In this podcast, Motley Fool analyst Jason Moser and host Mary Long discuss Tesla's delivery numbers, how personal care companies are dealing with declining sales, and a mattress merger that might not come to be.
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This video was recorded on July 03, 2024.
Mary Long: Turns out, everybody's after some savings. You're listening to Motley Fool Money.. I'm Mary Long, joined today by Jason Moser. Jason, it is July 3rd. Our office allegedly closes early today to get people ready for 4th of July holiday. Thank you for spending the last few moments before the long weekend with me and the listeners of Motley Fool Money.
Jason Moser: Well, it's my pleasure. I guess the biggest question is do we reopen on Friday, or is that just like an implied holiday as well. I'm totally uncertain here, Mary. I have to follow your lead.
Mary Long: I'm also going to say, allegedly, we reopen on Friday. But you protect myself a little bit on that one.
Jason Moser: See how it goes. We'll see how it goes.
Mary Long: Any plans for the longish weekend, maybe with a break in between?
Jason Moser: I think this one's going to be probably a little bit more low key than others. Our girls are older now, so they're off doing other things and college girl stuff. My wife and I might just visit a couple of friends here for a couple of hours, but I think it's going to be a low key holiday this year. How about you?
Mary Long: Always nice. Also low key. Got a friend visiting. We're going to try to go float a river in Golden this afternoon. See how that turns out. Try to find some fireworks.
Jason Moser: That takes me back to my days at Wofford College. We would tube down the river, and that was a nice 4-5 hour day where you would just chill out and enjoy nature.
Mary Long: Well, hopefully I will be doing that this afternoon. Before I get to that point though, I've got some new stories to hit on. One of those stories is that Tesla delivered their second quarter delivery and production numbers. The other day, you might say the results are good, but not great. Deliveries are basically an approximation to sales, and they dropped 5% compared to where they were the second quarter of last year. This was the second straight quarter of declining deliveries for Tesla after many quarters of pretty remarkable growth. That's seemingly not great, but those numbers beat Wall Street estimates. The stock jumped more than 10% yesterday on the news. Your eyes, what's the big story here?
Jason Moser: Well, it's always about expectations. That's the funny thing about investing. I've always said, I care more about what leadership says they're going to do in the Wall Street expectations game is to me, that's secondary, if even tertiary. But again, it's always about expectation. It's understandable the positive reaction. But like you were saying, it was not great. It wasn't bad. I think the real question, honestly, for me, is just for Tesla, it's more about what demand looks like going forward because clearly they're in a little bit of a tough stretch. Then the question really is, is this just a tough stretch, or is it a sign of something else? Because it's clearly a much more competitive market for EVs today than ever before.
Mary Long: On the demand piece, there seems to be an ongoing conversation about how much consumers want EVs if they'd prefer hybrids, of what that transition looks like. That said, let's look at competitors. BYD second quarter, EV sales increased 21%. GM, Rivian and Toyota, they all posted pretty upbeat EV sales numbers for the quarter. What is it about Tesla? Why are their sales specifically slipping?
Jason Moser: Well, I think a lot of that just really boils down to competition. That is the nature of competition. As we see more options or more alternatives flood the market, it gives consumers more of a choice.Tesla has always been, at least to this point, a higher cost option for consumers looking for that EV market. That was obviously a strategy they took on for the very start. Developed the high end and then trickle down to the lower end as time goes on. I think now more than ever, we're seeing maybe it's a fire that's being lit under them, where they need to really focus on developing a car that is going to economically appeal to the masses. It's a big outlay to go buy a new car, whether you're paying for it all up in cash, or you're putting it on some payment plan, you're financing it over three, four, five years or beyond. I think for Tesla, a lot of it really boils down to just how much the vehicles cost, and then, of course, we've seen the stories out there on how much value those vehicles are losing immediately after the purchase because this demand in the EV market has been waning.
Mary Long: We've heard whispers of this $25,000 Tesla model, but have not seen it come quite yet. You bring up a good point because production numbers are also on the decline. They were down 14% from this time last year. Our producer Ricky Mulvey pointed out to me that you can get a used Model three for nearly half of its MSRP at Hertz right now. Does Tesla have an oversupply problem?
Jason Moser: Well, yeah I think to a degree. Several years back, I'm glad you brought up Hertz. That's a good example, because Hertz went really all in on the Tesla idea, thinking, well, this is going to be the new paradigm of rentals. That doesn't really work for a lot of reasons. I've noted before on these shows where it's my own personal experience flying into Atlanta to go visit my parents down in Southwest Georgia. Requires a 3.5-hour drive from the airport, and they were trying to push me into an EV, and I'm like, you know what man, I don't want an EV because I have to drive 3.5 hours, and I don't own an EV, so I don't know all the intricacies in regard to charging where the stations are, how to even operate this thing. I didn't want it. I think a lot of people have come to find that we've gotten through that early adopter phase. We have the early adopters that have embraced EVs. Now, we need to get to the masses, and we're just not there yet because it is such a different experience, such a new experience, and it requires a little bit of a different mindset.
