denied those reports. But where is it? They have 0:10:58.720 --> 0:11:02.320 said the robotaxis comme August eighth, right, But I think, 0:11:02.440 --> 0:11:04.319 like you said, most people want to see a more 0:11:04.360 --> 0:11:05.280 affordable car. 0:11:05.920 --> 0:11:10.280 Yeah, that Model two is critical for tests up. It's interesting. 0:11:10.760 --> 0:11:13.920 I'm still optimistic. I think, you know, they's already spent 0:11:14.000 --> 0:11:16.720 a lot of money, made a lot of investment in 0:11:17.360 --> 0:11:21.120 developing that model too, you know, and they were scheduled 0:11:21.160 --> 0:11:25.120 to actually launch that at the end of twenty twenty five. 0:11:25.280 --> 0:11:28.400 You know, it's not that far away, given that it 0:11:28.440 --> 0:11:31.920 takes multi years to develop a new car, So for 0:11:32.000 --> 0:11:34.960 them to scrap it pretty much almost the last minute, 0:11:35.120 --> 0:11:39.560 it's kind of unheard of. So now you no elon 0:11:39.679 --> 0:11:43.000 must it come out on Twitter or on x to 0:11:43.080 --> 0:11:47.560 say that the reporting on cancellational Model two is false. 0:11:48.440 --> 0:11:52.200 I hope that's that's the case. But in the fourth 0:11:52.320 --> 0:11:57.080 quarter announcement earnings announcement, he did mention that this model 0:11:57.160 --> 0:12:00.240 too will be launched at the end of time twenty 0:12:00.280 --> 0:12:04.200 twenty five, and that the production actually will start in 0:12:04.280 --> 0:12:09.800 the US and then expand into Mexico. Hopefully it's really 0:12:09.880 --> 0:12:14.800 not a cancellation of the model to the subcompact compact vehicle. 0:12:15.240 --> 0:12:18.319 Maybe there's some hurdles that they need to get through 0:12:18.760 --> 0:12:22.079 in building that plant in Mexico, and that's probably hopefully, 0:12:22.080 --> 0:12:23.040 that's probably what it is. 0:12:23.320 --> 0:12:26.040 Well, a lot to look forward to Tesla's first quarter 0:12:26.080 --> 0:12:28.880 results coming out after the close this Tuesday, and our 0:12:28.920 --> 0:12:33.000 thanks to Steve Man, Bloomberg Intelligence, Global Autos and Industrials 0:12:33.040 --> 0:12:36.400 research analyst. Coming up on Bloomberg day Break weekend, we'll 0:12:36.440 --> 0:12:39.280 look at what's in store for Europe's biggest banks as 0:12:39.400 --> 0:12:43.200 earning season gets underway. There, I'm Tom Busby, and this 0:12:43.640 --> 0:12:57.120 is Bloomberg. This is Bloomberg day Break weekend, our global 0:12:57.160 --> 0:12:59.240 look ahead at the top stories for investors in the 0:12:59.280 --> 0:13:02.600 coming week. I'm Tom Busby in New York. Up later 0:13:02.600 --> 0:13:04.760 in our program a look at the twenty twenty four 0:13:05.000 --> 0:13:09.920 Beijing International Automotive Exhibition. But first, it's earning season for 0:13:09.960 --> 0:13:13.120 Europe's biggest banks, and hotter than expected inflation in Europe 0:13:13.120 --> 0:13:16.000 could put its central banks in a difficult position as 0:13:16.040 --> 0:13:19.320 far as plans to lower interest rates higher for longer 0:13:19.520 --> 0:13:21.760 may not be the mantra that the markets want to hear, 0:13:21.800 --> 0:13:25.440 but for Europe's biggest lenders it could prove lucrative for more. 0:13:25.720 --> 0:13:28.000 Let's go to London and bring in Bloomberg Daybreak europe 0:13:28.000 --> 0:13:29.680 banker Steven Carroll. 0:13:29.800 --> 0:13:32.800 Tom High interest rates have been the key profit driver 0:13:32.960 --> 0:13:36.600 for European banks over the past year. In twenty twenty three, 0:13:36.720 --> 0:13:39.960 Elevated borrowing costs saw the combined net income of the 0:13:40.040 --> 0:13:44.680 twenty biggest continental European banks exceed one hundred billion euros 0:13:44.679 --> 0:13:48.080 for the first time. According to Bloomberg data, three quarters 0:13:48.080 --> 0:13:50.920 of the lenders and the group achieved their highest profits ever. 0:13:51.440 --> 0:13:54.440 Barkley's Deutche Bank and BMP Paribar are just some of 0:13:54.440 --> 0:13:57.520 the names reporting results in the coming days. As markets 0:13:57.520 --> 0:14:00.000 are staring down the barrel of an even longer period 0:14:00.200 --> 0:14:02.640 of high interest rates, many will be hoping to emulate 0:14:02.760 --> 0:14:05.800 last year's success, but that may be difficult as the 0:14:05.840 --> 0:14:09.400 tailwinds attached to high rates begin to fade. Annaly survey 0:14:09.440 --> 0:14:12.520 by Bloomberg expect the combined net income for eleven of 0:14:12.520 --> 0:14:16.319 Europe's biggest banks to fall by six point three percent 0:14:16.440 --> 0:14:18.719 this year, but that would still make twenty twenty four 0:14:18.800 --> 0:14:22.720 the second most profitable year for more than two decades. Now, 0:14:22.800 --> 0:14:26.440 JP Morgan's research team is reassessing it's initially wary outlook 0:14:26.480 --> 0:14:29.080 on the sector, admitting their cautious approach was not the 0:14:29.160 --> 0:14:32.400 right decision, but uncertainty over the right path is a 0:14:32.440 --> 0:14:35.800 cloud on the horizon. Markets are expecting the European Central 0:14:35.800 --> 0:14:37.920 Bank to cut rates for the first time in June, 0:14:38.120 --> 0:14:41.800 but the trajectory after that looks more uncertain. We've been 0:14:41.800 --> 0:14:45.080 discussing this with Klaus Badder, global chief economist at SUSSIA 0:14:45.080 --> 0:14:48.040 to general he says that borrowing costs will start to 0:14:48.080 --> 0:14:49.280 come down slowly. 