Tesla Hurting from EV Tax Rollback & Amazon Dives Into AI Wearables

0:28This episode is brought to you by Progressive Insurance.

0:33Good morning Brew Daily Show. I'm Neil Freiman. And I'm Kyle Hege. Today, Elon Musk says things at Tesla could go from bad to worse. And Amazon buys a company that listens to everything you're saying. Today is Thursday, July 24th. Let's ride.

0:54Toby's out for the rest of the week at a bachelor party. Turns out he has friends besides me. Yeah, what the hell? But all good because the fantastic Kyle is here to help take us into this summer weekend. Kyle, did you play Little League growing up? Yeah, look at me. Of course I played Little League growing up. Okay, so you know how intense it can get, but one controversy has caught national attention this week. A 12-year-old playing for a New Jersey town was suspended from the state finals because he had bat flipped after hitting a home run in the previous game. He was ejected and suspended for violating Little League's rule for no horseplay and unsportsmanlike conduct.

1:31But the dad isn't going down without a fight, filing an emergency temporary restraining order in court to overturn the suspension, saying that Little League promotes bat flipping all over the website and social media platforms. So it's hypocritical that they'd suspend someone for doing that. Kyle, if there's one kind of person you don't want to be on the wrong side of, it is a Little league dad. It's so true. And I played myself, but I was not good. So I never had the opportunity to flip a bat after a home run. I would flip a bat after a strikeout. Maybe that is allowed. I'm not sure, but I feel like if you hit a home run, you should flip the bat.

2:06That's my take. Okay. I mean, little leagues trying to promote sportsmanship here. I think most public opinion says this is quite egregious. We'll see what the court says. And if this kid can play in the state finals, I want to mention, this is a very competitive league and town. They're trying to go to the Little League World Series in Williamsport. So I think that's another reason why it's sort of got national headlines. I stand with the kid. OK, now a word from our sponsor, Amazon Ads. Kyle, do you have a favorite tool? I love a good screwdriver. No, I'm more into hammers myself. But I ask because I just found out about a single easy to use tool, Amazon Ads.

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3:21The EV company reported a double digit drop in adjusted earnings for the second quarter and a record sales drop in the same period. Sales went from$25.5 billion in Q2 of 2024 to$22.5 billion in Q2 of this year. The company's adjusted net income, which is a key number Wall Street focuses on, fell$419 million from one year ago to$1.4 billion. That's a 23 % drop. The aforementioned sales weakness has been attributed both to backlash from Elon Musk's foray into politics, as well as increased competition in the global EV space, especially from automakers in China like BYD. In addition, the recently passed one big beautiful bill was basically a giant yield sign on Tesla's road to continued growth.

4:10The bill forces a$7 ,500 tax credit for U.S. EV buyers to expire in October, and it eliminates the market for regulatory credit sales, which has fed$11 billion to the company's bottom line since 2019. This market allowed for some gas-powered car makers to buy emissions credits from Tesla since its EVs came in below emission limits to avoid paying a fine. And Tesla would have lost money in the first three months of the year without its revenue from selling those credits. Now, it wouldn't be a Tesla's earning report without Elon Musk promising that some groundbreaking technology is right around the corner.

4:45He focused some of his remarks on autonomy, both of the Tesla robo-taxi service and Optimus, their humanoid robot. Musk said, quote, autonomy is the story. It amplifies the value to stratospheric levels and said that these technologies will make Tesla the most valuable company in the world by far. Neil, Elon's prediction is quite ambitious, but it always has been. What stood out to you about the recent Tesla numbers? Well, we knew this was going to be a bad earnings report because Tesla already reported its delivery numbers for Q2. This is for its traditional EV business, which it doesn't really want to talk about anymore.

5:22That was a 13.5 % drop year over year. Investors did not like what they heard on this earnings report. They're not sort of buying Elon's vision for the future 100%. The stock was down more than 6 % in after hours trading. amid all of the optimism about autonomy and humanoid robots. Musk also warned, he said on the call, we probably could have a few rough quarters, but once you get to autonomy at scale in the second half of next year, certainly by the end of next year, I would be surprised if Tesla's economics are not very compelling. What I'm hearing from that is that Tesla's economics are not going to be compelling at all for at least the next year.

