Tesla Awards Musk $30 Billion in Stock, Saying ‘a Deal Is a deal’

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1:54Learn more at thehartford.com slash risk mitigation. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Norma, Linda, Paul Sweeney live here in our Bloomberg Interactive Brokers Studio streaming live on YouTube as well. How about this? Tesla proved an interim stock award worth about$30 billion for Chief Executive Officer Elon Musk to keep his attention on the automaker.

2:37I would think that would do it. Steve Mann joins us. He covers all the autos companies for Bloomberg Intelligence. He's down there in Princeton. Hey, Steve, I mean, I can't think of a company, maybe it's maybe Ford Motor Company, where there's a key man risk like Tesla here and Elon Musk. What do you make of this stock award here? Yeah, I think it's very positive news for Tesla because, you know, they are going through a pivot right now, not only an automaker, but they're very focused on AI. But if you look at Elon Musk, you know, he's Tesla is not his only business. Right. He's got XAI, his AI company, which owns the former Twitter.

3:19And he also has, you know, SpaceX, Neuralink. I think they're all related in some ways to AI. And I think, you know, without Elon Musk and Tesla, I think, you know, there's going to be a lot of risk to that vision for Tesla without him there. Steve, you mentioned that there are a lot of different things that are vying for Musk's attention. Of course, we do know that he was really politically involved. And then we thought kind of pulled back. And then he mentioned his intention for creating the America Party. So clearly he still remains in these conversations here. But what are investors looking for right now from him?

3:57And does it seem as though his attention is devoted as much as it should be to Tesla? Yeah, I think fortunately for now, his attention is very much devoted to Tesla. He said that at the second quarter earnings call. I think his presence is important because right now the company is going through a changeover in terms of the direction, the strategy. right uh you know cars has been very important continues to be important to drive that ai theme but without muster i i think the company will have to you know won't able to find the next person really to drive the company to the next step in expanding robo taxi expanding their optimist robot uh offering uh in the future do we care about how many cars they make and whether they make any money in the old car business, Steve?

4:53We do. And a lot of people think that it's a full pivot towards AI. But I think making cars and developing that AI software goes hand in hand. It's almost like Apple and its ecosystem. I mean, there are opportunities for Tesla to actually license the FSD, the full self-driving software out. But I think in the meantime, it's not something he's looking to do. I think he wants to build out Robotaxi internally and actually drive revenue and profits. He does see huge profits from the Robotaxi and from the FSD software. If you look at other software companies, margins are high double digits uh on on the software for for for any software but and you know with with his FST software the car is in a integral integrated component to it it's it's it's it's very important to that he continues to to make cars not only for the for cash but uh for for really uh marketing that software that he has Steve a lot pressuring Tesla over the last few months i mean we're looking at a stock that's down about 23 so far this year and it's the worst performing stock within all the mag 7 stocks that there are right now explain to me right now what the latest overhangs are right now for the company well i think one big overhang that's been removed this is it is his pay package there is a lot of fear in terms of him potentially uh being kicked out of the Tesla.

6:35But I think the biggest overhang right now or where the investors are more focused on is the expansion of RoboTaxi, right? He launched it back in June in Austin. He's launching it in the San Francisco Bay Area. And he's also thinking about launching it in Nevada. And from the looks of it, it's going quite well. I mean, there are some hiccups here and there with this complex engineering system that he's putting in place for cars. It's normal. It's normal. So but, you know, safety is still his priority. And, you know, he's going to go at it at a measured pace. But it seems like he's expanding it relatively fast.

7:22You know, the area of coverage is much bigger than it initially was back in Austin, back in June. And we're seeing something similar in San Francisco. So investors are really focused on when RoboTaxi will start contributing to the bottom line. And we think that's probably more likely in 2027. Steve, thanks so much for joining us. Always appreciate getting a couple minutes of your time. Steve Manning covers all the autos for Bloomberg Intelligence. He's safely ensconced down there in Princeton, New Jersey. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m.