0:14:49.760 --> 0:14:52.680 Well the easy B we see three intrastright cuts, which 0:14:52.760 --> 0:14:55.520 is a pretty slow pace. So cut in June, a 0:14:55.560 --> 0:14:59.520 cut in September, cut in December, which would coincide with 0:15:00.160 --> 0:15:03.760 dates to the staff protections that the UCP has, So 0:15:03.800 --> 0:15:07.640 it's certainly not it's a gradual cut. And by the way, 0:15:08.080 --> 0:15:10.600 all of those reductions we expect them to be by 0:15:10.640 --> 0:15:13.720 twenty five basis points, so it's certainly a much slower 0:15:13.760 --> 0:15:16.200 place on the way down than on the way up. 0:15:16.480 --> 0:15:19.240 And for the Bank of England it's it's fairly similar. 0:15:19.280 --> 0:15:22.560 But one big difference between the Bank of England and 0:15:22.600 --> 0:15:24.920 the ECP, of course, is that the Bank of England 0:15:25.160 --> 0:15:29.120 has rates interest rates much more drastically then the ECB. 0:15:29.400 --> 0:15:34.840 And the UK economy is really quite sensitive to interest 0:15:34.880 --> 0:15:38.120 rates because of the structure of its mortgage market, where 0:15:38.320 --> 0:15:42.360 even though now most mortgage rates are fixed, they're fixed 0:15:42.400 --> 0:15:46.040 for a relatively short period of time. In drastic contrast 0:15:46.040 --> 0:15:49.320 France to Germany or the Netherlands and other countries in 0:15:49.320 --> 0:15:52.960 Europe where you have very long fixed rate deals and 0:15:53.000 --> 0:15:55.400 so the sensitivity of interest rates they are small. So 0:15:55.680 --> 0:15:58.880 I would say that the Bank of England is likely 0:15:59.160 --> 0:16:02.680 and it's over considerable let's say six and nine months, 0:16:02.840 --> 0:16:05.440 is likely to reduce interest rates as somewhat faster clip 0:16:05.760 --> 0:16:06.840 than the ECB will. 0:16:07.120 --> 0:16:09.440 How worried do ECB policy bakers need to be about 0:16:09.440 --> 0:16:11.760 a fact that may not be cutting rights as you 0:16:11.800 --> 0:16:13.040 see as this year. 0:16:13.360 --> 0:16:15.920 You know, of course central banks will always tell you 0:16:15.920 --> 0:16:19.200 you're not quite independent, and we have our brief, and 0:16:19.240 --> 0:16:23.440 our brief is to do with our domestic economy. I 0:16:23.480 --> 0:16:27.160 think that the connection between central bank policies first and 0:16:27.200 --> 0:16:29.840 foremost comes to the exchange rate. Now, the US already 0:16:29.840 --> 0:16:33.040 relatively weak. If you've got an inflation problem, that's not 0:16:33.120 --> 0:16:36.560 a good thing. But if inflation in your area is 0:16:36.640 --> 0:16:40.120 going too slow, then I think the UCB is going 0:16:40.160 --> 0:16:43.240 to have a reasonably high degree of tolerance for a 0:16:43.240 --> 0:16:48.040 weaker exchange rate, and therefore will not be particularly fast. 0:16:48.040 --> 0:16:51.240 But now, clearly, if the FED was cutting interest rates quickly, 0:16:51.360 --> 0:16:53.440 there would be more scope for the UCP to reduce 0:16:53.440 --> 0:16:57.760 interest rates as well. I think that's that's clear. But 0:16:58.800 --> 0:17:02.880 what I've been a bit surprised about is that the 0:17:02.960 --> 0:17:08.240 ECB's portrayal of the inflation picture is not completely in 0:17:08.280 --> 0:17:09.800 line the way I see. I have to say. 0:17:10.000 --> 0:17:10.080 So. 0:17:10.160 --> 0:17:14.399 That was Claud's Bader, Global Chief Economist Assaciaity General in London, 0:17:14.400 --> 0:17:17.199 speaking to us on Bloomberg Radio. What does all of 0:17:17.240 --> 0:17:20.399 this mean for those big European banking names reporting in 0:17:20.440 --> 0:17:23.880 this earning season. I've been discussing that with Bloomberg Opinions 0:17:23.920 --> 0:17:26.720 Global Banking Columbist Paul J. Davies. 0:17:27.119 --> 0:17:29.120 The really fascinating thing that we saw at four year 0:17:29.160 --> 0:17:32.439 earnings that we didn't expect was the southern European banks, 0:17:32.960 --> 0:17:37.240 you know, the Santander's UNI credit, especially those of Spain 0:17:37.280 --> 0:17:40.200 and Italy really kind of outperformed. They did so much 0:17:40.200 --> 0:17:42.320 better than people were expecting. Normally, these banks they have 0:17:42.440 --> 0:17:45.760 kind of they have much shorter duration loans on their books, 0:17:45.760 --> 0:17:48.760 They react much more quickly to interest rates, and people 0:17:48.760 --> 0:17:51.240 were expecting them to sort of fall off quicker, but 0:17:51.280 --> 0:17:52.800 in fact it was the other way around. Those with 0:17:52.920 --> 0:17:55.719 the more new othern Europeans, some of the French BNP, 0:17:56.800 --> 0:18:00.159 German Dutch banks didn't do so well at all. They 0:18:00.200 --> 0:18:03.520 kind of missed their earnings and revenue expectations. So it's like, 0:18:03.920 --> 0:18:06.000 and I think there's a sense that that's going to continue, 0:18:06.040 --> 0:18:09.560 even though we're expecting rate cuts to come. Obviously, I 0:18:09.560 --> 0:18:12.280 think the curves have remained relatively steep, and that's really 0:18:12.320 --> 0:18:14.840 good for these these Southern European banks. So we'll see 0:18:14.920 --> 0:18:16.680 we'll see a bit more of that, probably. 