Morning Brew Daily - Tesla Stock Dives on Q1 Delivery Miss & McKinsey Offers Staff Pay to Go Away

Episode Date: April 3, 2024

Episode 293: Neal and Toby chat about Tesla’s rough Q1 of 2024 after falling way below its expectations on deliveries. Then, the Jon Stewart-Apple break up heats up as he shares why they parted ways. Next, General Electric is also going through a break-up, except it’s with itself. Also, McKinsey is offering staff members to take some time off and well… never come back. Meanwhile, Kansas City sports fans love their teams but maybe not when it means higher taxes. Lastly, are neckties out of fashion?  00:00 - Intro 2:45 - Tesla’s rough Q1 7:00 - Jon Stewart v. Apple 11:00 - GE’s big break-up 14:25 - McKinsey pays to go away 18:15 - Sports drama in Kansas City 22:30 - Are neckties in or out? Get your Morning Brew Daily Merch HERE: https://shop.morningbrew.com/products/morning-brew-daily-sweatshirt?utm_medium=multimedia&utm_source=podcast&utm_campaign=mbd&utm_content=shownotes Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning for your daily show. I'm Neil Fryman. And I'm Toby Hal. Today, Tesla is straight up not having a good time after posting a disaster Q1. Then General Electric was once the most valuable company in America, but now it's charting a path forward as three separate public companies. It's Wednesday, April 3rd. Let's ride. So yesterday, the company who owns the UFC and WWE was the center of attention after its majority shareholder endeavor group announced it was going private after being acquired by the PE4.

firm Silver Lake. And while that deal may have been on your radar if you're a fan of watching people hit each other really hard, either for real or for show. For the rest of us, it was nerve-wracking because for a moment, it seemed like the best stock ticker on the public markets might be going away. The group who owns the two fighting leagues trades under the ticker TKO, which is just perfection, Neil, best out there. It is good. It's not my favorite, to be honest. I'm more of the quiet luxury type when it comes to stock tickers. So I like the ones that have single letters. You got T for AT&T, F for Ford Motor, C for Citigroup, Z for Zillow, and the best, X for U.S. Steel.

I'm sure Elon Musk is not happy that U.S. Steel got that one. But I do prefer the just simple elegance of the single letter. And did you know that 20 of the 26 single letter ticker symbols are in use on the New York Stock Exchange? I did not know that, Neil. And I do like your style. I'm more of a fun guy. Literally, Cedar Fair, the Amunders. He's been Park Company trades under the ticker fun.

Harley Davidson trades under the ticker, hog, which you just got to love. And then Heineken trades under Heiney, which Chef's Kiss right there. Now let's hear a word from our friends over at Robin Hood. You know, Toby, when I started investing 20 years ago, you had to call your broker to place a trade on the phone. And then they charge you 50 bucks for each trade. Even when I started trading a few years ago, so many big brokerages were charging commission fees for trades. Now, apps like Robin Hood have no commission fees, and you can trade with just a few taps. Training's not just for those guys in the special Blazers in the stock exchange anymore.

Yeah, almost 50% of the U.S. population says they invest in equities. Robin Hood alone has over 23 million investors. Robin Hood really makes you feel in control. It's got all the tools you need to level up your investing. Now I know what I'm getting you for your birthday. Special Floor Trader Blazer. I am so lucky to have you as a friend. To the rest of my friends, learn more about trading stock.

in Robin Hood's free app in the App Store or Google Play Store. Disclosures, investing involves risk, other fees apply. Robin Hood Financial LLC, member SIPC. Tesla is credited with single-handedly creating the market for electric vehicles, sparking one of the biggest transformations in business history as automakers swapped out internal combustion engines for batteries to power vehicles. Now, though, it seems like it's getting beat at its own game. Tesla released Q-1 sales numbers yesterday, and they were bad, shockingly bad. The company delivered 8.5% fewer vehicles than a year ago. The first time its quarterly sales have fallen since 2020.

