Tesla Gets Its Groove Back… And Investors Seeing The Glass Half Full 9/25/24

0:01Live from the NASDAQ market site in the heart of New York City's Times Square. This is Fast money. Here's what's on tap tonight. A fork in the road. Shares of old school auto companies seeing a vastly different September than upstart Tesla. Why are GM and Ford hitting the brakes, and can they rev up into year end? And one little-known AI play is up nearly 240 percent this year, far outpacing names like NVIDIA. We'll speak with the CEO of Zeta Global to find out what is driving that stock. Plus, Mike are on the move after its latest earnings report. China takes on the parent company of Calvin Klein.

0:32And only 90 shopping days left till Christmas. A new estimate on just how much consumers are expected to shell out this holiday season. I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. We start off with auto stocks in reverse after a major downgrade. Rivian plunging almost 7%. General Motors dropping almost 5%, while Ford fell 4%. The moves coming after Morgan Stanley downgraded the names today to inline from attractive Adam Jonas, the analyst there, citing a butterfly effect, saying that with China producing millions more cars than it buys, it puts U.S.

1:08automakers in a vulnerable position. Meanwhile, long-struggling Tesla has been in high gear lately, rallying 8 percent just this week. It's by far the best-performing MAG7 stock so far this month and this quarter and is now positive for the year. So how do you make sense of this auto divergence? Tim. Well, the news, at least from Tesla, around Tesla, is that their China business has never been better. Mr. Jonas is talking about China as a driver for where, you know, inventory dynamics, a price kind of headline mix that's not favorable to the legacy oil, the, excuse me, the OEMs, the legacy autos, is something that you have to worry about in terms of both their margin and where this, you know, this industry is going.

1:49He also references that the affordability factor is, I think, stretched was the word that was used. In other words, the U.S. consumer, despite the fact that they probably need to buy a new car, is not in a position to buy a new car. So the downgrades were pretty extraordinary. I mean, if you look at the downgrade on Ford, it was really a 25 percent downgrade in terms of the target price in Ford. Excuse me. In GM's case, it was about 12 percent. This is a kind of a secular call, right? This is a call that's not happening overnight, but the sense is that China has been doing this for decades, that they've been overproducing for decades, and now that's leading to this 9 million car overhang that's going to find its way to our borders.

2:27It also continues to highlight why China is going to be the focus of a lot of tariff and a lot of trade dynamic that's very heavy duty in this country. Yeah, so China, huge thing. But also, I mean, affordability. The average car payment is$720 a month. Yeah. A month. So not just secular. I think there's a cyclicality to it also to the call as well, right? That we are at sort of, you know, peak profitability on those cars and that inventory will build up. You'll see pricing pressure. The multiple is still so shockingly low, right? Even if, I mean, often we have very cyclical businesses. When you get to peak earnings, you get a low multiple.

3:10This is still a really low multiple. But sometimes when that's it, when we see the top of sales, I think the multiple can just stay low. So Ford, I mean, it's been nowhere for a long time. But the GM is actually sort of interesting. For whatever reason,$50 has been huge resistance. It traded up there in July. Everything sold off into August 5th. It traded right back to$50 and failed. So just in terms of exhausting itself after a decent run, that sort of makes sense to me. Now, however, if you look at a chart, it feels like it's been$10.50 for the last 25 or 30 years. But if you're looking for sort of downstream, and I was actually looking at this this morning on the back of these downgrades, look at Visteon, which was a monster company into 2022, which basically has been cut in half since then.

3:52But we just traded down to 94, same low we made back, I think, in February of 2022. And at nine times next year's numbers, I mean, a lot of bad news has been discounted into the stock, I think. Yeah, so I want to go back to Tesla here in China. So Tim's talking about like they've never had a better quarter. And that might be the case. They've had a few really bad quarters in a row over the last few years. They actually had a couple of really bad years there. When I think about what's going on there, it's BYD. I mean, this is a name that is actually trouncing them. They have 37 % market share in China.