0:18:16.400 --> 0:18:18.200 Because I mean this is of course in the context 0:18:18.240 --> 0:18:21.120 of when we're looking ahead to an expected cut from 0:18:21.119 --> 0:18:24.840 the ECB in June. Are you suggesting that that's going 0:18:24.880 --> 0:18:27.480 to kind of have quite diversion effects across the European 0:18:27.520 --> 0:18:30.639 banking sector than when we're kind of listening out to 0:18:30.680 --> 0:18:32.600 what banks are going to be telling us better out look. 0:18:32.680 --> 0:18:34.800 Yeah, I mean, when the cuts do start to come in, 0:18:35.040 --> 0:18:38.200 then obviously it will affect those Southern European banks quickest 0:18:38.240 --> 0:18:41.680 because their loans reset faster. Later on in the year, 0:18:41.720 --> 0:18:44.920 we might see their earnings expectations start to drop away, 0:18:45.000 --> 0:18:48.480 depending on exactly what cuts materialize and what the outlook 0:18:48.520 --> 0:18:50.600 is for how many more cuts are going to come, 0:18:51.080 --> 0:18:53.719 And then that's when the more defensive you know, the 0:18:53.760 --> 0:18:57.280 northern Europeans with with much longer duration mortgage books and 0:18:57.320 --> 0:19:00.639 things like this, who will have more of you know, 0:19:00.720 --> 0:19:03.000 the recent sort of higher rates lasting for longer in 0:19:03.520 --> 0:19:07.000 their lending. That's when they will look better. But it 0:19:07.000 --> 0:19:09.679 obviously depends on why we're cutting rates and how far 0:19:09.720 --> 0:19:11.679 we're cutting rates, And if we're moving into something that 0:19:11.720 --> 0:19:14.439 looks a lot more recessionary, then that's obviously kind of 0:19:14.440 --> 0:19:16.320 bad for banks in general, and we'll be starting to 0:19:16.359 --> 0:19:19.080 worry about you know, bad debts and provisions and that 0:19:19.119 --> 0:19:20.120 sort of thing creeping up. 0:19:20.280 --> 0:19:23.160 Yeah, because I mean, looking at the stocks bank Bank 0:19:23.200 --> 0:19:25.600 index up over ten percent since the start of the 0:19:25.680 --> 0:19:28.520 years that high borrowing costs have been you know, helping 0:19:28.560 --> 0:19:31.360 to lift those as well is Gulb and Sachs rise. 0:19:31.400 --> 0:19:34.720 And describing the future of European banks is better for longer. 0:19:34.440 --> 0:19:36.520 Well, again, it depends on what rate cuts we have 0:19:36.880 --> 0:19:39.520 and what the outlook is for why they're happening. I mean, 0:19:39.720 --> 0:19:41.560 I mean, if you look at European banks alone, if 0:19:41.560 --> 0:19:44.159 you look at the eurostocks fifty the banks in there 0:19:44.200 --> 0:19:47.040 so exclude the UK banks, then actually the performance has 0:19:47.080 --> 0:19:49.600 been even better. And one of the drivers there has 0:19:49.640 --> 0:19:52.280 been you know, some of the bigger banks. BNP has 0:19:52.320 --> 0:19:55.240 sold businesses, UNI Credit has had years and years of 0:19:55.280 --> 0:19:57.840 fixing its balance sheets, and the benefit of that has 0:19:58.000 --> 0:20:00.880 been coming through. And what that meant is there's been 0:20:00.880 --> 0:20:04.160 this wave of you know, much larger than normal, much 0:20:04.240 --> 0:20:06.600 larger than anything in the last decade or so kind 0:20:06.640 --> 0:20:09.560 of share buybacks coming through. So so investors have looked 0:20:09.560 --> 0:20:12.440 at sort of, you know, reasonably good earnings, you know, 0:20:12.560 --> 0:20:14.880 reasonable hopes for those earnings lasting a little bit longer, 0:20:15.119 --> 0:20:17.119 and this wave of buybacks coming through, and that's what 0:20:17.240 --> 0:20:20.480 supported a lot of the European banks, but probably even 0:20:20.520 --> 0:20:21.720 more than some of the UK banks. 0:20:21.720 --> 0:20:24.240 To be honest, what about investment banking and all of 0:20:24.280 --> 0:20:26.000 this as well? What are it sort of hopes that 0:20:26.040 --> 0:20:27.359 these banks have in that sector. 0:20:27.760 --> 0:20:30.680 Yeah, well, this is where it's this is where they 0:20:30.840 --> 0:20:33.760 are being kind of way more optimistic than is warranted, 0:20:33.760 --> 0:20:35.159 I think. I mean, we've just had all of the 0:20:35.160 --> 0:20:38.720 big US banks reporting there was a jump in investment 0:20:38.760 --> 0:20:41.280 banking fees and a lot of this was driven by 0:20:41.400 --> 0:20:43.560 kind of bond issuance and loan issuance by sort of 0:20:43.600 --> 0:20:45.760 you know, the debt capital market side of things. The 0:20:45.920 --> 0:20:48.880 M and a business is still really really struggling now. 0:20:49.080 --> 0:20:51.160 So good debt market business is going to be good 0:20:51.200 --> 0:20:53.160 for Deutsche Bank, is going to be good for Barkleys. 