Tesla Scraps High-End Car Models & Starbucks is Heating Up

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0:32Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, Starbucks is finally turning things around.

0:39Neal Freyman:Then Tesla's transformation is just beginning. It's Thursday, January 29th. Let's ride. The growl. Just beginning. Canton, we have a problem. The Pro Football Hall of Fame is facing a crisis of legitimacy after reports revealed that Bill Belichick was not voted in in his first year of eligibility. He needed to get at least 40 votes from a 50-person panel, which means at least 11 voters did not think Belichick was deserving this year. Many fans and players were absolutely stunned by this, considering Belichick is widely regarded as one of, if not the, greatest NFL coaches of all time, winning six trophies as head coach of the Patriots and two more as a defensive coordinator.

1:23No other person in NFL history has more Super Bowl rings than he does. Toby, what happened here?

1:29Neal Freyman:This is like a scant of all levels story for dudes who still have their TVs on the ground. Multiple explanations, though. The spiciest one was that it was a coordinated protest punishing Belichick for his role in some unsavory scandals over the years. The Patriots 2007 Spygate controversy. You can toss Deflategate in there, too, if you want. A more mundane explanation, though, is that some voters thought he'd for sure get in, so they used their votes to prioritize other inductees who might only have one last shot. Regardless, the consensus is that he will get in eventually. He just has to wait a little bit.

2:06Neal Freyman:And now a word from our sponsor, Sandals. Toby, any travel plans? Well, my fiancé and I. Sounds boring. You should go to Sandals Resorts, kick back on the Caribbean's best beaches, powder white sand and turquoise waters with a drink in hand, and not a worry on your mind. I have to admit, exploring the Caribbean's most beautiful islands and enjoying globally inspired dining across more than 10 restaurants per resort, like the Jerkshack or Butch's Steakhouse, does sound pretty nice. Sandals is all about flexibility, too. Do as much or as little as you'd like, including water sports like Patty Certified Scuba Diving, or just keep it relaxing in their one-of-a-kind accommodations like overwater villas with their own infinity pools.

2:44Neal Freyman:There is no better place to experience the Caribbean than at resorts founded by a family from the Caribbean. The winter blues sale is now on, so visit Sandals.com for the best all-inclusive value in the Caribbean. That's Sandals.com. Jerome Powell is nearing the end of his time as chair of the Federal Reserve, and he is going out with the opposite of a bang. The Fed delivered pretty much exactly what everyone expected, holding its benchmark interest rate steady, breaking a string of three straight cuts. Much like your Thanksgiving table, there were some dissents though, as has been the norm in the Fed of late.

3:19Neal Freyman:Stephen Mirren and Christopher Waller, two Trump appointees, wanted a fourth straight quarter point cut, but were outvoted 10-2. As for Powell's press conference, many were eager to see what he'd have to say about the political maelstrom surrounding him tied to the DOJ investigation and to whether he misled Congress about the cost of the Fed's headquarters renovation. But for anyone hoping for something tie-hot, it was one star at best. CNBC counted five separate occasions where Powell delivered variations on, I have nothing for you on that, to questions related to the probe. When asked about who his successor might be come May, Powell responded that he'll stay out of elected politics.

3:57Neal Freyman:Give us something, Jerome. As for the market reaction to the Fed's decisions, there wasn't much of one, which was a good thing because the S &P 500 index touched 7 ,000 for the first time ever before falling a bit towards the afternoon. Neil, all in all, more entertaining than watching paint dry, but only just, which is sort of a welcome relief given the craziness surrounding the Fed these days. Yeah, John authors at Bloomberg wrote, in the midst of the greatest turmoil for the institution in decades, Jerome Powell and his colleagues on the Federal Open Market Committee conjured a truly uninteresting announcement on monetary policy.

4:32So mission accomplished. So let's talk about why it was so boring. The Fed has been balancing two different risks in the economy. You have inflation running a little hot over that 2 % target and also employment, the job market that is slowing down. Those two risks suggest that the Fed should do opposite things with interest rates. And if inflation is running hot, you want to keep them high. If unemployment is rising, you want to keep interest rates low. Right now, the Fed appears to see that these risks are actually in balance right now. There's some sort of equilibrium. Both are great. Okay, but not good or great, which means that they're just going to hold steady for the foreseeable future.