And while expectations were in the dumps, no one expected the performance to be this ugly. The 378,000 vehicle deliveries missed estimates by the widest margin ever. And that means Tesla finds itself in this unthinkable position. It made too many cars, leaving it with nearly 50,000 more cars than it handed over to customer. Tesla has never had that problem, and it's raising alarms that demand for Tesla's has declined significantly. And look, the EV market broadly has slowed down. It's not growing at the rate it had been. That's a fact. But it's not shrinking either would suggest that Tesla's recent misery is its own doing. Yeah, so what went wrong? The answer is lots of things. Just on this

supply side, Houthi militia attacks on shippers in the Red Sea, they disrupted some of Tesla's supply chain, also in March environmental action. activists set fire to infrastructure around the Berlin Gigafactory, which caused a pause in production. But then in China, Tesla has just faced this onslaught of competition from the domestic EV makers, like BID, and then newcomers from the phone makers, Xiaomi, are also both undercutting Tesla on price and a little bit on quality as well. So Tesla actually reduced production of its Model 3 and Model Y at its Shanghai plant. It's reduced the amount of days that workers are working there as well. So that's just on the supply side of the things.

But as you mentioned, it's not just a supply issue by any means. No, analysts are saying for the first time ever, Tesla is facing a demand problem. A few years ago, this would have been unthinkable because Elon Musk was at the factory in California saying they were in, quote, production hell. He was sleeping there. Tesla could not make enough vehicles fast enough to fulfill demand. Now it appears like people just maybe don't want Tesla's as much as. they used to. There's a host of competition, not just in China, but here in the U.S. as well. We just on Monday talked about South Korean automakers taking a huge bite of market share here

in the U.S. from Tesla. Tesla used to have 65% of the market. Now, it has 55%. So you hear whispers that maybe Elon Musk's antics on social media and is increasing political stances are maybe causing some would-be Tesla customers to look elsewhere for electric vehicles because they are plentiful now. Right. And then also, Tesla models are kind of old by, by, you know, and also, Tesla models are of old by car standards now because there hasn't been a real new model release if you don't count the cyber truck, which is kind of so outside of what normal consumers buy that it doesn't even really move the needle in terms of new releases. So the much anticipated new budget model

around that $25,000 range that's been, again, tease for a long, long time now. That won't be available until at least late 2025. So there just isn't a lot of new stuff on the market outside the cyber truck to get Tesla people fired up. Let's remember to zoom out, though. Tesla isn't the only automaker getting kind of wrecked by falling demand right now. Rivian also missed some of its production targets. Ford and GM are also taking a step back and reworking their EV plans because the demand has been weaker than expected. So this is not just a Tesla thing. It is a wider EV market. Yeah, but all of those other besides Rivian, GM and Ford and all those other automakers have traditional cars that Tesla doesn't. So if you're Tesla, do you want Elon Musk, like,

Elon Musk appears pretty disengaged. He didn't tweet about this at all. He was busy tweeting about Disney's proxy fight, which we'll talk about tomorrow. But, you know, do you want him to go back and show a sign of support for Tesla? Or do you want him to just even step away and hand the reins over? That's what analysts are deciding right now what they want Elon Musk to do. But he needs to do something because Tesla is down 33% this year and it's the second worst performing S&P 500 stock. Let's move on. You know when one of your friends

go through a bit of a messy relationship and afterwards you can't help but ask for the tea around everything that went down before the breakup. Well, John Stewart is finally ready to spill the beans about one of his exes, Apple TV Plus,

who carried his show for two season run that ended abruptly in October. According to Stewart, Apple explicitly asked him to not interview FTC chair Lena Khan on his podcast while he was still hosting