0:20:53.160 --> 0:20:57.440 That's historically where they've where they've done well. But you know, Barklay's, 0:20:57.840 --> 0:21:01.840 especially BNP also to some degree, Deutsche have like they 0:21:01.840 --> 0:21:05.320 have like really quite bullish expectations for what investment banking 0:21:05.359 --> 0:21:07.480 revenues are going to do over the next few years, 0:21:07.520 --> 0:21:10.600 in terms of what they're promising shareholders, the returns they're 0:21:10.640 --> 0:21:12.720 going to make, you know, for Barkley's, the capital returns 0:21:12.760 --> 0:21:14.400 they're going to fund, and this sort of thing. And 0:21:15.040 --> 0:21:18.119 really it's like the investment banking recovery isn't looking that 0:21:18.160 --> 0:21:20.080 strong yet. It's looking like it's still going to be 0:21:20.119 --> 0:21:22.879 quite a tricky, quite a bumpy year in many ways. 0:21:23.240 --> 0:21:25.240 And where it is good is going to be much 0:21:25.280 --> 0:21:28.080 more US focused. So I'm kind of very skeptical that 0:21:28.119 --> 0:21:29.480 a lot of these Europeans are going to hit the 0:21:29.560 --> 0:21:30.800 kind of targets that they're setting. 0:21:31.320 --> 0:21:33.600 So is it the banks that have a greater US 0:21:33.640 --> 0:21:36.800 investment bank business then that are more likely to outperform 0:21:36.840 --> 0:21:37.719 in this sector? 0:21:37.920 --> 0:21:38.120 Yeah? 0:21:38.119 --> 0:21:39.800 So, I mean, so Barkley is obviously with a lot 0:21:39.840 --> 0:21:44.399 more US exposure, perhaps will do better than BNP or 0:21:44.440 --> 0:21:48.040 Deutsch on that front. But again it's like the expectations 0:21:48.040 --> 0:21:51.440 that they have involved taking market share from somebody else, 0:21:51.480 --> 0:21:53.280 and the question is, well, who is that somebody else? 0:21:53.320 --> 0:21:54.960 I mean, they're not going to take it from the Americans, 0:21:55.080 --> 0:21:58.320 not that easily anyway. You know, obviously creditsueeze blew up 0:21:58.359 --> 0:22:00.280 and is gone. You know, any market shared we had 0:22:00.320 --> 0:22:03.520 from then has probably been already distributed. So then the 0:22:03.600 --> 0:22:05.240 question is, you know, where do you get it from? 0:22:05.240 --> 0:22:07.360 I mean, there's an argument that there are some smaller 0:22:07.400 --> 0:22:10.600 European banks who are going to find it increasingly difficult 0:22:10.680 --> 0:22:14.119 to maintain those investment banking services in any sort of 0:22:14.160 --> 0:22:18.320 you know, cost effective or competitive fashion. But again, they 0:22:18.320 --> 0:22:20.080 don't account for a lot of the business, so there's 0:22:20.119 --> 0:22:22.600 not a lot of share to be taken from them, 0:22:22.680 --> 0:22:24.480 even if they do give up and go away. So 0:22:25.119 --> 0:22:28.200 it's really difficult to see, you know, how these big 0:22:28.240 --> 0:22:31.280 Europeans really kind of do anything better than what the 0:22:31.359 --> 0:22:31.960 market does. 0:22:32.280 --> 0:22:36.760 We've been discussing the differing outlooks for interest rates between 0:22:36.920 --> 0:22:40.160 the US and Europe after the recent comments from Jerome 0:22:40.240 --> 0:22:44.280 Powe signaling a later start to rate cuts in the US. 0:22:44.440 --> 0:22:47.000 Does the currency diversions that could provoke, is that going 0:22:47.000 --> 0:22:49.320 to have an impact on banks outlooks? 0:22:49.600 --> 0:22:51.479 I mean again, certainly. I mean I think it's like, 0:22:51.720 --> 0:22:54.280 you know, for the US, we're almost certainly into a 0:22:54.320 --> 0:22:57.720 world of you know, higher rates for longer, more upward 0:22:57.800 --> 0:23:00.399 volatility in both rates and inflation rather and kind of 0:23:00.400 --> 0:23:03.280 downward volatility, i e. You know, we're going to continue 0:23:03.320 --> 0:23:05.760 to see if rates do move or if there is 0:23:05.840 --> 0:23:07.679 questions over the path of rates, it's going to be 0:23:08.000 --> 0:23:11.640 flat to up rather than suddenly down. In Europe, it's 0:23:11.680 --> 0:23:14.600 a very different world. It's you know, it's lower growth generally, 0:23:14.640 --> 0:23:18.160 it's lower productivity. There's like there's more kind of trade 0:23:18.200 --> 0:23:20.480 and supply chain issues for Europe than there are for 0:23:20.520 --> 0:23:23.359 the US. And there are some people and I kind 0:23:23.400 --> 0:23:25.160 of hadn't decided quite whether I agree with them yet 0:23:25.200 --> 0:23:26.680 or not, but there are some people who really think 0:23:26.680 --> 0:23:29.240 that actually the volatility in Europe is going to be downwards. 0:23:29.280 --> 0:23:32.840 It's going to be inflation undershooting expectations more quickly than 0:23:32.880 --> 0:23:36.280 we might think, rates having to drop to below sort 0:23:36.280 --> 0:23:38.320 of two percent again more quickly than we might think 0:23:38.359 --> 0:23:41.879 as well, and that is bad for trading activity. You know, 0:23:41.960 --> 0:23:44.240 we could be entering a stage where actually Europe and 0:23:44.280 --> 0:23:46.760 the US start to diverge quite a bit, and again 0:23:46.800 --> 0:23:49.320 that will favor the big US banks over the big 0:23:49.320 --> 0:23:52.040 European banks when it comes to investment, banking and trading too. 0:23:52.400 --> 0:23:55.200 Quite about jobs and pay in all of this as well, 0:23:55.600 --> 0:23:59.520 You've written extensively about ubs after the Credits Suite takeover. 