4:21Tesla has about seven and a half or so. The average price of a BYD car in China, I think it's about$15 ,000,$16 ,000. They have greater range than that. I think Tesla is much higher than that. And then you think about how many cars does Tesla really sell? They sold under a million cars here in the U.S. I think they sold maybe a couple hundred in China. So China's not a story for them. They produce a lot of cars there. They're hoping to sell a lot of cars there. But at this price point, they're not going to get there. And when you talk about, you know, Tesla and enthusiasm over the last month, it has to do with this autonomous day.

4:55This is coming. Yeah. So October 10th, Robotaxi. Elon Musk has said there's going to be some other things there. A lot of folks are hoping that they're going to get back to this$25 ,000 mass market car. You know, I guess it was like a couple months ago when they basically said, or there's rumors, that they were going to focus on RoboTaxi, not on the mass market. The company denied the mass market thing, but that was the really enthusiasm over the last couple of months. And I just think with the expectations heading into that, if the stock continues to run in that, you know, listen, Elon has made lots of big promises when, you know, things are going to be delivered, full self-driving and the like here.

5:30I think whatever he says about when the robo-taxi fleet is going to be out there, it's going to be maybe a year or two beyond that. And the last thing, and we talked about it when I was in San Francisco two weeks ago, for two or three days, I took these Waymos. I mean, this is crazy. They're on the road. They're doing this thing. So you have to think that Waymo is very far ahead, especially when Tesla has been unable to get to that full self-driving. They still have to call it supervised self-driving. Yeah. The Tesla point, though, supposedly they're going to have prototypes. Supposedly they're going to offer rides to the people who go to this event.

6:03That seems like enough to sort of juice the stock from here. Maybe. I don't know. Remember they had that truck? Right. Yeah. With an actual truck. Right. No, not the cyber truck. The semi truck. The semi truck going way back. Right. So I don't know if that's enough. I also, I mean, there's been a lot of enthusiasm about the business model for that, for robo-taxis. And if they have a prototype, I don't know that directly translates right away into that business model, which I'm a little bit skeptical of. And I do think it's going to be harder to get deep penetration than the excitement would suggest.

6:39Right, right, right. I just, you know, part of, again, the Jonas call is that the terminal value in the U.S. I mean, I think this is part of the secular view is that the U.S. Ford and GM have no real terminal value left in their core business in terms of their internal combustion engine business. And so we don't care that GM is going to make 10 bucks a share next year, which means it's trading south of five times. And that's what Karen's pointing out that I think you priced in a whole lot. The key for GM and Ford, but I'll focus on GM because I think it's the better call, is is that if they get their EV losses and they reduce them, at least in the way that the street is predicting.

7:13I mean, it's a driver. It's a catalyst to the shares. And in fact, they're talking about about 5000 bucks in terms of margin per per unit. And I think that would be extraordinary. So I think the cyclical part of this story is something we don't really know. I think it's fair to say that the U.S. consumer has stretched. Affordability is an issue. But if you get back to where these cars are priced, they're priced for cyclical headwinds. They're priced for, I think, no one expecting them to have a business beyond their current one. Right. One point within the note that I had not thought of at all was, you know, you mentioned the EV business and them paring back their forecasts for being in that business.

7:46And that's seen as a good thing for now. But actually down the line, they could face penalties for not being in line with emission standards. And that would be a draw on liquidity. I thought that was just not thought of it, not sort of connect the dots all the way to that point. That's down the line. Down the line. Yeah, down the line. You know, it's interesting. If you look at the Tesla chart, I think 273 is where we stopped in September of 2023 or so. So that should be huge resistance. And, you know, it's going to be interesting. We don't talk about politics here, but it's pretty clear that Elon Musk, he's all in on one candidate, clearly.

8:21And if the election was sort of to go the other way, I wonder what happens to Tesla stock. I think some of this rally is predicated on the fact that he's put all his eggs in the former President Trump basket. Yeah, one thing is, and we haven't talked about this yet, I mean, Detroit has gone heavy into hybrids, you know. And Elon has actually made the point, I think he did it on a call maybe this quarter or last quarter, that he does not believe that that is going to be the solution going forward for EVs. And I guess because Detroit did so poorly in EVs, they were losing so much money in it, they've kind of leaned back into hybrids.