the show on their platform. It's a shocking revelation, but also not so shocking at the same time. Apple has attracted a lot of attention from regulatory agencies for its potentially anti-competitive business practices and influence in the tech industry. And it's currently facing a antitrust lawsuit from the Justice Department. But it is interesting to hear from Stewart's mouth the exact limitations they put on him while he was beholden to them while distributing his show. Well, this is crazy because Monday night he's interviewing Lena Khan on his, on, Comedy Central on the Daily Show, which he now hosts on Mondays. And he's just talking to her, and he tells her, wait a second, did you know that Apple did not let me interview you? And then

she, who's this anti-tech crusader, kind of replied, and she had her talking points ready. She goes, I think it just shows one of the dangers of what happens when you concentrate so much power and so much decision-making in a small number of companies. So she had the talking points ready. But it is very, it's sort of a warning sign for these companies that are tech companies, ostensibly, Apple wants to sell you, iPhones and iPads and software and things like that. And they get into the media and content game. There's signs, I mean, at least according to Stewart, that they've censored him over the course of his employment there.

Right. Stewart also said that Apple wouldn't let him talk about things like AI or China. He did end up talking about AI on his show earlier this week. And he discussed the false promise of it. And he did also say that Apple would not have. let me do that segment while I was on their show. And I mean, Apple is all about keeping their brand extremely squeaky clean. I mean, they won't even let villains use iPhones and movies. So it is going to be, there's going to be inherent intention whenever a new show is on their platform,

because you have to talk about some of these hot button issues that Apple maybe doesn't want to be associated with. And this was specifically called out in the DOJ lawsuit dropped two weeks ago against Apple's iPhone ecosystem. The government accused Apple of exercising its role as TV and movie producer to control content. And so John Stewart is definitely airing a lot of dirty laundry that echoes a lot of what the government is accusing Apple of doing. Right. And there's just inherent tension between talk shows hosted on streaming platforms in general because

cable and network shows, they get to lean on the news cycle. They get to lean on the urgency of breaking news. streaming shows on the other hand, you don't log on to them in real time. It's more of something you put it on, you scroll through. It's almost like browsing a digital blockbuster in a way, so you need to have a longer shelf life. So just in general, there is tension between what the kind of show that John Stewart is trying to produce and the kind of show that does well on a streaming service. So that just undermines and underlies this whole kind of brouhaha. Yeah. And John Stewart is certainly not the first sort of late night talk show host to criticize their parent company.

These talk shows are known for criticizing corporations. Sometimes those corporations are their owners. So John Oliver criticized AT&T when it owned HBO Parent Warner Media on his HBO show. And then last year, this was a huge dustup when Aaron Rogers went on ESPN's Pat McAfee show, criticized Jimmy Kimball. Jimmy Kimball also is under the Disney umbrella. He works for ABC, and so there is that sort of internal conflict between those two there. Gah, I haven't said this in like two weeks, so it feels great to declare that once again, Toby, you can join in.

It's the end of an era. And what era is that? The general electric era. The house that Thomas Edison built over a century ago is no more. As of yesterday, it's split into three separate public companies, signaling the denouement of one of America's most iconic corporations. The GE that once lit your house, wash your clothes, and microwaved your leftovers, is now GE aerospace, which makes jet engines, GE Vernova, the energy wing, and GE Healthcare, which focuses on, well, healthcare. The split is the brainchild of CEO Larry Colp, who came into GE in 2018 and faced a bigger cleanup job than the morning after a frat party.

At the time, GE was a shell of its former self and loaded with $100 billion of debt, But Colts sold off a ton of assets, paid all that down, and got GE to a much healthier, if smaller place that it's now in fine piece of management, if I do say so myself. Absolutely. GE is famous for its managerial history, because especially under Jack Wells, before there was Elon Musk, before there was Zuckerberg or Jeff Bezos, there was Jack Wells. He was kind of the first celebrity CEO from the 80s to 2001. He would do things like rank employees firing the bottom.