0:23:59.720 --> 0:24:02.840 We've reporting on the most recent round of job cuts 0:24:02.880 --> 0:24:05.840 expected at ubs as well. What is the outlook for 0:24:05.880 --> 0:24:08.520 those working in these banks in terms of both the 0:24:08.560 --> 0:24:10.880 security of their jobs but also how much they should 0:24:10.920 --> 0:24:12.040 be expecting in bonuses. 0:24:12.240 --> 0:24:14.040 Well, again, I mean, it depends a lot on what 0:24:14.119 --> 0:24:16.040 happens with the economy. I think in the US it's 0:24:16.040 --> 0:24:18.480 it's obviously looking better apart from I mean, if you're 0:24:18.480 --> 0:24:20.840 an M and a banker, you know, you're still not 0:24:20.920 --> 0:24:23.560 getting the kind of activity that you that will see 0:24:23.560 --> 0:24:26.560 you earning you know, fabulous money. You know, the boutiques 0:24:26.760 --> 0:24:29.280 who also pay their bankers a greater share of the 0:24:29.320 --> 0:24:30.800 revenue they make so they don't have all of the 0:24:30.800 --> 0:24:33.040 rest of the costs are also kind of taking away 0:24:33.040 --> 0:24:35.159 bits of business. So we're talking me like, you know, 0:24:35.640 --> 0:24:38.600 the ever cause, the pgats, the Lazards, you know, those 0:24:38.640 --> 0:24:41.480 sorts of banks, those sorts of investment banks. It's a 0:24:41.560 --> 0:24:43.840 much trickier world. But again it's sort of you know, 0:24:43.960 --> 0:24:45.879 to the extent that there looks like there could be 0:24:45.920 --> 0:24:48.159 a recovery, it's going to be more US based than 0:24:48.240 --> 0:24:51.359 Europe based. So so those people will people focus on 0:24:51.400 --> 0:24:53.240 the US will earn more. But I mean, I guess 0:24:53.320 --> 0:24:55.240 and we've got a big, a big take about this 0:24:55.280 --> 0:24:57.520 on Bloomberg about you know, the private equity industry and 0:24:57.520 --> 0:25:00.240 the lack of activity there. This is a huge, huge 0:25:00.280 --> 0:25:03.479 business for investment banking. They you know, historically supply up 0:25:03.520 --> 0:25:06.280 to thirty percent of all investment banking fees across the 0:25:06.280 --> 0:25:08.800 board in terms of M and A advice, their issuance 0:25:08.800 --> 0:25:11.560 equitations and so on and so forth. And until that 0:25:11.760 --> 0:25:15.440 industry can kind of find its mojo again, can find 0:25:15.520 --> 0:25:19.280 reasons and value in doing deals, then investment banking is 0:25:19.280 --> 0:25:22.320 going to disappoint. And so you know, the job requirements 0:25:22.320 --> 0:25:24.640 and the bonus requirements for a lot of people may 0:25:24.680 --> 0:25:25.800 well disappoint us well. 0:25:26.080 --> 0:25:29.200 Thanks to Bloomberg opinions, Paul J. Davies, we will bring 0:25:29.240 --> 0:25:32.560 you those bank results on Bloomberg Radio as they're released 0:25:32.760 --> 0:25:35.439 in the coming days. I'm Stephen Carroll in London. You 0:25:35.440 --> 0:25:38.600 can catch us every weekday morning here for Bloomberg Daybreak Europe, 0:25:38.600 --> 0:25:41.560 beginning at six am in London and one am on 0:25:41.600 --> 0:25:42.199 Wall Streets. 0:25:42.200 --> 0:25:45.000 Tom, thank you, Steven, And coming up on Bloomberg day 0:25:45.000 --> 0:25:47.639 Break weekend, I'll look at the twenty twenty four Beijing 0:25:47.920 --> 0:25:52.760 International Automotive Exhibition. I'm Tom Busby, and this is Bloomberg. 0:26:03.680 --> 0:26:05.720 I'm Tom Buzzby with your global look ahead at the 0:26:05.760 --> 0:26:08.480 top stories for investors in the coming week. This week 0:26:08.560 --> 0:26:11.840 is the Auto Show China, the twenty twenty four Beijing 0:26:12.000 --> 0:26:16.439 International Automotive Exhibition. Bloomberg Daybreak Asia host Brian Curtis and 0:26:16.440 --> 0:26:19.280 Doug Krisner take a look at China's electric vehicle market 0:26:19.359 --> 0:26:23.679 and how international automakers are reacting to China's dominance in 0:26:23.720 --> 0:26:24.280 that space. 0:26:24.800 --> 0:26:28.040 Tom, we look forward to Auto Show China, the twenty 0:26:28.080 --> 0:26:33.560 twenty four Beijing International Automotive Exhibition. Legacy European automakers will 0:26:33.560 --> 0:26:36.520 be revving up a last ditch offensive to win back 0:26:36.600 --> 0:26:39.840 some of the EV market, and the Chinese brands will 0:26:39.840 --> 0:26:41.640 be showing off their latest models. 