5:11Neal Freyman:Yeah. So the core question going forward is when do you resume cutting? Do you resume cutting? And it does look like we probably will get more cuts throughout the year in December, 12 of 19 officials projected at least one cut this year, but that decision definitely hinges on what shows up first is the labor market going to break or is inflation going to fall closer to the 2 % target. Neither has necessarily happened so far, which is why we're in this holding pattern right now. So in terms of the economic outlook, that is why we had a boring Fed meeting. And whether that interest rate cut happens, it won't be Jerome Powell at the podium talking about it afterward.

5:49The race to replace him has been heating up in the past few weeks. There appear to be four finalists on Trump's card right now. One is Kevin Warsh, former Fed governor, Christopher Waller, a current Fed governor, Rick Ryder, who's a senior executive at BlackRock, and Kevin Hassett, who's at the White House now as Trump's top economic advisor. The president said a few weeks ago or even months ago that he settled on a candidate and then he's been waffling over the first few weeks of January. The Wall Street Journal reported that he may not, in fact, have a candidate that fulfills his full desires.

6:23He wants someone that will lower interest rates, be completely loyal to him, but will also command respect from the markets as well none of those four guys i mentioned may be able to check all those boxes i have a guy

6:34Neal Freyman:in mind jerome powell put him back in charge but yes you are right people were trying to make it a little bit more emotional and going like this might be the last time we see or this we're only going to see him a few more times and he's probably not going to ever cut rates again which is just very funny that people are almost like eulogizing a fed chair but jerome powell has been at the center of so much controversy of late. And it's kind of been the steady hand guiding the ship, guiding Fed independence through this assault and attacks on it, which is why you saw like the memes coming out yesterday.

7:07Neal Freyman:And personally, it's going to be weird to say another name when talking about rates other than Jerome Powell. So I'm just going to say it as many times in this segment. I think I've got like 10 in so far. Let's move on and see what some of the corporate giants who reported earnings yesterday are up to. Up first, Tesla sort of hates making cars these days. Elon Musk officially announced that it's time to say goodbye to the Tesla Model S and X, two of its more expensive models, and say hello to robots. The company is repurposing its Fremont, California factory to manufacture its bipedal optimist humanoid robots.

7:43Neal Freyman:Once the king of the EV castle, Tesla has fully lost its crown thanks to rising Chinese competition and a general apathy towards cars in general. Tesla's profit slid 46 % year over year, which actually beat expectations. Gains from newer businesses, including energy storage, haven't been enough to counter falling car sales. But again, it doesn't matter if you're Elon because his eyes are focused towards the future with lots of robo taxis driving around and lots of optimist robots scurrying around too. Neil, Tesla earnings are weird now. This is a$1.3 trillion car company that has no interest in making cars.

8:21Neal Freyman:The stock still rose in after-hours trading. Yeah, for Tesla investors, it's not, what have you done for me lately? It's, what are you going to do for me next? And what Tesla has done for investors lately is actually cratered its profits. I want to dial down on this because it's truly remarkable. Tesla was one of the most profitable car companies ever in history. In 2024, it had$7.1 billion in profits. Last year, that cratered to$3.8 billion. And in terms of its profit margin, Tesla was heralded for having this insane profit margin for cars. But last year, its pre-tax profit margin was about 6%, which was less than half as much as Toyota.

9:00So costs are rising, sales are falling, but investors don't care because Optimus is coming.

9:06Neal Freyman:And by the way, those two car models that it sunsetted, they were not contributing much to its car sales either. The far more popular models are the Model 3 and Model Y, which accounted for 97 % of the company's deliveries last year. So the writing was always on the wall for the S and the X. Up next, Meta shares jumped as much as 10 % yesterday as the company forecasted higher income this year, even as its spend related to its AI buildout is set to double. Any way you cut it, Meta is spending more money than a spring breaker with access to dad's credit card. It expects 2026 capital expenditures of between$115 and$135 billion.

9:46Neal Freyman:That is up from$72 billion last year. But it has some money to blow, perking up analysts' ears when it said it expects first quarter sales driven by its bulletproof ad business to come in higher than originally estimated. As for the division that its company is, you know, named after, Reality Labs, which houses its VR ambitions, generated nearly$1 billion, but lost$6 billion in the process. Meta recently laid off more than 1 ,000 of its Reality Lab employees, sifting those resources instead to AI-wearable devices like Ray-Ban smart glasses. Still, Neil, people were picking up what Meta was putting down.