10% every year. He fired more than 100,000 employees in his first three years at the helm of GE. Ultimately, though, did Welts' famous leadership style lead to long-term profits. It's a little bit up for debate. He was a grow-at-all-cost guy. He was the one who pushed GE into these increasingly risky and aggressive acquisitions. He bought NBC in 1986. It didn't translate super well to long-term profits, though. The 2008 financial crisis ended up impacting GE's business a lot because they got into subprime mortgages and short-term lending. And now it's kind of culminated into this broken-up version of GE into these three separate companies.

Yeah. I mean, this, when Jack Welch was seen, he was considered the manager of the century in 1999. He was this larger-than-life character. But he got into these areas that GE was maybe not best equipped to be. And I mean, this was parried in, parodied in 30 Rock, the show about NBC and a late-night show there. So they brought in Jack Donegie, who's the boss in 30 Rock. His title was the head of East Coast television and microwave oven programming.

And that's sort of a satire to say that. Why is a company like GE getting into the television business and it maybe speaks to a larger bloat that had happened for GE under Jack Welch and future CEOs? Now we're in the Larry Colp era and it looks a lot more stable than the Jack Welch era. He came in as really the first outsider to run GE back in 2018. And he's done just some good old-fashioned management. He paid off debt by selling assets. He improved cash flow by streamlining operations, cutting overhead costs.

Just the fundamentals. That was the most jargony thing. But it is true. That's what he did. And remember, we talked about Boeing CEO is now, that role is now open. Larry Colp, after what he did with GE here, is definitely being floated as a name that could replace the CEO position there. Up next, McKinsey consultants are getting paid to leave the company,

and the chiefs might be leaving Kansas City as well. McKinsey is the creme de la crem of consulting firms. McKinsey is also offering to pay hundreds of its senior employees to leave the company and work somewhere else. You heard that right. McKinsey wants to reduce headcount and is willing to pay people to leave rather than lay them off. managers at UK offices and some U.S. offices have the option to spend up to nine months looking

for a new job instead of working on client projects while still collecting a paycheck. Part of this is because there has been a general downturn in the consulting market, causing McKinsey to cut 1,400 back offices last year. And part of it is because people don't really quit their jobs after being hired at McKinsey. The firm is one of the lowest attrition rates in the consulting world, which has ended up buying them in the butt since low performers often stick. around longer than expected. Neil, getting paid to quiet, quit. What a life it must be to Don that McKinsey, Patagonia vest, had to work, then not have to work. These companies will do

anything but actually layoff employees. They have this policy already in place, which is called counsel to leave, which sounds exactly what it sounds like, which is maybe we have a discussion, me and you, and we're like, Toby, maybe you're not the perfect fit here. I'm not going to fire you, but maybe you want to go to another job. And so why are they so resistant to firing or laying off people? Think a part of their recruiting strategy. And they want the top MBA grads across the nation, across the world, is they want to place you, they want you to get a really good job after you go from McKinsey.

You spend two to three years there and then go on to a better job. If they can use that in their marketing materials to get really good candidates, then they want to do that. So maybe that's a reason why they're saying, we'll pay you a huge salary. for nine months, not to do anything for us, but maybe you'll use that time to find a really good job, and then we can use that in our recruiting efforts. Also, maybe you'll be an executive or in a manager role in another job, and then you can hire McKinsey. Right. It works on both ends of the spectrum there. What's so ironic about McKinsey, though, is that McKinsey's absolutely

world famous for telling other businesses to cut jobs in the name of efficiencies. Duff McDonald wrote this book called The Firm About McKinsey. And he said McKinsey is, maybe the single greatest legitimizer of mass layoffs of anyone anywhere at any time in modern history. So there's just this hefty dose of irony that they themselves refuse to conduct any layoffs at their admittedly very bloated company right now. Back in 2018, it had just 28,000 employees. That's ballooned up to 45,000 employees. So it's definitely, as we entering this, maybe some headwinds are facing the consulting industry, it is a little too big right now. Oh, absolutely. The consulting industry has taken a big dive in this post-COVID world.