0:26:41.680 --> 0:26:46.119 For sure, BMW is showcasing and unprecedented fifteen models. A 0:26:46.200 --> 0:26:50.399 slew of BMW executives will be attending. Mercedes CEO is 0:26:50.440 --> 0:26:54.119 attending as well, and Volkswagen will also bring a number 0:26:54.200 --> 0:26:57.600 of its highest ranking executives. This show comes at a 0:26:57.640 --> 0:27:00.959 time of heightened tensions between bay Jing and the West 0:27:01.200 --> 0:27:03.920 over low cost manufacturing in China, and. 0:27:03.920 --> 0:27:05.960 We thought the Auto Show as a result would be 0:27:06.040 --> 0:27:08.199 a good prism through which to look at some of 0:27:08.240 --> 0:27:12.080 these issues. The still growing domestic auto market in China, 0:27:12.400 --> 0:27:16.720 but also the global auto market EU tensions with China 0:27:16.800 --> 0:27:21.120 over cheap Chinese autos US China issues as well some 0:27:21.160 --> 0:27:24.880 of the travails that Tesla is facing, and what happens 0:27:25.000 --> 0:27:28.200 if and when Chinese manufacturers set up shop in Mexico 0:27:28.680 --> 0:27:31.840 as they eye the big US market joining us. In 0:27:31.880 --> 0:27:35.040 our studios in Hong Kong, our Bloomberg Transport reporters Linda 0:27:35.119 --> 0:27:39.800 lu and Danny Leeb and First German Chancellor Olaf Schultz 0:27:39.840 --> 0:27:42.280 has been in China over the past week and has 0:27:42.359 --> 0:27:45.480 drawn some attention to this issue that Doug mentioned, over 0:27:45.600 --> 0:27:50.080 capacity of evs in China flooding European markets. We asked 0:27:50.119 --> 0:27:54.600 Bloomberg correspondent Rebecca Chong Wilkins to characterize the Chinese response 0:27:54.680 --> 0:27:55.760 to such criticism. 0:27:56.000 --> 0:27:59.840 EV is a part of this whole channel and plan 0:28:00.040 --> 0:28:02.679 and to replace the old drivers of growth. If we 0:28:02.800 --> 0:28:06.119 do see this kind of friction, this trade friction, that 0:28:06.240 --> 0:28:09.679 does have the potential to significantly impact the ability for 0:28:09.760 --> 0:28:13.200 these industry to continue developing, because exporting is a big 0:28:13.240 --> 0:28:14.280 part of the plan. 0:28:14.520 --> 0:28:18.600 That's Rebecca Cheong Wilkins. So, Danny, this show, which you'll 0:28:18.640 --> 0:28:20.840 be a ten thing and Linda will as well, is 0:28:21.119 --> 0:28:25.000 about cars. Will it be about the cars or the politics? 0:28:25.600 --> 0:28:30.280 It will be about making sure that Germans or Germany's 0:28:30.280 --> 0:28:34.679 auto production is not harmed by the rise of Chinese 0:28:34.720 --> 0:28:38.240 evs ultimately as much as it is about the cars 0:28:38.800 --> 0:28:42.040 automotive show on display. But there is still a sense 0:28:42.080 --> 0:28:46.120 of cheer politics and economy as well, given how much 0:28:46.840 --> 0:28:52.120 the automotive market really contributes to the German economy. And 0:28:52.200 --> 0:28:56.480 you know, you've seen these successful brands over many, many decades. 0:28:56.520 --> 0:28:59.680 You see them in China today. The fact that BM 0:28:59.720 --> 0:29:04.960 Double Mercedes now they count they count China as being 0:29:05.040 --> 0:29:07.920 their biggest markets in some shape or form, whether beyond 0:29:07.960 --> 0:29:11.200 revenue or on sales. So it's very important. And when 0:29:11.200 --> 0:29:15.760 you see the rise of Chinese evs in particular, what 0:29:15.800 --> 0:29:21.320 you're seeing is them having to reposition themselves against the 0:29:21.440 --> 0:29:24.800 rise of Chinese evs. But we've not necessarily necessarily seen 0:29:24.840 --> 0:29:28.360 an impact yet of on revenues or on sales in particular, 0:29:28.480 --> 0:29:33.160 but is bracing themselves for what is an interesting and 0:29:33.240 --> 0:29:38.040 fascinating long term battle for supremacy and relevance in not 0:29:38.120 --> 0:29:40.480 just China, but what will be the global market. 0:29:40.680 --> 0:29:42.440 When I think at the early days of the auto 0:29:42.480 --> 0:29:46.080 industry in China, I think joint venture, both American and 0:29:46.200 --> 0:29:50.760 European partners establishing these jvs, And clearly I think we 0:29:50.800 --> 0:29:53.680 can agree that Chinese firms did benefit from being exposed 0:29:53.680 --> 0:29:56.600 to that technology on the production side. You know, we've 0:29:56.600 --> 0:29:58.920 heard about past disagreements when it comes to things like 0:29:59.000 --> 0:30:03.440 intellectual proper. I'm curious, Linda, where is China now when 0:30:03.480 --> 0:30:08.400 it comes to technology, particularly as it relates to EV's. 0:30:08.640 --> 0:30:11.240 How sophisticated is that technology currently? 0:30:11.680 --> 0:30:16.400 As you mentioned, in the early days of China's automotive manufacturing, 0:30:16.480 --> 0:30:20.080 they've relied on these foreign joint ventures a lot, where 0:30:20.640 --> 0:30:24.240 international brands like Ford and GM went into the China 0:30:24.280 --> 0:30:28.960 market and set up these production facilities together with the 0:30:29.040 --> 0:30:33.440 Chinese partners. And really what's really interesting is that now 0:30:33.520 --> 0:30:38.000 that China has really grown its domestic electric vehicle industry 0:30:38.160 --> 0:30:41.360 and along with that, coming with the battery supply chain, 0:30:41.680 --> 0:30:45.960 it's kind of leapfrog. Now you're seeing the foreign automakers 0:30:46.000 --> 0:30:48.840 having to turn to China to try to get some 0:30:48.880 --> 0:30:53.320 of that technological edge. We've seen Volkswagen tie up with Xpong, 0:30:53.480 --> 0:30:56.720 which is an up and coming EV startup. We've also 0:30:56.760 --> 0:31:01.440 seen Stilantis forming partnership with an EV make her called 0:31:01.760 --> 0:31:04.720 leap Motor. So it's really interesting to see how the 0:31:04.800 --> 0:31:05.640 tide has turned. 