6:03And a large reason for that is what you mentioned. These regulatory credits are going away. That was basically pure profit for Tesla because they didn't have to make anything. They just sold because they make EVs. They just sold these credits to other automakers. They made one point eight billion dollars last over the entire 2024 from these credits. And now that's going to go to zero. And then the seventy five hundred dollar consumer credit is also going away. Those are more headwinds in addition to the many challenges that Tesla is facing in its traditional EV manufacturing business. Yeah, and there's, you know, it's been much covered, but a decent sense of irony for Musk supporting the Trump administration so much during the campaign.

6:43And then the one big, beautiful bill coming in and really hurting a pure profit play for Tesla. The stock has been on a hell of a run, though, in the company. Over the last 18 months, it's kind of started to go a little downhill. But before that, there was only one quarterly year over year sales drop for the company before 2024. That quarter was at the height of the COVID-19 pandemic. So an incredible run for the company. And it's a bit of like a meme stock plus an actual valuable product. And I think Elon and maybe the cult of personality has built a really loyal base of investors. And so it's tough to maybe disaggregate the stock price from how the company is performing.

7:25The other thing I want to say is, you mentioned this earlier, the play might not be for EVs, but for other elements inside of Tesla. Tesla's core business auto revenue fell 16 percent from April to June, but overall revenue dropped less than that. It fell 12 percent. This company is now slowly maybe becoming a bet on AI, a bet on energy, a bet on autonomy. And if they can make that pivot, maybe they can continue to see the growth this company's had in the past. Yeah, that's what Elon is promising. They did have a robo-taxi rollout in Austin that investors were anxiously awaiting. That happened last month.

8:00That went OK. They didn't provide many details on it on the earnings report, which is probably one of the reasons the stock dropped more than 6%. Elon says that they're going talking with a bunch of other cities and states to roll out this robo-taxi service from Austin to places like the Bay Area, Phoenix, other hotspots. But there's also a lot of competition there. Waymo is in all of those places as well. The future of this company, as Elon says, as everyone says, is autonomy. The faster they can get there, the faster they can perhaps stop bleeding. Global markets rejoiced yesterday after President Trump announced Tuesday night that the U.S.

8:35and Japan had secured a trade deal, the biggest fish reeled in yet on the administration's quest to seal agreements with major trading partners before higher tariffs kick in on August 1st. Japan's Nikkei index shot up 3.5 percent. Toyota climbed 14 % and other Japanese automakers, including Honda, Subaru and Mazda posted double digit gains. U.S. stocks closed higher on hopes that the U.S.-Japan understanding would grease the wheels for more agreements to come. So what's in this trade deal? Thankfully, not Shohei Otani. He gets to stay here. The headline is the U.S. will place a 15 % tariff on Japanese exports, a lower rate than the 25 % that Trump had threatened.

9:15And crucially, tariffs on Japanese cars and auto parts, which had been at 25%, will be lowered to 50 % in line with other goods, which is why you saw those auto stocks pop yesterday. Vehicles had been a major sticking point during negotiations because of how important they are to Japan's economy and its export base. Around 80 % of Japan's trade surplus with the U.S. is in cars and auto parts. In exchange, Japan pledged to invest$550 billion into the U.S. And while the details are scarce, it looks like this investment will take the form of a sovereign wealth fund type vehicle that will finance projects in America handpicked by Trump.

9:54Japan has also agreed to open more of its markets to U.S. vehicles and rice. All in all, analysts viewed this agreement as an optimistic sign that the U.S. would come to terms with other trading partners, particularly the EU, before those higher reciprocal tariffs go into effect next week. At the same time, it also establishes a 15 percent tariff as the effective baseline for negotiations, which is much, much higher than tariffs on Japan before. It was 1.6 percent previously. Yeah, this was really big news, obviously. And I see the sizzle. I want to see some of the stake when it comes to the details, particularly of this$550 billion investment in the U.S.