10:23You must have been clicking on a lot of Instagram ads this past quarter, because Meta makes so much money from advertising. It made almost$60 billion last quarter, which is a 24 % increase year over year. Advertising accounts for 97 % of Meta's revenue. It just has this big pot of money that it can dip its hand to and then spend it on Metaverse or AI, which is doing now, and investors are totally buying it, which was a huge reversal from the last time Meta reported earnings because it reported an increase in spending and its stock tanked 14%. Now its stock actually rose 10%. So investors think that there actually could be some revenue at the end of this pot of gold.

11:06Neal Freyman:Yeah, Meta's earnings basically bought them time for their AI investment to pay off. They're in a holding pattern right now where they're like, damn, your core business is sick. It's doing really, really well. Whatever you're doing over here, we trust you that you'll figure it out because right now it's just a never-ending money pit, it looks like, but you got a lot of money to blow. So you are right. They're kind of doing so well that people are willing to overlook all the capital expenditure that they are reporting as well. Moving on, Microsoft was almost a mirror image to Meta. Shares took a beating yesterday, falling 6 % after investors digested a mixed quarter.

11:44Neal Freyman:On the plus side, the company made$81.3 billion, up 17 % from last year. Profits were up even more, jumping 60 % to$38.5 billion. Its stake in OpenAI is also paying dividends with net income increasing by$7.6 billion due to its investment in the company. Now for the bad, Microsoft is paying a lot of money to keep its AI engine running. CapEx hit$37.5 billion last quarter, and roughly two-thirds of that went to what it calls short-lived hardware, which has analysts nervous. And its all-important cloud unit grew 39 % during the quarter, which was slightly down from its previous quarter's growth rate.

12:20Neal Freyman:Neil, on the surface, a very solid report for Microsoft, but the combination of some nerviness about its AI spending and investors mulling the risk at other AI models posed to traditional software giants left a dent in its share price. It was a pretty gnarly one-two punch. You had Microsoft spending surging to a record high, but at the same time, its cloud growth was slowing. So those two things kind of spooked investors. We also learned for the first time how much OpenAI contributes to its business. Microsoft said that 45 % of its$625 billion book of future cloud contracts was from OpenAI. And so you'd start, I know you're getting a little nervous over there because OpenAI is such a huge factor, how much they're paying for compute from these massive hyperscalers like Microsoft.

13:07And when investors see that sort of concentration in the customer base, they get a little nervous. Let's zoom out to Microsoft's stock because Microsoft, for the past couple of years, had been one of the most valuable companies in the world, if not the. And its stock has actually shrank 6 % over the past six months. It's fourth in terms of the biggest market cap companies in the world behind NVIDIA, Alphabet, and Apple. So for the past half a year, its stock has basically just gone horizontal, and investors are getting a little skeptical maybe of this growth story.

13:38Neal Freyman:It was so funny because Meta and Microsoft reported very similar quarters, but the market just absolutely jumped on Microsoft's throat for missing its cloud growth revenue target. Actually, it beat its revenue target by 1%, but it lost to its previous quarter's growth rate by another 1%. So very fine margins that we're talking about and the difference between a 6 % drop or a 10 % stock run-up. Moving on, Amazon's one-day shipping its employees. Yesterday, the company announced it would cut around 16 ,000 corporate workers to reduce layers, increase ownership, and remove bureaucracy. It's the second round of layoffs since October when Amazon slashed 14 ,000 white-collar positions.

14:18Taken together, these two cuts will lower Amazon's corporate workforce by 10%. CEO Andy Jassy says he's trying to turn Amazon into the world's biggest startup, and to achieve that means removing bloat and changing the culture. In other words, getting rid of managers en masse. Jassy's even set up a no-bureaucracy email alias to identify opportunities to cut red tape. It's a rough time to be a manager not only at Amazon but across corporate America. companies are desperate to eliminate the, I'm gonna need to ask my boss first conversations that slow down the pace of innovation. In just the last year, Microsoft shed thousands of employees to reduce management layers and Nissan, Amtrak, and ASML all targeted management with cuts of their own.

14:55As for Amazon, it says it's done with layoffs for now, but don't expect it to start backfilling roles anytime soon. In fact, Jassy said that over the longterm, Amazon's headcount would only get smaller as AI takes over a lot of human tasks.