7:59Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right. They had a little earnings from Berkshire Hathaway over the weekend. Why did they do it over the weekend when nobody else does it? Because it's Warren Buffett. He can do whatever he wants, basically. Matthew Palazzola, that ruins his summer weekend. He's a senior analyst covering all the insurance guys for Bloomberg Intelligence. We'll get to the earnings, or maybe we won't, because all I want to talk about is what is Burlington Northern Santa Fe, which Berkshire Hathaway controls, what are they going to do in a world where it looks like we may have some consolidation and get cross-border rail service?

8:40What's the company saying about what they might do with BNS? So they're saying characteristically nothing. But what we think and what the market's thinking is, I would say this, Buffett is, I would put almost a zero probability of Buffett getting involved in a bidding war over Norfolk Southern, right? Norfolk Southern. Yeah, so he, yeah. Norfolk, that's it. Correctly, Norfolk. So I don't think he's going to try to outbid UP on that one, right? Like, that's just not what Berkshire does. but then the speculation is csx is the is the other thing out there and i'm not a railroad analyst but we've done some work on it uh only on the weekends um our rail analyst thinks that burlington northern will be at a big disadvantage should this deal go through with up and that they would have to do something um that would leave csx out there which is the other east coast railroad and then Berkshire's got the West Coast Railroad, so they could maybe merge those two.

9:43The stock of CSX, I mean, the market believes this too, because the stock of CSX is up like 25 % since this initial bid. Again, as a Buffett watcher and studier, I kind of feel like he would want to sit this one out. But if I could exactly predict what he would do, then I wouldn't be taking the Metro North into work. You can tell me about it. So if this were to happen, though. How big would it be for Berkshire? Yeah, so the enterprise value of CSX is about $85 billion. So that would assume no takeout premium right now. Berkshire has$344 billion of cash. So they could theoretically do it in cash if they wanted to.

10:26It would take a big chunk out of their cash. Buffett's got only a few months left as CEO. He will step down at the end of the year. And he still remains as chairman. So I can't imagine that he would be, you know, completely uninvolved. But, you know, I would assume heir apparent Greg Abel would have a lot to say about any potential deal. All right. I'm speaking as a former railroad analyst, which my tenure there covering industry ended in 1989 when I went to business school, has to do the deal. He has to do it with csx yeah i mean i mean they have the money i mean i they buy it in cash i was just running to the back of the envelope it's going to be accretive to you know earnings versus just holding it and if interest rates are going down that makes it probably perhaps more attractive for them to do something um you know it'll be interesting he wants that one last elephant and that this will certainly be it boy and now to me the whole thing is uh most important person in this whole discussion is Jennifer Rhee at Bloomberg Intelligence.

11:30She does the antitrust ruling, and I don't know how this stuff gets approved other than Trump says, I want it done, and then the Surface Transportation Board just follows suit. I think they have some game theory there, right? Because, you know, I talked to Lee, our railroad analyst, BI, and he was saying it seems like an uphill battle. He's not the antitrust like Jennifer. But, you know, does Berkshire sit back and say, well, maybe this just doesn't even get approved, so why are we going to launch a bid for CSX that might also not get approved. I don't know. I mean, they have a lot to think about in Omaha.

12:03I mean, who's left in the landscape, right? You've got Berkshire. I mean, we've got these other names. Who are the major players outside of that? Are we talking about for railroads? Not exactly my expertise, but I don't think there's anyone else that would be able to do it. All right, let's get to the earnings. Any takeaway here? Hey, what's the cash position? And what are the earnings trends for this company? So the cash position,$344 billion. It was down a couple billion from last quarter. So they took a write-down on their Kraft Heinz investment. It's getting a lot of press. People are, I think, attributing the stock decline in the quarter to that.