10:32During the negotiations, the administration had this big card that was outlining what they were going to get from it. Originally, it said$400 billion. Someone had crossed it out and wrote$500 billion. And then Trump on Truth Social put$550 billion. So I want to know what the actual number is. And then there's some, I think, disagreements around what makes up that investment pool. Is it Japan just giving us$550 billion? Trump called it, quote, a signing bonus at an AI summit on Wednesday. Andy LaPerriere, the head of U.S. policy research at Piper Sandler, said that Japanese officials are, quote, describing it differently when it comes to that investment plan.

11:08Japan's leaders, he said, see the$550 billion figure as a cap and inclusive of government loan guarantees. So I think good momentum for U.S. and Japan. I'm very curious about the details that will follow. I think the big story here, though, is the shifting of the quote unquote Overton window on tariffs. You mentioned that the rate used to be, you know, super, super small when it comes to a tariff rate on Japan. Now we're seeing 15 percent is almost a victory, even though if it was originally announced at 15 percent six months ago, markets would have been spooked. So Trump really has normalized these higher baseline tariff rates.

11:44And I think that is truly the big story. Right. Because now the U.S. wants to take what it just secured with Japan, go out to other countries, other major trading partners and say, look, this is what we this is what we expect in a trade deal. Japan gave this to us. Their fifth largest trading partner. Now let's go to our top largest trading partner, the European Union. And that is the biggest fish left in the pond. And we heard yesterday that there was progress on the U.S. and the EU moving to a deal. The U.S. would have 15 percent tariffs on the EU and there would be certain exemptions going back and forth.

12:21It was interesting how this particular deal was received in the American auto manufacturing community. They were actually a little ticked off. Tariffs were supposed to help domestic manufacturing. But they said and this is the lobby that oversees or that represents GM, Ford and Stellantis. They said any deal that charges a lower tariff for Japanese imports with virtually no U.S. content than the tariff imposed on North American vehicles with high U.S. content is a bad deal for U.S. industry and U.S. auto workers. What they're talking about is there is currently 25 percent auto tariffs from Canada and Mexico where they make so much of their cars and bring them into the United States with certain exemptions.

12:56There's also 50 percent tariffs on steel that is remaining at 50 percent. And that's what they use to build cars. Meanwhile, when this deal, you know, Japanese cars have a tariff of 15 percent, which is lower than both of those rates. So they're a little ticked off. That said, all of their stocks gained yesterday on the hopes that more deals would be reached and overall tariffs would not come out to this worst case scenario. Right. And all you have to do is look at the market, too, about how this was received in terms of Japanese car companies. Toyota popped 14 percent. Honda rose over 11 percent.

13:28So good news for the Japanese auto market. Amazon, the company whose logo boasts an arrow going from A to Z, has made the next most logical acquisition, purchasing B. No, not the letter, the company B, spelled B-E-E, which makes a device for your wrist that looks similar to a Fitbit. But instead of telling you how many steps you took over the day, it transcribes every conversation you have to generate personalized summaries of your day, as well as reminders and suggestions. Now, you can engage with B through the wearable and its app, which also, with your permission, can get access to emails, contact, calendar, and other data sets to give it even more context about your life.

14:07You could also use what is basically fact Tinder, swiping right or left on facts B thinks about you to continue honing its context. Now, zooming out, Jeff Bezos in December of 2024 at the New York Times Dealbook Summit said that AI would be like electricity. Quote, these kind of horizontal layers like electricity and compute and now artificial intelligence, they go everywhere. There is not a single application that you can think of that is not going to be made better by AI. This statement should come as no surprise then when you look at Amazon's AI strategy. The company has introduced a series of AI products including its own models, chips, a shopping chatbot, a marketplace for third-party models, an overhaul of Alexa, and implementing generative AI to its Ring cameras.

14:49So while the big news is Amazon getting B, the letters it's clearly focusing on are A and I. Neil, the AI wearable space. That's too much wordplay, my God. The AI wearable space is heating up. What do you make of it? It really is. I mean, Amazon's buying B, and it is very, it's not lost on anyone that Amazon is a company that said for many years that Alexa, which was his home assistant that it has, was not listening to all the things you were saying. Now it is buying a company whose explicit purpose is to just be in the background and listen to everything you are saying. So it's an interesting concept.