8:52And talk to anybody out there. You know, like most people have a lot of range anxiety. I had one of these things out of Ford. It was a great car. It was much better than it was. Very honest admission, Dan. Well, no, that's a different anxiety that you're thinking of. At your age, I can see where you're going with that. I don't know what you're thinking about. I'm still pretty good here. And so I would just say that it'll be interesting to see how the hybrids play out, because I think in America, I think there is a desire for both of these things right now. I think a lot of early adopters went for Teslas.

9:21Some were trying to stick with their Ford or GM, and they're just not there yet. So, you know. Moving on here, regulators in Beijing probing Calvin Klein parent company PBH over its refusal to source cotton from China's Xinjiang region. The move could result in a major blow to the retailer, which has significant revenue exposure to China. Our Eunice Yun's got the details. Eunice. Melissa, China's Commerce Ministry has announced that it's investigating PVH, which owns the Calvin Klein and Tommy Hilfiger brands, for what it called boycotting Xinjiang cotton and other products without any factual basis.

9:57PVH could end up on a security blacklist, which would restrict its operations in China. Four years ago, the clothing group had announced it would remove Xinjiang cotton from its supply chain to abide by a U.S. customs restriction linked to concerns of forced labor. That's why the timing of this investigation is raising speculation that the Chinese government may be retaliating for recent Biden administration action aimed at China, shutting down an exemption for low-value shipments, barring the sale and import of smart cars that use certain Chinese tech, and raising steep tariffs on strategic industries like chips, steel, and EVs.

10:35PVH says it's in communication with the ministry, but the probe has shocked the broader business community, which fears the Chinese government is attempting to force companies to flout U.S. law or face penalties in China. The EU Chamber of Commerce commented that the move puts international companies between a rock and a hard place. Melissa? Yunus, thank you. Yunus Yun in Beijing for us. This seems like just a little appetizer of what could be to come regardless of administration change come January. I've been worried about retaliation for a long time. Those worries have been unfounded because the stock market doesn't seem to care.

11:12But it doesn't mean they're not going on and they won't continue and accelerate. So, yeah, it's not the first salvo. I mean, they've been back and forth. But, you know, again, we've talked about Apple being in the crosshairs of this entire thing. Starbucks, Nike to a lesser extent. Yeah, I think it's problematic and I only think it's going to get worse. What's interesting about this particular issue is that there were other. Remember back in 2021, there are a number of other retailers who said we would not buy cotton, source cotton from Xinjiang, including Nike, H &M, Zara's parent company, Inditex.

11:42And and all of a sudden this this issue comes up now with PVH. It's sort of it's interesting timing for them to sort of revive this issue, make it an issue. I don't know why, actually. Why? Why were these guys in the in, you know, the crosshairs? I'm not really sure. I mean, Asia is an important part of their business. Europe is much bigger, but still, I don't know, 20 ish percent of their revenues. That would that would be somewhat of a hit. I don't know. They both import and export to China. And so I don't know if it seems to me they're sort of shooting China shooting themselves in the foot by they're sort of inviting people to go elsewhere.

12:20Right. To move manufacturing elsewhere. If you're going to be faced with these kinds of seemingly random. Right. Penalties or whatever. We don't even know exactly what it would be. We already saw this starting during the pandemic. Sure. Right. Vietnam is a huge beneficiary. India. So I don't really understand the strategy, actually. Yeah. Well, it's I think you're hitting the issue. I mean, this is PBH is an international company and they have they have sovereign risk. They have FX risk. They have dynamics here that I think not at least the same risk that some of the other peers have. In fact, they probably trade roughly five times EBITDA now after what's been a major sell off in the stock going into this period, which is, I think, unrelated to these headlines.

13:00I think some of it's cyclical. I think some of it is just the dynamics that we've seen in discretion and apparel. But I think the company is priced pretty attractively relative to the peers. It's not expensive. Guy, I know you wear a lot of Hilfiger and a lot of Calvin. You know, you bring that up like that's a derogatory thing. There's nothing wrong with Calvin Klein. If you remember, nothing gets between you and your Calvin. Precisely. And in that movie where Michael J. Fox went back to the future. I mean, you were Calvin Klein. It worked for him. Look good. Back to business here. Let's get more on where U.S.-China relations stand with Leland Miller, CEO of China Beige Book.