12:40I mean, the net after-tax write-down is 0.6 % of Berkshire shareholders' equity. So the stock's down 3 % on that. It doesn't really make a ton of sense. they account for the Kraft Heinz investment in the equity method, which meant they were holding it for much more than the stock was worth. Because of those rules, they have to write it down eventually. So I'm not shocked. I don't necessarily think this is a vote of no confidence in the stock holding. It's kind of the accounting. The earnings were like$11 billion, which is stripping out a lot of the noise. That's pretty much exactly what we thought they were going to be.

13:20But there were some moving parts. Insurance was weaker than I thought. The railroads were better. And even retailing was better. All right. All right. You stay close to the phone because I want to talk to you about this railroad thing here. And we'll get Lee Clasgow on. We'll get Jennifer Rhee on. Because you could argue Transcontinental Railroad. Why don't we have one in this country? I mean, come on. It's 2025. Exactly. I'll come out of retirement and get this deal done if you need be. Matthew Palazzola, Senior Analyst, Property Casualty Insurance for Bloomberg Intelligence, joining us live here in our Bloomberg and Active Broker Studio.

13:53When your options are limited, so are your opportunities. At SIBO, the global exchange that pioneered options trading, we offer more ways to move with the market. From VIX and SPX options to global market data solutions, SIBO helps investors diversify, manage risk, and stay ahead of whatever the market does next. SIBO. Life is better with options. Your investments could be too. There are risks associated with SIBO company products. Review the disclosures and disclaimers at cibo.com slash US underscore disclaimers. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results.

14:29At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. deep in the work that moves the business. Let's create smarter business. IBM. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same, the thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals.

15:05Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights, helping you close deals faster with revenue agents and automations working around the clock. You'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right. Workers at Boeing's St.

15:43Louis area defense factories are striking after union members rejected the company's modified contract offer. When I first read that, I was like, didn't we already do this? I know. But that is a further reading. I found out that was the commercial airplane union out in Seattle or whatever. These are the defense people. So just when you think, you know, Boeing's kind of out of the woods, cleaned up everything and stocks up 25 % year to date. and then this comes along, so I don't know how to make it. George Ferguson, this is his job, Senior Aerospace Defense and Airlines Analyst for Bloomberg Intelligence.

16:15George, how important, how big of an issue, how big of a headwind is this for Boeing? Yeah, not much. So you're right, we did this before. The lion's share of the machinists, there's some 30 ,000 that were represented up in Washington, struck their deal last year. We calculate, you know, this is about 6 ,000 machinists, again compared to 30 ,000 up in Washington State. We calculate that if this 6 ,000 machinists get a similar deal as the machinists did in Seattle, which I don't see why not, it probably costs Boeing all in when it's all done in four years, when the members get a 43-ish percent increase, cost them an extra$200 million for Boeing.

17:02Look, everybody wants to preserve$200 million, but for Boeing, I think not that material. Plus, it's in the defense business. Some 40-ish percent, 42 percent of that business is cost plus. So there's likely the ability to defray some of those costs through those cost plus contracts. So not that big of an issue, I think. George, it seems like Boeing is always in the headlines nonetheless, though, whether it's internally what's going on with employees or what's happening with their planes here. Have things seemed to have gotten any better, at least internally? Is this a more, you know, a newer strike, if that makes sense?

17:42Or have there been a lot more claims being made? So I think you broke up a little bit on me, but I think you're asking if things are any better. But I think they are. I think we we saw two cute numbers for the company and they're delivering airplanes. They're at 38 build rate, going to 42. The defense business has got some problems, right, with the fixed cost contracts. They still eked out a bit of a profit this year. They've made about$200 million operating profit so far this year, so it's about the increase in the cost here to the machine. It's not like, you know, things should continue to get better at that defense business.