15:28I have thought about whether I would want something like this in my life to just be around, just be in the background, listening to all of my conversations, going with me about my day and taking notes essentially and telling me all the stuff that I've said I would do, but I would forget about. And there are probably quite many things. So I think there might be, you know, demand or market for this type of thing that summarizes your day and helps you make efficient use of all the stuff that you forgot about. At the same time, there are a lot of privacy concerns. Even in certain states, it's not legal for you to, for me to record our conversation without me asking your consent.

16:09And if I'm wearing a B, I'm probably not going to tell you every single time I have a B on, like we are being recorded right now. You can see how there are huge privacy implications. Joanna Stern, who is the Wall Street Journal tech columnist, tried B out. She had a lot of good things to say. She said, within hours of wearing it, I was blown away at how quickly it turned ramblings and random chatter into useful, actionable information. But at the end of the day, she said the privacy risks don't outweigh those efficiency gains or that usefulness that I found from it. She said the privacy risks were just too high.

16:44Yeah, there was a Victoria song from The Verge had a funny experience with B where it has a hard time distinguishing between conversations you have with a person and radio or TV. And so she was watching Abbott Elementary and B generated a to-do list suggesting she keeps an eye on the SEPTA strike as it would affect her students' ability to commute. So there's still some kinks to work out here. But I think it's a nice acquisition by Amazon and clearly OpenAI is moving into some wearables with Joni Ivey. There's the Ray-Ban metas that are moving into this wearable space. The future of compute seems to be maybe off the phone and onto these devices you actually wear on your body.

17:21All right, don't go anywhere because up next, it's Neil's Numbers. Welcome to Neil's Numbers, the segment where I share three stats from the week's news that will cause you to do a mental bat flip. My first number will motivate you to grab your Halloween Kit Kats and Reese's Cups ASAP. Hershey's said the prices of its candy are going to go up by double digits, generally falling between the low teens and 20%. And psych, it's not because of tariffs, it's because of soaring cocoa prices. Chocolate candy accounts for 67 % of Hershey's sales, but raw ingredient costs have gone parabolic. Last year, thanks to bad harvests in West Africa, cocoa futures rose 178 % on top of a 61 % gain the year before that.

18:07While cocoa prices have stabilized this year, They remain at more than double their levels two years ago and have proven too high for chocolate companies to absorb without passing it on to the consumer. Hershey said that despite the price hikes, 75 % of its product portfolio will remain under$4, so it's still economical to go to CVS before a movie and sneak in a chocolate bar. Elevated cocoa costs have forced other chocolatiers to raise prices. The Swiss giant Lint jacked up prices by 16 % in the first half of the year, and Oreo maker Mondelez also announced a price hike. Kyle, when cocoa prices start, I always ask myself, WWWWD, what would Willy Wonka do?

18:46That is the question everyone should be asking right now. I mean, first you have GLP-1 drugs. Now you have high cocoa prices. It's a tough day to be in the chocolate industry. And these changes normally take about 90 days to take effect. I did the math. Yeah. That's 90 days is right before Halloween. I see what you're doing, Hershey's. Okay. So get your Halloween candy now before this price increases. but I guess a smart business move by Hershey's to land this right before everyone buys their chocolate. All right, for my next number, Venus Williams just defied time. At age 45, the tennis legend defeated her opponent at the D.C.

19:21Open Tuesday night, becoming the second oldest woman to win a tour-level singles match in pro tennis history, only behind Martina Navratilova at age 47 back in 2004. In front of 7 ,000 delirious fans, Williams took down Peyton Stern's 6-3-6-4, which is wildly impressive on a number of levels. Number one, Sterns is ranked 35th in the world, while Venus hasn't played a competitive match in 16 months. Number two, Sterns is 23 years old, or 22 years younger than Venus. In fact, Venus won four Grand Slam trophies before Sterns was even born. After the match, Venus spoke about grinding day in and day out to rehab from injuries and get back to the top level.