0:31:05.760 --> 0:31:08.240 So you've got Neo, you've got le Auto, you've got 0:31:08.680 --> 0:31:12.280 x pun BYD the biggest name I suppose, and now 0:31:12.320 --> 0:31:14.880 a new entrant, shall Me. I'm just curious, will we 0:31:14.920 --> 0:31:17.480 see much at this auto show in the coming week 0:31:17.480 --> 0:31:18.000 from shall Me? 0:31:18.480 --> 0:31:22.280 Yes, Shallmi will be exhibiting at the auto show. What's 0:31:22.320 --> 0:31:25.800 really interesting about shell Me is they've already had a 0:31:25.880 --> 0:31:30.640 major launch a couple of weeks ago, and after that launched, 0:31:30.640 --> 0:31:34.640 the reception has been better than expected. Sales kind of 0:31:34.680 --> 0:31:37.280 went through the roof, so I think at the Auto Show. 0:31:37.280 --> 0:31:39.200 It would be kind of another chance for shell Me 0:31:39.360 --> 0:31:42.120 to display its first EV, the SIU seven. 0:31:42.400 --> 0:31:44.960 Linda just mentioned the auto supply chain Danny. When it 0:31:45.000 --> 0:31:49.680 comes to very critical technology lithium ion batteries, I'm thinking 0:31:49.720 --> 0:31:52.240 of c at L in particular. We just heard from 0:31:52.240 --> 0:31:55.600 the company recently with its earnings report to what extent 0:31:55.720 --> 0:31:58.640 is China dominate the battery space? Is this a slam dunk? 0:31:58.680 --> 0:32:01.720 I mean, nobody can compete against China right now when 0:32:01.760 --> 0:32:03.080 it comes to EV batteries. 0:32:03.240 --> 0:32:06.240 I think China's always had that head start in the 0:32:06.280 --> 0:32:09.680 battery space and doing it in a way in scale 0:32:09.720 --> 0:32:13.960 and identifying what it thought would be the future technologies. 0:32:14.040 --> 0:32:15.920 When you do look at the numbers, you do see 0:32:16.240 --> 0:32:21.920 China in particular having a grip on many aspects of 0:32:21.960 --> 0:32:25.600 the battery supply chain. And that's no coincidence thanks to 0:32:26.120 --> 0:32:29.960 this response to what they thought was the future in 0:32:30.120 --> 0:32:33.560 automotive being evs. When you see some like c ATL 0:32:34.320 --> 0:32:38.720 you performing so strongly, and it seems to whether any 0:32:38.800 --> 0:32:42.200 kind of market conditions, clearly there is a cause can 0:32:42.440 --> 0:32:46.280 concern there, because when you want to have a level 0:32:46.280 --> 0:32:50.040 playing field, when you want to have more players, more diversity, 0:32:50.080 --> 0:32:53.400 and yet there is still more concentration. I think there's 0:32:53.440 --> 0:32:56.760 a big question mark over how governments respond to maybe 0:32:56.760 --> 0:32:59.040 even support their own kind of national champions in the 0:32:59.040 --> 0:32:59.960 battery space. 0:33:00.040 --> 0:33:03.160 Linda, as you know, US Treasury Secretary Janet Yellen was 0:33:03.160 --> 0:33:05.160 recently in China and one of the things that she 0:33:05.320 --> 0:33:08.840 criticized the government for was the subsidy the role that 0:33:08.920 --> 0:33:12.720 subsidies play in supporting the industry. What do we know 0:33:13.040 --> 0:33:18.280 about how the government has supported the EV manufacturers and 0:33:18.320 --> 0:33:21.960 whether or not that has been, to Yellen's point, maybe 0:33:22.000 --> 0:33:22.880 a little excessive. 0:33:24.520 --> 0:33:27.800 Yes, that's right. When Jennet Yellen and China, the word 0:33:27.840 --> 0:33:31.040 that kept coming up was over capacity. And you know 0:33:31.120 --> 0:33:34.560 how the Chinese government subsidies have led to the situation. 0:33:35.280 --> 0:33:39.560 In the early days of the electric vehicle industry in China, 0:33:39.680 --> 0:33:44.280 the government has poured tens of billions of dollars into 0:33:44.480 --> 0:33:48.840 growing and nurturing these companies. Now you've got success stories 0:33:48.960 --> 0:33:53.000 like byd CTL that have come from this government support. 0:33:53.320 --> 0:33:57.600 But in the past few years that support has been 0:33:57.840 --> 0:34:01.880 phased out as China enters kind of its next stage 0:34:01.920 --> 0:34:04.280 of EV adoption, which is more market driven. 0:34:04.760 --> 0:34:04.920 Now. 0:34:04.960 --> 0:34:08.440 I think critics may point to that as unfair competition 0:34:08.600 --> 0:34:13.400 that these Chinese companies survived, so probably mostly due to 0:34:13.440 --> 0:34:17.640 these subsidies. But on the other hand, you see US 0:34:17.640 --> 0:34:23.279 and the EU also now investing into their domestic industry. 0:34:23.400 --> 0:34:26.680 So it's kind of an interesting argument depending on which 0:34:26.680 --> 0:34:27.360 way you spin it. 0:34:28.160 --> 0:34:31.480 And we haven't talked too much about BYD Lend, but BYD. 0:34:32.080 --> 0:34:33.960 You know, we made a lot of the fact that 0:34:34.000 --> 0:34:39.280 they were getting some mass market cars really out across 0:34:39.360 --> 0:34:42.399 the country, but now we've just seen them double down 0:34:42.440 --> 0:34:46.759 on their expansion into luxury SUVs and I'm wondering what 0:34:46.840 --> 0:34:49.759 the impact that that might be and the competition that 0:34:49.880 --> 0:34:51.280 might provide to Tesla. 