13:34Leland, great to have you with us with regards to what's going on with PBH. the investigation of PBH. Do you think that this is part of a tit-for-tat at this point? Well, it's muscle flexing. The Chinese would do tit-for-tat if they could, but the reality is that the U.S. and the West writ large have much more leverage over China than China has over the United States, for example. So the U.S. has a larger trade surplus. It has controlled the dollar payment mechanism. It has advanced technology that it can ring fence from China. So China doesn't always have the ability to do tit for tat, which is why there's not usually a reaction to everything the United States or Western governments do.

14:15But ultimately, they have to flex their muscles every once in a while and say, look, there will be consequences. We do have leverage over you. And one of the biggest points of leverage the Chinese have is sales of Western companies in China. And they can shut that down. And I think every once in a while they try to teach a lesson to say, look, we are not without leverage. You know, pain will come to you, too. Yeah. Can you put this into context with what is going on in terms of stimulus efforts? I mean, we heard about the first sort of tranche of stimulus yesterday or overnight the day before, and then another tranche today where they're actually going to be paying, part of it is paying poor people, actually direct checks, direct money, which is sort of a departure from what they typically do.

14:59How vulnerable is China, given what it is doing? Well, the economy is weak, and it's been getting particularly weak in the last couple of months. And so there was a little bit of worry on the ground. But I think what this is is an attempt to boost sentiment. I don't think that the leadership in Beijing stays up worrying about the state of the economy as a tier one issue. I think they don't like that it's not doing very well. But it's not collapsing. It's not doing terribly. It's just not doing very well. So every once in a while, they have to step in during this property deleveraging process, during this tightening of credit that's been going on for years, and show the government's still here.

15:37There will be policy support. And so they stepped in on credit. They stepped in property. They stepped in on stocks. They stepped in a little bit with giving money to households and to show, look, there will be a policy response to weak results. I just wouldn't read into it. You know, this is not a bazooka. Leland, how about China's approach to their own companies? Part of the discounted Chinese shares, especially the Chinese Internet companies, has been a function of China's government beating them down. Any thoughts on whether there's been a policy change or are there sectors there at least might be more in favor?

16:08We certainly see what's going on in the U.S. and attempts to support the tech industry here. How about China? Well, certainly over the last several years, the focus of credit and focus of government policy support has been in advanced manufacturing. It's technology. Xi Jinping made it very clear that he wants China to win the fourth industrial revolution, which means dominating the sectors of the future, AI, quantum, biotech, robotics, etc. So this is definitely where they're focused on from both an economic and national security standpoint. That doesn't mean they can do it efficiently. It doesn't mean that it's easy to move into these sectors.

16:45They're throwing a lot of cash at them. But again, on the Western side, particularly the United States, they are ring fencing the ability to put capital into China. That's that's that's inching its way forward. Their export controls have increased. So it's not just so easy to invest in these sectors. If Beijing wants you investing in these sectors, it probably means that a Western government doesn't want you investing in those sectors. Leland, China, Taiwan, China, Singapore has been a concern for a long time. Is a weakened China more likely or less likely to do something in those two areas? Well, this is the big debate.

17:16I mean, one of the worst case scenarios, I guess, would be a China that is in extraordinarily bad shape and needing to wag the dog and doing something. But look, all this is speculation. It's about making sure that, I don't think a collapsing China is good for anybody, but it's about making sure that United States policy in particular is not signaling leaving Asia, leaving the Taiwans to their own devices. You don't want to give an opening here from the geopolitical side. I think that you want to make sure you keep deterrence at a very high level so you're not luring Beijing into doing anything it otherwise might not do.

17:53Should there be any concern that one of the weapons in China's arsenal is a Taiwanese company, maybe something like a Taiwan Semi, which holds the cards when it comes to AI chips? Well, look, if Taiwan Semiconductor goes down, then there's going to be a cataclysmic world recession around it for a lot of reasons, including that it would probably be the start of some sort of form of World War III. You know, it's so these are these are not moves. I think the Beijing knows it can take lightly. This this starts a process that unravels the world economy. So, yes, it's a vulnerability. It's a vulnerability for Western supply chains.