15:07Neal Freyman:That was the big kind of absence in this announcement. They did not include any mention of AI replacing workers, which is obviously where a lot of people's minds went to. Is this why you are justifying these layoffs? And that's not the case. They are really trying to say that it is a bureaucratic thing. They're trying to reduce the layers within their company. But you kind of read between the lines here because the day before Pinterest laid off 15 % of its staff, they said that they're reallocating some of its resources towards AI. Amazon is also, we didn't mention it because it didn't report earnings, but it's spending a whole lot of money on AI CapEx as well.

15:44Neal Freyman:So people are trying to connect the dots here, you know, dot the I and say, you are spending money on AI. Are you sure that's not why these workers are being laid off? They kind of held the line and say, no, it's for completely different reasons, but you can see why people were kind of connecting the two. Yeah. It's another red flag for a job market that has really slowed down a lot lately. Last year was the worst year for hiring outside of recessions since 2003. And if you get laid off, it's really hard to find a job. In December, the average length of unemployment was almost 25 weeks. In December 2022, the figure was 19 weeks.

16:20So it's a tough job market out there. Amazon says it's trying to find internal roles for the people it's laying off, but it's far from the only company that's now announcing sweeping layoffs as we start 2026.

16:31Neal Freyman:All right, we're gonna take a quick break and come back with some Neil's numbers right after this. Neil, have you heard of public.com's newly launched generated assets? Yes. Helps you turn any idea into an investable index with AI. Start with any prompt, say renewable energy companies with high free cash flow or semiconductor suppliers growing revenue over 20 % year over year, and it'll get to work. Well, so much for surprising you, but the AI can screen thousands of stocks and will build you a one of a kind index and let you back test it against the S &P 500, then you can invest in a few clicks.

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18:36Neal Freyman:Max$100 cash back per month. Before we get into Neil's numbers, actually, someone gets Starbucks an insulated coffee sleeve because it is heating up. The Seattle-based company is doing its best Sam Darnold impression in finding a second wind under new management, reporting a 4 % jump in U.S. same-store sales for its best quarter since late 2023. It's the first sign that star CEO Brian Nichols' turnaround plan is paying dividends. We have a plan. We've been working the plan, and the plan is working, Nichols said during an investor call. So what is that plan? There's been menu improvements, in-store operation upgrades, and a rollout of a green apron service model that encourages baristas to write on your cups and say hi when you walk in.

19:21Neal Freyman:A big hit has been protein cold foam, which lets you get ripped while taking a sip. But there was also an assist from the time of year. The holiday launch of Bearista Cups had customers literally fighting each other for a chance to buy, which combined with seasonal beverages created a measurable spike in foot traffic. Neil, the turnaround is slow and lumbering, but the ship looks like it's headed in the right direction. Retail is detailed, Toby. I've always said it. They've been remodeling stores. They've remodeled 200 stores. And it's just these little tweaks at the edges that Nickel thinks that they can get back to growth, which they have done.

19:57He's trying to achieve this four-minute target where you order something and you get it within four minutes. And he said that that's actually been the case now at U.S. company-operated stores. Investors hadn't really been convinced about Nickel's turnaround since he took over in 2024. The stock was pretty much stagnant, just up 5%. This seems to be like the first quarter where he can point to something real and say, look, guys, we're turning things around.

20:19Neal Freyman:Have you been to a Starbucks of late? Of late? Yeah, I think I went a few months ago. I suppose I noticed some changes. You go a lot. I go a lot, an embarrassing amount, but I absolutely have noticed changes. Mainly when you walk in the door, every single person or nearly every single person in there goes, good morning, which it almost feels a little eerie at times, but at least they're making the effort. and it does their new product lineup to it is what I think has investors pretty excited because this investment in protein and this investment in wellness seems to be paying off as well. They definitely want to push themselves as a place that you can dip into for something that will make you feel good, but also maybe dip into for an afternoon reset, protein and fiber drinks coming.

21:11Neal Freyman:They have a little bit more coming in way of their food menu as well. So I think that they saw what was happening in the broader food market and say protein is obviously king right now. What if we brought that into our product suite as well? And they say there's still room to run on that because not a lot of people even know that they have these protein drinks. And yet they are driving repeat customers. I've had it multiple times. Like I'm speaking from a place of someone who's tried this protein cold from. And it does look like wellness is going to be a key theme going forward. Welcome to Neil's Numbers, the segment where I share three stats from the week's news that you'll want to hang up on the fridge for repeat viewing.