Mary Long: Another angle that you sometimes when you follow this story is the horse race between Tesla and BYD. We were talking about competition earlier. These delivery numbers that Tesla released the other day, they do keep Tesla ahead of BYD as the world's largest EV seller. But there's, again this back and forth. How much does that horse race matter? Is that something that investors should feel like they have to pay attention to?
Jason Moser: It's always nice to be number one. It's always nice to be first, I guess. But if that doesn't last, that's not something that lasts forever, of course. When you look at the global automotive market, all in it's worth something like $3 trillion. It's a big pond. I think for Tesla as a pure automotive play, I don't think being number one really matters. But I think a lot of it really boils down to what Tesla is beyond just being a car maker, because that's always been the argument for the stock, for the investment is it's not just a car company, it's a battery company, it's an AI company, it's a solar company, whatever it may be. Some of that may pan out, some of it may not. I think when you look at the size of the market there in regard to automobiles, it probably doesn't really matter all that much being number one. But I do believe that Elon Musk, I think it's something that matters to him personally, and that's something to keep in mind.
Mary Long: We might start to see a quicker pivot to something more than a car company. Later this summer. The autonomous Robotaxi is allegedly being unveiled in August. What are you keeping an eye out? What are you expecting from that pivot?
Jason Moser: I am expecting this to be a bold promise that goes unfulfilled for a long time to come. I don't mean to sound, can I say smartness? I don't know. But I don't mean to sound that way when I say that. Because Musk has a history of just making bold promises and while he may not necessarily hit the timeline. I do like when leaders make those bold promises when they set those big goals. Because even if you achieve a little bit of that, it still oftentimes can be a very big accomplishment. I think when it comes to something like a Robotaxi or autonomous Robotaxi, it's going to take some time for that concept to really fully prove out. I think there are areas where it can do well. I think it likely will also take a bit of a generational shift in thinking. I think older folks, they just may never really buy into it because the older we get, the more we really get set in our ways. But for younger folks, I think it will likely be a bit of an easier lead. I think it's something that will work over time. I just think it's something that's going to take a lot of time, and that's just something that needs to be kept in mind.
Mary Long: You, Jason Moser, are not yet at the point where you will rent a EV to go drive to your parents' house in Southwest Georgia, what will it take for you to rent hail an autonomous Robotaxi to their house?
Jason Moser: Again, probably a little bit more time. I don't think I'm the target demo. I do like to drive actually, believe it or not. I guess it depends on where I am and how much faith I have that. It's not really the technology. I think the technology has gotten pretty impressive. To me, it's everything else. If you're driving in an autonomous car around other human drivers. That becomes a hybrid situation where I'm not sure how people will react with computers when it comes to all of us being on the road. It could get a little bit messy before it actually starts working out. I think time is probably the biggest variable in that equation.
Mary Long: To be fair, you're probably not hailing a Robotaxi for a 3.5 hour ride. But who knows what the future holds?
Jason Moser: Definitely.
Mary Long: You and I were going back and forth yesterday and this morning about stories to talk about, and I'd sent over a Bloomberg article that pitches itself as, you've heard of inflation, you've heard of shrinkflation, but you haven't heard of Upflation.
Jason Moser: What's up, Dog?
Mary Long: We thought it might be fun to chat a bit about that. The idea here is that personal care companies have seen declining sales of their core offerings, and so they're trying a new tactic to address these declining sales. I'm going to quote from the article here. In the high inflation post pandemic years, cost and waste conscious consumers have cut back on what were once essential items. P&G, Unilever, Edgewell, and most every other packaged good company has posted multiple quarters of slower declining sales volumes. Industry wide, retailers sold 20% fewer razor blades last year compared to 2019, according to market researcher Serkan, deodorant sales dropped 6.5% during the same period. To address this, companies are creating new applications for these old products. The idea is, we've got whole body deodorant, rather than regular under arm deodorant. We've got intimate razors for tricky areas rather than regular razors, and they're selling them at double the price. What's going on? This is marketing. This is actually something new.
Jason Moser: It sounds great for margins. I would think. Mary listen, this is going to show you how much of a child I still really am. When I read this story and when we were chatting about it back and forth, my first thought went to the Simpsons and the viagragane commercial on the Simpsons. Now, if you don't know this, Google it. Google Simpsons viagragane and let it take you from there. It will show you the clip that I'm talking about, because it essentially plays into what we're talking about here, combining two things to sell you something else here.