0:34:52.400 --> 0:34:56.759 Yeah, last night BYD just launched more models from the 0:34:57.360 --> 0:35:01.879 upscale function by brand, and they're doing a lot more 0:35:01.920 --> 0:35:04.680 in the luxury space. And from the analysts that we've 0:35:04.719 --> 0:35:08.560 spoken to, they think these brands are probably not going 0:35:08.600 --> 0:35:11.480 to move a huge amount of volume, but what they 0:35:11.560 --> 0:35:15.400 do bring to the table for BYD is prestige, and 0:35:15.520 --> 0:35:18.839 having that prestige will just lift BYD's brand up and 0:35:19.360 --> 0:35:22.120 help it to compete more in the kind of arena 0:35:22.160 --> 0:35:25.680 where Tesla is at. You know, Tesla has super passionate 0:35:25.760 --> 0:35:29.120 fans and they just really love the Tesla brand, and 0:35:29.239 --> 0:35:30.959 BYD is trying to head that way. 0:35:31.280 --> 0:35:35.479 We've heard of the potential threat of tariffs, not only 0:35:35.480 --> 0:35:38.040 from the US, but certainly from the European side too. 0:35:38.640 --> 0:35:44.040 Workers very much, I think, for both parties are top 0:35:44.080 --> 0:35:47.240 of mind when government officials try to defend their turf 0:35:47.360 --> 0:35:51.320 and keeping people employed. Danny, take me into the shop floor. 0:35:51.960 --> 0:35:54.440 If you look at the way some of these manufacturing 0:35:54.880 --> 0:35:59.720 facilities are structured in China when you get into EV manufacturing, 0:36:00.000 --> 0:36:02.279 are we talking about a great deal of workers or 0:36:02.320 --> 0:36:05.280 as a lot of this already automated that we're using 0:36:05.880 --> 0:36:07.480 a heavy amount of robotics. 0:36:07.560 --> 0:36:08.040 Is that right? 0:36:08.480 --> 0:36:12.560 There is a greater reliance on automation and robotics. And 0:36:13.160 --> 0:36:15.400 you can see the way in which the likes of 0:36:15.440 --> 0:36:19.600 BYD have some of the most efficient supply chains. And 0:36:19.640 --> 0:36:22.080 it's you know, you're taking from the copybook of the 0:36:22.239 --> 0:36:26.680 likes of Tesla, who's redefined the way in which EV's 0:36:26.880 --> 0:36:31.560 cars are produced fundamentally. And you can see and it's 0:36:31.600 --> 0:36:35.759 astonishing kind of perspective when you look at you go 0:36:35.840 --> 0:36:38.000 on to these kind of production lines and you see 0:36:38.200 --> 0:36:42.160 very few workers. You know, you go for up to 0:36:42.800 --> 0:36:45.560 a mile or more and you'd see handfuls of workers 0:36:45.600 --> 0:36:48.920 and all they're doing is fundamentally managing the machines, making 0:36:48.920 --> 0:36:53.080 sure that production is smooth, it can run automatedly and 0:36:53.160 --> 0:36:55.839 they'll just iron out any kinks. And so you know, 0:36:56.120 --> 0:36:58.480 when you can get to that kind of level of efficiency, 0:36:58.960 --> 0:37:03.480 it is, you know, clearly underscores your ability to be 0:37:03.560 --> 0:37:07.480 a successful kind of company. And of course, when you 0:37:07.520 --> 0:37:10.879 see in someone like Europe or even in the US 0:37:10.920 --> 0:37:15.440 where working in the automotive industry is highly unionized, clearly 0:37:15.480 --> 0:37:18.480 people will be concerned about their jobs, and how you 0:37:18.560 --> 0:37:22.880 pivot away from that into something more automated is very difficult. 0:37:22.960 --> 0:37:24.239 Outside of China. 0:37:24.520 --> 0:37:28.239 I mentioned in the intro about Chinese manufacturers looking to 0:37:28.280 --> 0:37:31.279 set up shop in Mexico. I just ask you, in 0:37:31.320 --> 0:37:34.000 a very short question, perhaps a short answer as well, 0:37:34.360 --> 0:37:38.840 do you see Chinese manufacturers manufacturing in Mexico before the 0:37:38.920 --> 0:37:41.840 end of this decade? Yes, all right, we'll finish on 0:37:41.880 --> 0:37:44.560 that note. And that will definitely queue up a lot 0:37:44.640 --> 0:37:47.000 of tensions with the United States. If you think that 0:37:47.239 --> 0:37:50.399 those tensions are high with China and the EU, wait 0:37:50.440 --> 0:37:55.239 till you see a BYD manufacturing cars in Mexico for 0:37:55.560 --> 0:37:57.680 export to the United States. Danny, thanks so much for 0:37:57.800 --> 0:38:02.040 joining us, and Linda Lewis as well. Transport reporters. Here 0:38:02.080 --> 0:38:04.880 at Bloomberg, I'm Brian Curtis in Hong Kong along with 0:38:04.960 --> 0:38:07.960 Doug Krisner. You can catch us every weekday for Bloomberg 0:38:08.040 --> 0:38:10.720 day Break Asia, beginning at eight am in Hong Kong 0:38:11.080 --> 0:38:12.840 and eight pm on Wall Street. 0:38:12.880 --> 0:38:15.600 Tom right, thanks to Brian, and thank you to Doug. 0:38:15.960 --> 0:38:17.920 And that does it for this edition of Bloomberg day 0:38:17.920 --> 0:38:20.479 Break Weekend. Join us again Monday morning at five am 0:38:20.480 --> 0:38:23.040 Wall Street time for the latest on markets overseas and 0:38:23.080 --> 0:38:26.120 the news you need to start your day. I'm Tom Busby. 0:38:26.320 --> 0:38:29.160 Stay with us. Top stories and global business headlines are 0:38:29.200 --> 0:38:30.440 coming up right now.