18:32It's a it's a vulnerability for the whole world. And I think that's why there's so much focus on Taiwan right now. Because that's really the most dangerous place in the world when you think about where geopolitical tensions could really, really go out of control. Leland, thanks so much for joining us. Always great to get your take. Pleasure. All right. So what do we think here, Tim? Those were powerful comments. And I think we talk about it. But that really did put it in the center. I get back to what happened yesterday and I get back to the rally in Chinese stocks. And I would zero in on Macau.

19:02I think there's a huge opportunity here. Again, we're treating Macau like it's not one of the global tourist centers and it's broken. And I look at the Vega Sands. I look at the winds of the world. I look at the Chinese dedicated names. And I think there's a big opportunity there on multiple. You don't need the Chinese economy to structurally change to see those re-rate. Wind definitely bearish to bullish reversal. FXI traded up to the May highs about 30, but I still think FXI is a buy here, Melz. Coming up, shares of Micron on the move after results of details from the quarter conference call and how the whole semi-trade is faring.

19:35That's next. And it's never too early to get into the holiday spirit, especially when there could be a lot for retailers to look forward to. The record-breaking numbers one company is predicting this season. Don't go anywhere. Fast Money is back in two.

19:57Welcome back to Fast Money. Micron stock soaring after reporting beats on both revenue and earnings. the company also giving bullish guidance for the current quarter, setting robust AI demand. Seema Modi has been following the action, joins us now with the very latest. Hey, Seema. We've been on the conference call. Melissa and CEO Sanjay Mahothra are reinforcing the role of cutting-edge memory products in artificial intelligence. He says Micron's high bandwidth memory remains sold out for 2024. And overall, he sees the total addressable market growing from approximately$4 billion in 2023 to$25 billion in 2025.

20:29Now, one of the reasons Micron has underperformed in recent months is due to the ongoing weakness in the PC market. This has also affected its competitors in the memory space like Samsung and SK Hynix. On PCs, Milhotra says PC unit volumes remain on track to grow in the low single-digit range for calendar year 2024, where growth expected to accelerate in the second half of 2025. As he says, the PC replacement cycle gathers momentum. Shares of Micron you will see are higher after hours, but still down about 20 % in the last three months. Melissa? Seema, thanks. Seema Modi, just about three months ago or so was its high.

21:08Yeah. We were talking about last night. All of us agreed. It's kind of a hard press to the downside, given how much the stock has sold off, about 40 % from those recent highs. Again, it doesn't really matter what the recent highs were, other than the fact that there was a bit of euphoria in and around this name. When I look at the quarter that they just reported, They beat 111 in earnings. They came in at 118. You know, not a huge beat. The revenue beat was even smaller on a percentage basis. They guided revenue for the current quarter at the midpoint of, you know, of consensus. So I find it really curious why the stock is up so much.

21:41They better have said that there's robust demand for AI because that's the only reason why this stock has been moving the way it has, the volatility. So, again, I think expectations were really low. They came up above that. They said a couple of things that I think investors wanted to hear, but is it worth 13%, 14 %? Probably not. It's also interesting to hear if they talk about pricing because DRAM and NAND pricing, you know, analysts are expecting the next three to six months. They're expecting some sort of trough. If that materializes, then off to the right. I don't know if they've talked about it on the conference call.

22:11I mean, the move looks amazing. Part of that move in Micron that was stratospheric was that there was a moat around their business that removed it from the commoditized business that it largely had been for a long time. So I'm with Dan on this. I don't think there was anything that extraordinary. I certainly was here yesterday not expecting a lot. So I wasn't expecting a 13 % move, although we all did point out the move in the stock. I would say these comments, to me, are kind of cheerleading. I mean, it's what we've heard from them in the past, talking about AI and demand coming for the higher memory chips.

22:40We know that that's there. And, you know, the addressable market prognostication is something that, again, seems to me what they've done in the past, and it's moved the stock. Kudos to Coco Beware. Mike Coe. People know that. They're very familiar with that now, who was on the show last night talking about this move. Number two, I think the average selling price for DRAM going forward, they guided mid-teens. I think the street was at 12.5%. That's good. But the bounce after the August 5th low, everything sold off on August 5th. It's like 109. So we're right up against that prior high a couple weeks ago.