Yeah, I think a lot of this is just marketing. Marketing is funny. You're trying to convince consumers that they need something maybe they really don't. When I read stuff like this, I wonder how much because this story, this idea focuses so much on things like razors and soap and body odor and shampoo and whatnot. I wonder how much of this actually has to do with our new work paradigm. We're not going to the office. Well, who cares if you shaved? Maybe you don't have to be as vigilant regarding how you smell. I don't know. Some people feel very strongly about that stuff, some people maybe not so much. I do wonder how much the way we work today plays into something like this. Maybe it's nothing, but I don't know. It feels like you could connect the dots, but it does seem like there's the opportunity. If we're going to talk about upflation, let's look at some examples of things that we could do here, because I have some ideas like crunch berries. I love cereal, crunch berries, one of my favorite cereals of all the time. Did you know crunch berries also makes an excellent packing material. It's a tremendous alternative to styro pump. Not only do you get the cereal, but you get the packing material as well.
Mary Long: That's a gift for whoever receives the package.
Jason Moser: Of course. What about Crest toothpaste. I'm sure there's probably a way they could spin that to where it's also a skin exfoliant. You're looking at all of these opportunities, and we could really go down the rabbit hole, if you want.
Mary Long: Listeners, if you've got ideas for items that could benefit from upflation or a unique angle, send us your ideas at podcast@fool.com. Another less exciting, not upflated story going on today is that the FTC is trying to stop Tempur Sealy's purchase of Mattress Firm. This is a $4 billion deal that combined the company would have 3,000 stores, 71 manufacturing facilities. What's interesting, though is that these companies aren't direct competitors. If you're not deep into the mattress world, Tempur Sealy makes mattresses, whereas Mattress Firm sells them is a retailer. With that in mind, Jason, why does the FTC have an issue with this potential deal?
Jason Moser: Well, certainly as a company goes more vertical, as it becomes a little bit more in control of its supply chain. That's a competitive advantage we would point out with a business. One of those things where if we find a company where but a lot of times, it relates to technology or a chip company or an IP company that has the ability to produce those chips, any which way. If a company is able to maintain more control over that supply chain, we typically consider that a competitive advantage. Now, oftentimes, that is something that comes from inception or it's a part of the company's strategy as the company's being built out. This would be a vertical merger, so to speak. This isn't something where the company's playing this out this way. It's just they're going to try to make the best of a given situation. It is clearly a competitive advantage, something that does matter. But furthermore, it does feel like with the FTC, in this case, they seemed to feel like they have a lot of documentation where they say that Tempur Sealy has made it abundantly clear that its acquisition of Mattress Firm is intended to kneecap competitors and dominate the market". If they feel like they have that evidence, as to why this deal would be happening. Then at least I understand why they're pursuing this so hard, because regardless of the market, everybody's looking to get a good night's sleep. Mattresses matter. This is something that they're going to keep an eye on, I'm sure.
Mary Long: That kneecap line stuck out to me, too, and I can't help but wonder when I read stuff like that. Don't you know that this is gonna face scrutiny? Aren't you just watching every word that you're typing into your email?
Jason Moser: That's pretty strong language. It gives you an idea of where their heads at.
Mary Long: On a related note, if to listeners, the line the FTC is trying to stop, sounds at all familiar. It's because it is. This is not the first time that we've heard this story line happen throughout the year. The FTC is taking a pretty aggressive stance against a number of mergers. If you're Tempur Sealy or if you're any company that's looking to do a merger right now, why not wait until November and see how the election and how things of the federal government shake out before you make your next move?
Jason Moser: I think personally, that's the way I would approach it, to be honest with you. We've talked a little bit about what's been going on here over the last several weeks and everything that's going to be leading up to this election, and I think regardless of where you stand on the election. We can all admit right now, there are more potential outcomes regarding this particular election at least in our lifetimes, if not ever, I'm not sure, but just a lot of potential outcomes as it stands today. It probably would make more sense to stand pat and just wait to see how things are starting to shake out because there are different perspectives when it comes to acquisitions and mergers, and there is a political dynamic to it that clearly we're seeing play out right now, too.
Mary Long: Jason, thanks so much for taking the time before, again, the long weekend to chat with me through some new stories today. Always a pleasure to talk with you, and I hope you enjoy the 4th of July holiday.
Jason Moser: Well, thanks so much. You too.
Mary Long: As always, people on the program may have interest in the stocks they talk about, and Motley Fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll be off tomorrow for July 4th, but back on Friday with a radio show. We'll see you then. In the meantime, enjoy the holiday.
Jason Moser has no position in any of the stocks mentioned. Mary Long has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and Unilever Plc and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