They were being asked to consult a lot during 2020 and 2021 when companies were like, eh, we have a pandemic going on. I really have no idea what to do. Can you help me navigate this pandemic? So all these companies, Accenture, Erson Young, Bain, McKinsey, Boston Consulting Group, they all staffed up like crazy because their services were in high demand. Now companies are maybe back to normal. They know what they're, doing. There's no pandemic anymore that their demand for McKinsey and other consultants has certainly dried up. There's also been a lot of ethical scandals about McKinsey advising governments like Saudi Arabia and China that are sort of geopolitical rivals at the U.S. and have questions of their

own. So it does seem to be a bit of a backlash against this particular industry. All that said, though, McKinsey did have a record revenue year last year booked $16 billion in revenue. So it's always a little bit of mixed signals here. Even as you see these headlines, McKinsey is still chugging along quite nicely. Moving on, it's not often that Patrick Mahomes and Travis Kelsey lose. They've won three Super Bowls in five years after all. But yesterday, they suffered a stinging defeat by the residents of Jackson County, Missouri, leaving the Chiefs and Royals future in Kansas City in doubt. Residents, by a wide margin, rejected a measure that would have created a new three-eighths-of-a-scent sales tax over 40 years to fund a new Royal Stadium in

downtown Kansas City and overhaul the chief stadium, which is the third oldest in the NFL. The sports teams had poured millions into convincing voters to support their stadium plans enlisting the two megastars, Mahomes and Kelsey, in an ad campaign that urged voters to pass the sales tax. We need you, Kelsey says in the ad, let's keep this rolling. But in the end, angry residents decided they did not want their tax dollars to help fund stadiums for teams owned by billionaires. And it's one of the most significant signs yet of the growing backlash against the use

of public funds for local sports franchises. Because if people in Kansas City, an area with so many championships recently, aren't fully behind their teams, then maybe it could happen anywhere. So where does this leave Kansas City residents right now? The Chiefs could try again with a different tax player plan that voters like a little bit more.

They could change their entire funding approach to include more private investment because they've seen this pushback from taxpayers. Or they could even listen to offers from different cities or states, such as Kansas, which is right across the border, or right across the state line, that would be more open to the public funding that they want.

It just seems completely unheard of for a place like Kansas City that has seen so much success, at least on the chief side of things, that suddenly they could be looking at a different state entirely just because they can't come to an agreement around these fundraising strategies that they're approaching. Right. Well, they're only, the chiefs, they're only pouring in $300 million of their own money for what would be an $800 million overhaul. So, I mean, if I'm a voter there, I'm saying maybe just fill in the gap there. There's another $500 million that you could probably put in. The

pushback against the Royals is also interesting because they want to go to a downtown area. And the criticism there is that they go into this area. It's already, it's called the crossroads. It's already a pretty thriving area. There's a lot of activity going on. The residents there will say you're disrupting local businesses. You're going to drive rents higher. and housing prices have already been increasing in the Kansas City area. You're going to disrupt the local fabric. And, you know, this might have been unthinkable a few decades ago. And we're like, oh, we would love to have a stadium come into our downtown and help revitalize it.

But there does appear to be growing backlash because study after study after study shows that sports teams are not an economic – or sports stadiums are not the huge benefit that their teams say they are. And after all is said and done, it's kind of a wash in terms of economic activity in the area. It's neither a net benefit nor net loss. Right. We saw this again play out in Washington, D.C., Ted Leonces, who owns the group that owns the Washington Capitals and the Wizards. They announced this big mixed-use developmental project out in Alexandria, it was $2.2 billion development.