18:25They have that big fixed price legacy programs. there's some very important programs inside that legacy fixed cost program business that they'll be happy they have over the years. One of them is the Stingray. It's an autonomous refueler that works off Navy aircraft carriers. I think in the future that'll be pretty important. The KC-46 is the tanker they build. That'll be very important as well. So I do think this is no sign that things aren't, you know, haven't turned around. This is just one of the last stubs of the of their labor that, you know, once there are increases after the pandemic to cover that increased inflation, I think it's again, it's going to be a blip, I think.

19:09George, you mentioned there are still some things to iron out as it pertains to Boeing's defense business in particular. But how are they stacking up? How is your defense unit stacking up against a lot of the other different defense primes like a Lockheed, for instance? I mean, like Lockheed just had a bunch of at least one major charge in their last earnings and just got roiled by that. But I would say that first, financially, they're just not performing very well compared to their peers, which I think, you know, on the on the glass half full kind of side, you could say that they ought to have a lot of capacity to improve performance at that business.

19:47You know, and they've got some, like I said, some pretty good programs. I just talked you through, you know, that refueler, the two refuelers, actually. But they won the F-47 contract where they're going to help develop the next sixth generation fighter. That's going to be some$20 billion, we think, over the next four years. That's going to be largely cost plus. That's a great contract. That will improve their fighter business. They build F-15s and F-18s. Those are sort of sun setting, but they're very, very capable fighter jets. You know, we've seen countries around the world order them and use them very effectively.

20:27So the defense business has, again, those glimmers of hope because there's a strong product portfolio there. It's just been eclipsed again by some of these fixed price contracts that they've really, you know, sort of messed up under Muhlenberg and now need to sort of get reordered, get some of them off of the books. and get going. But it's a good business. Hey, Jeff, how was, I mean, George, how has the global defense prime business changed just in the last six months with President Trump getting agreements or from a lot of big European countries to up their defense budget? Presumably, if the Germans are spending more, the French are spending more, they're probably coming to the U.S.

21:09defense primes. How has the world changed, if at all? So we think so. So, you know, I think right now the debate is, can Europe really provide all the defense products they need to create a credible deterrent, or do they need to go outside the block in order to buy capability? We think they need to go outside the block to get capability, especially sort of the most important capability currently. And I think that some of that most important capability is air defense, and U.S. defense companies do very, very well. They've got sort of very advanced products that they've built through a number of generations of those products that have shown their ability over in the Middle East.

21:56And those are going to be like RTX, Raytheon, very strong in interceptors, radars. Lockheed as well is in that business and is going to do well. And we've seen the orders come from Europe for that. I think some other things that Europe needs, they'll probably get largely at home. Things like armored vehicles, tanks. The Europeans build some very capable products there. I think they'll buy them at home. Fighter jets are a little bit different, right? Europe doesn't build a stealth fighter yet. They have two programs in the continent that they want to build. They'll take a decade to build. In the interim, they'll buy the Eurofighter out of Airbus, Leonardo, BAE Systems.

22:38A consortium builds that. But they're also buying Lockheed F-35s because they don't have any stealth technology in Europe right now. They need that Lockheed stealth technology, so they'll buy some of those in the interim. So I think that's exactly what you're going to see out of Europe as a mixed buy. But I think it's going to be a big improvement for the U.S. primes because Europe was spending nothing on defense, and now they'll spend$800 billion, right? They'll go from$300 to$800 billion over a short number of years. I think it'll give the U.S. primes a lot of opportunity, and European primes will have to ramp up pretty quickly.

23:12I think that means we have to send George over to Europe even more frequently to go to some of those boondoggling air shows. So he can see the lay of the land there. George Ferguson, senior aerospace defense and airlines analyst. He covers it all, folks. And he's at Bloomberg Intelligence, one of the best on the street. We appreciate getting some of his time. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app.

23:45You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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24:29Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same, the thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals. Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights, Helping you close deals faster with revenue agents and automations working around the clock. You'll have everything you need to scale your go-to market efforts.

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