20:03Do you know how hard it is to play tennis? She said, you guys don't know how much work goes into this. Like it's nine to five, except you're running the whole time, lifting weights and just like dying. And then you repeat it the next day. Seems like the literal blood, sweat and tears paid off. But the road doesn't end here. Venus will take on the 24th ranked player in the next round tonight. night. Yeah, I mean, she is a legend. And I think we're seeing a trend where athletes are able to extend their playing lifespan well into, you know, their 40s. You see LeBron and NBA Venus here in tennis. I could probably podcast into my 70s.

20:36So the elite athletes are going longer. It's funny, in a viral clip, Venus was saying that she saw her Cobra bill and she was like, OK, I got to get back in to get these benefits on. So lots of complaints about the U.S. health care system. But one thing about cobra. It's very motivational. So good luck to Venus. For my final number, think about how great life would be if you didn't get allergies. Well, there is a way to avoid the seasonal sniffles or eat all kinds of food you want. You just need to be Amish. According to the Washington Post, the Amish are remarkably resistant to allergies. Just 7 % of Amish children had a positive response to one or more common allergens compared to more than 50 % for the entire U.S.

21:17population. And there's one Amish community in northern Indiana that scientists consider one of the least allergic populations ever measured in the developed world. So what's going on? Why do the Amish breathe easy while the rest of us sneeze, wheeze and break out in hives? Researchers led by Carol Ober, chair of human genetics at the University of Chicago, suspect it has to do with the amount of exposure young Amish children get to farm animals or barns. The farm dust that these kids encounter contains protective agents, beneficial bacteria that isn't harmful enough to make you sick, but it trains your immune system to be less responsive to allergens down the road.

21:53This finding builds on the famous hygiene hypothesis from 1989 that found hay fever and eczema were less common among children born into larger families, presumably because of more contact with older siblings. For the big takeaway, one of the authors said, I don't know that we can give every family a cow, but we are learning from these time-honored and very stable environments what type of substances and exposures are needed. Yeah, super interesting. I had not heard of the quote-unquote farm effect before I read this story. So really, really interesting. I feel like I have a billion-dollar business idea for the Amish.

22:26They already dominate the furniture market. They need to come out with an Amish farm dust supplement. I feel like that would absolutely rock in today's landscape where people are super interested in supplements. So if any Amish people, or you know of any Amish people, send them that idea because it's a billion dollar business. Well, that is the reason that they're doing these studies, these researchers at the University of Chicago, because they want to study allergen-resistant populations to see if they can get and create treatments from them to help out the rest of us that are suffering through spring.

22:58So they're trying to maybe create essential oils or other type of concoctions that borrow this farm dust that makes kids so resistant and then, you know, eventually maybe bring it to the market and make some money off of it. Okay, let's sprint to the finish with some final headlines. Uber is trying to make its ride sharing service a safer experience for women. Yesterday, the company rolled out new features that aim to make it easier for women to ride with drivers who are also women. First, when a woman opens up the app, they'll see an option allowing them to request a woman driver. They'll also be able to adjust their settings to signal a preference for a woman driver whenever they call an Uber.

23:33And then on the driver's side of things, women can also adjust their settings to request women passengers. The features are rolling out in the next few weeks, beginning in LA, San Francisco, and Detroit. It's about giving women more choice, more control, and more comfort when they ride and drive, an Uber VP said. In Uber's latest annual safety report, which covers 2021 and 2022, it said there were more than 2 ,700 incidents of serious sexual assault and misconduct, a 22 % drop from the previous report. Yeah, it's important to note too that this women driver preference feature was actually unveiled in 2019 in different countries.

24:07It's now up to 40 different countries. And the real challenge for Uber here will be making sure that there's enough supply and demand of women drivers and riders to make this feasible, because if not, then your wait times are going to go up, your prices might go up. But I think the idea is really, really solid. You just mentioned some statistics that this feature is hoping to mitigate. Finally, when it comes to the worst traffic in America, the Beltway has toppled the 405. An annual ranking from Consumer Affairs found that Washington, D.C. overtook Los Angeles as the U.S. city with the worst traffic, with the average daily commute clocking in at 33.4 minutes in the nation's capital, compared to just over 30 minutes for Los Angeles.