But then Mayor Muriel Bowser hurriedly put together this proposal that increased the funding that these stadiums would have to remain in D.C. So everywhere you look in different markets, in different leagues, you're seeing this push from taxpayers because you're right. It just hasn't panned out in the way that some of those economic forecast, they paint this beautiful picture that it's going to spur all this economic activity, but it often doesn't, the math doesn't quite add. I think if I'm a mayor or, you know, someone who wants to keep a team in the city, I would just dispense with the economic argument because you're not going to win at this point. And you just have to go appeal to the hearts and minds

and say, we love the chiefs here. We want to bring the royals to downtown. We need to keep the chiefs here. Like, that's why I'm asking you to support them because it is a source of of pride for us, you know, just be completely honest, because that's why. It's like, we want to market ourselves as a place with the chiefs. Taylor Swift would never have come to Kansas City had the chiefs not been there. I mean, that's what I would say. That's probably why I wouldn't make a good politician because I wouldn't lie. You had me convinced there. You invoke Taylor Swift and good things happen for sure. Let's move on to our final story. Last week, you may have heard discuss the massive New York fundraiser Joe Biden through alongside Barack Obama and Bill Clinton

that raised $25 million. But while most people were struck by the star power of three presidents in the same room, some fashionistas couldn't help but notice something else. None of the president or former commander-in-chiefs were wearing neck ties. That, of course, led to some online discourse. One tweet noting the lack of ties got 22 million views alone. In some were adamant that it could mean only one thing, the beginning of the end for the tie.

If our leaders of the free world aren't wearing it, then who the heck is? Neil, sales of ties have been dropping for years now. Is this finally the death knell for men's neckwear, or is it too soon to write off a good wins or not? It is not the end of neckties. The death of neckties has been predicted for many years now. Go back to 2022 at the G7, Manuel Macron, Boris Johnson, Justin Trudeau, didn't wear ties. There were no ties at the

very few ties at the Oscars this year. Ryan Gosling, Bradley Cooper, Robert Downey Jr., all did not wear ties. And it's true that the tie market is less than it was pre-COVID. But I think just when you're experiencing a trough is when you're going to get the uptick again.

Just because presidents are not wearing ties doesn't mean people don't want to wear ties. And now it might be seen as this counterculture movement where people can wear ties again and sort of rail against the establishment, which is kind of funny because neckties are seen as the establishment, the office, you know, the place of the CEO and the powerful person. But I don't think we should write it off because they've been written off for years and they've always come back. Right. They

definitely still maintain a cultural relevancy in our culture. You find it in malls everywhere. You go into a mall, you'll find necktie still being sold. You find in magazines, models are wearing them. Politicians do still wear them. But you are right that the new trend is co-opting the tie as this rebellious fashion statement because if you wear a tie that no politician would ever wear maybe with a loud pattern or maybe it's a knit material, then you're taking the establishment, making it your own,

and it's become more of an Instagramable thing. So I'm with you. I don't think the tie is dying anytime. Meanwhile, Trump just wears that big red tie all the time. But if you're wondering what the experts say about whether you should wear a tie or not, there's this menswear guy on Twitter

who's a huge sort of a commentator and everyone kind of listens to him. He says there's nothing inherently wrong with wearing a tie. You just have to know what to wear it with. So don't wear it with the classic worsted suit that all of us wear that dark suit. If you just wear that kind of suit, you probably should put on a tie because without it, it looks weird. But if you don't want to wear a tie, wear maybe looser garments, get a linen suit,

something that looks better with a collar open. So I'm just dispensing some fashion advice, something I've never done ever before. But I guess the takeaway here, it's fine. to not wear a tie or wear a tie. All that matters is the ensemble around it. Let's rock them tomorrow, Neil. I'm all in on the team. I'm also all in on Team Tie.

I just think it looks better. Okay, we have to wrap it up there. Have an excellent Wednesday. Definitely ready for the rain to stop here in New York. As always, your feedback and support is what keeps the show going. So don't hesitate to send a note to Morning Brew Daily at MorningBrew.com. Let's roll the credits. Emily Milliron is our executive producer.

Raymond Lou is our producer. Olivia Graham is our associate producer. Yuchina Ogu is our technical director. Bailey Minino is on audio. Hair and makeup thinks that presidents should wear ties. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow.