Motley Fool Hidden Gems Investing - BMW’s Kinder Egg Strategy

Episode Date: March 12, 2024

Why does ASML want to leave its home country? (00:21) Bill Mann and Ricky Mulvey discuss: - A growth problem for the European tech giant. - BMW’s ability to make a profit on electric vehicle sales. - Product problems for BYD Auto. Plus, (17:20) Alison Southwick and Robert Brokamp talk to a couple about their real life money questions, and one financial item that should be on every family’s to-do list. Companies discussed: ASML, BMWYY, TSLA, BYDDY NYTimes Article about BMW: https://www.nytimes.com/2024/03/09/business/bmw-electric-vehicles.html Visit our sponsor Monarch Money: Go to www.monarchmoney.com/FOOL for an extended 30-day free trial.  Host: Ricky Mulvey Guests: Bill Mann, Alison Southwick, Robert Brokamp, Emily Williamson, Paul Ballas Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

If you can't grow in your home country, how about France? You're listening to Motley Fool Money. I'm Ricky Mulvey, joined today by Bill Mann. Bill, good to see you. Hey, Ricky. How you doing? I'm doing pretty well. There is an odd international story that I want to get your take on, in part because I think it's kind of funny. This is the setup. ASML, which makes the machines that makes the machines that make semiconductors, is threatening to kind of, sort of, not completely leave its home country of the Netherlands. According to Bloomberg CEO, Peter Wenink said at a tech conference, quote, we have to come to the conclusion that we can grow responsibly in the Netherlands. We have not yet drawn that conclusion. End quote. Basically, the company says it needs more foreign talent. The Dutch government is led by a prime minister who's campaigned on reigning in immigration. And now the company is sending out reports reportedly, according to a Dutch newspaper, that maybe the labor situation is better for them in France and maybe they should move there.

First question, Bill, is this a bit like are they doing a bit right now? I would have loved if you'd said, first question, Bill, France? How France has become the potential landing spot for one of the largest technology companies in the world is somewhat fascinating. In the parlance of the movie Singles, ASML is the guy behind the guy behind the guy. And it is the only company in Europe that's amongst the top 10 of global technology leaders. And yes, there is a rise of an illiberal anti-immigrant movement in the Netherlands. And it has to do a little bit with the fact that tremendously successful companies like ASML and AdGen, which is also based in the Netherlands, have required so much housing,

and it is driven by immigration, and they have been so successful that it's raised housing prices. So, it's a little bit of an immigrant crisis than you would see, for example, in the U.S., where it is low-skill immigration. These are highly skilled immigrants, and because they are raising the prices of everything around these markets, people are getting angry. This is something that goes back 100 years. It's called the Dutch disease. The Netherlands physically is pretty small. ASML is looking at the environment in the Netherlands, and they're using this to their advantage to say, huh, we could move to France very easily where it's much bigger and we have plenty of more space to get skilled workers because the Netherlands does not produce

enough. So this Saturday show is going to be a bit of a departure where Bill and I will be doing a three to four hour deep dive on Dutch immigration policies. So I'm going to just step away from that for a sec. Mark your calendar. It's going to be great. We will talk until we get to the truth, Bill. So Shell, and you kind of touched on this, but Shell and Unilever have left the Netherlands in the past few years, relocated their global headquarters. But this is different. This time is a little different. It's a much bigger deal if ASML relocates. The government has a cross-ministry plan. It's called Project Beethoven, which give the title person a raise. So why is the Dutch government so worried about

ASML moving? Why did they name it after a German guy? That's a good question. We'll get back to that. We can talk about that during our long discussion over the weekend. Was it the movie? Wasn't there a big Beethoven dog movie? We don't know. We can't get inside their brains. This is a bigger deal because ASML is such a landmark company. It is such an important company. It's 20% of the value of the Dutch stock market. It's 10% of the entire Eurozone blue chip index. This is a landmark company and a source of pride for the Netherlands. It would be not even low-key, it would be high-key disastrous for the Netherlands if ASML moves. Now, we see this in a lot of

countries around the world, including the United States of America, where we have technology companies that make a rateable portion of a country or some other geographic or political entity's revenue base. We've seen it in banking. We've seen Tesla move from California to Texas. This is another component of this same exact move where you have these very large companies, and they do have some power to get governments to do things that they want them to do. Yeah. And I want to focus on the business for a sec, of what it's doing right now. Because on the one hand we got this is this is the classic economist talk on the one hand and the other hand on the one hand the market has awarded asml a significantly higher earnings multiple straight

up price to sales multiple over the past year the forward p went up from like 30 ish to 45 straight up price to sales went from 8 to 13 for a manufacturing company that is seems to me a little frothy. And you have the CEO saying, yo, friends, we are having a really difficult time growing, and we have serious issues growing our company. What's going on with this disconnect? And as someone with exactly one ASML share, what should I do, Bill, man? I would hold on to that ASML share as tight as you can. This is a company that, what's that old acronym, TINA? There is no alternative. There is no alternative to ASML at this point. They make machines that cost a third of a billion dollars, and they are

absolutely, again, backing companies like NVIDIA, who will have a very hard time manufacturing it and meeting their own goals if it is not for ASML. So, this is a company for which, when you talk about growth, you're really talking about rates of growth as opposed to the tenacity of that growth or the duration of the growth. ASML has a very, very long ramp in front of it and will be very difficult to disrupt. So, he's exactly right. And I think that ASML is moving up for the same exact reasons, maybe not the figure at which NVIDIA has done so, and that is the move in almost every industry to artificial intelligence. There is a market leader in this spot that is going to be significantly different from the market leaders we're about to talk about next.

Let's do some EVs around the world. BMW got a, I would say, just glowing profile in the New York Times about how the company has adopted a different strategy than a lot of other car makers, which I will call the kinder egg strategy, where they have the same body for the car, but the inside's a little different. You have gas, diesel, EVs, hybrids. Paraphrasing the article, quote, the company says that buyers should be able to choose a car's propulsion technology as easily as choosing its color end quote this like beforehand this would seem like a very difficult strategy where you have to change the entire chassis and make them interchangeable seems like there would be a lot of tech challenges there but bmw figured it out and i don't know

should should more car makers follow this lead i think we should call it i love the kinder egg strategy i think we should put it into its original german so it'd be the kinder eye strategy Thank you. I'm here to help. The thing about BMW is that it has always been a manufacturing powerhouse. They've always been very, very good at it. It's the German way, if you will. And so, a lot of companies, as they've been trying to catch up with Tesla and the other leaders in the EV market have set aside facilities that are strictly electric vehicle manufacturing and have in some ways just moved away from the internal combustion engine in order to favor EVs. It may work, it may not. I would suggest that BMW has gone very quickly from being a laggard to

being a real success story in EVs. I mean, they sold nearly 400,000 of them in the last year, which is a huge 75% increase from the previous year. Now, maybe that doesn't sound like much because we are used to EVs being in the midst of a massive growth trajectory. 2023 was a pretty bad year for electric vehicle manufacturers in general. Not only did BMW do well, but they've done well going against the tide. There is something to be said. Again, maybe this is the BMW way, and maybe I am just creating a little bit or buying into the mystique, if you will, of BMW, but they are such a good manufacturing company that this actually may be an area for them that is a differentiator. Like, what would you like? You want a gas engine? We've got that.

You want a hybrid? We've got that. You want fully electric? We can do that. And it remains to be seen just a letting the market determine what it wants on an individual basis, whether it will work. But BMW's experience this last year suggests they're onto something. This article is also talking about how maybe Tesla is losing that sort of technology edge against other car makers. Maybe one other benefit is that I don't really know the name of BMW CEO. And that might be useful right now for the for the uh for selling cars so i mean do you think do you think this article is on to something where maybe tesla is losing that that edge in technology well the ceo's name is oliver tipsa thank you which is fun to say you are you are really on your helpful streak today

say it with me now tipsa tipsa very good yeah that was that was actually that was terrible I think BMW has learned a tremendous amount from the American regulatory way of allowing winners to identify themselves. Do you remember back in the day when we first were getting into HDTVs and in Europe, they made a designation for the type of technology that was going to be their chosen one. In the U.S., the regulators just said, well, let's just see what happens. And and we centered upon a certain technology, and that's what ended up winning. It is a very powerful, if slightly risky, way to go about allowing a winner to reveal itself. And I think BMW has taken that lesson to heart, and that's what they're bringing to the table. They know they

know how to manufacture maybe better than anybody else. And that is, it's a dirty little secret about Tesla. They've had great technology. They were not a manufacturing leader. They did not bring much to the table there. They did upend some things. They should be given an immense amount of credit for that. But ultimately, they are not a manufacturer. BMW is. And so, of the companies that are out there that I think could really compete long-term with Tesla, BMW, Volkswagen are very much near the top of the list. Is this worth a spot on investors' radar, this car maker BMW? I absolutely believe it is. And remember, two years ago, there was basically this thought process that all of the legacy car manufacturers were doomed, not just because of

Tesla, but also because of the upstart Chinese, in particular, EV manufacturers. And they still do have a catch-up in that regard. But BMW is painting the way towards a future, because I happen to believe that there is a future where internal combustion engines are going to have a place in the market. And BMW is saying, sure, let's just assume that that market continues to exist. Why would we not allow our buyers to determine what path they want to take? Choose your own venture with your fuel of choice for your autos, that's absolutely fine with BMW because they manufacture so well. Yeah. The largest seller of electric vehicles right now is BYD, but it seems to have the tremendous caveat that most of those car sales are within China, where it receives a

tremendous amount of subsidies. It's having some problems shipping cars abroad and building new markets, particularly in Europe, in North America. And I guess it's like, does it even matter if you're the largest EV seller if you can't do it outside of your home country. I don't know. Ricky, I don't know if you've heard about this, but China's a pretty good market to start in. It's a good market to start in. Yeah. Yeah. It's not like they're the number one EV manufacturer in Thailand. They are in a huge, very competitive market, and they are winning. There was a Wall Street Journal story that came out about BYD's struggles going abroad. And I think that there are a couple of things that are

at issue here. They are following the path that Japanese companies and Korean companies with their auto manufacturers did in the past. And I think because China does not have a reputation as making very good consumer electronics, and I'm pushing the definition calling a car a consumer electronic. An EV is not not a consumer electronic, but the tendency is to discount the Chinese prowess in these regards. Would you say that's correct? I think that's fair. Yeah, it's just fair. This is not making a designation what I believe. I think that's is simply the case. So, anytime there is a problem or a defect with a Chinese consumer electronics or an EV, it's really easy to say, well, China just doesn't have the quality there

yet. Where in actuality, they're going through the same exact curve that happened with Japan and happened with Korea. I am not so old that I don't remember when Hyundai first came into the U.S., and they had a huge amount of difficulty gaining credibility as a car manufacturer. And everything that was wrong with the first Hyundai cars that came into the United States, they were highlighted. They were amplified. So, yes, this is a problem for BYD, but I think to the extent that you want them to succeed, I think a little bit of patience would help. So, my earlier point, my point that I should have said, the car that they're selling for less than $20,000. You just found out that your sales team is at risk of missing quota. Don't

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Ready to rule your business? Head to rippling.ai slash fool to get the only AI built to give you full visibility and take complex actions across your entire organization. That's R-I-P-P-L-I-N-G dot A-I slash F-O-O-L. Sign up for exclusive access today. Rippling dot A-I slash fool. $1,000 goes for more than $40,000 in a country like Germany. So they're playing a different game outside of their home court, if you will. We're at the end of earnings season, and it's been kind of an interesting one. Any general reflections, thoughts, lessons learned as you look back

on this past earnings season? I think if there were anybody left who was skeptical about how artificial intelligence was going to change commerce, the time is now to accept that it is. Now, companies like NVIDIA are trading at tremendous multiples

and ones that I would say are... Well, Phil Mann, thank you for your time and your insight. Thanks, Rick. Is your house on the same financial page? Robert Brokamp and Allison Southwick caught up with my colleague, Emily Williamson, and her partner, Paul Ballas, to ask some real-life money questions and discuss one financial item that should be on every couple's to-do list. If I remember correctly, you have accounts that are his hers and ours. So how does that work in practical terms, Emily, such as paying for the mortgage or even just going out to eat? What we have done for a long time is we look at how much we make together and then how much each

of our paychecks are our salaries. And we split our bills as a proportion of the total. So like we look at our bills first and then we split our income as a proportion of what we both make. And so that goes into our joint account. And out of our joint account, we pay all of our bills that are sort of non-negotiable. So mortgage, car, escrow, some health costs that we have shared. And then as far as eating out, I don't know. Maybe we're in a camp of what most Americans do, but we share a credit card. And so we have a budget that we try to stick to.

It's become very difficult with inflation. but that's what we put travel fun things restaurants our animals any like extra expenditures and then we split that 50 50 every month so into our joint account we put 50 percent of what our proposed budget should be for our credit card every month and if we go over that then we just have to make it up yeah i really like our joint credit card because we accumulate so many points for things that we're going to spend it like we're going to buy gas we're going to go to out to eat. So we might as well put it on the strength credit card. And then during the year we have all these points and we can get his cash back or take a trip with it. Credit card

points feel like you can use them for so many stuff. Before we came on the show, you talked about how you wanted maybe help from Dr. Bro, again, not a real doctor, on how to sort of get aligned on those intermediate goals. Those ones that are maybe 10 to 15 years out or so. So at this point, I'm going to see you into the doctor. The doctor will see you now. Dr. Bro, take it away. Well, first of all, it sounds like you two are in great shape. I can just tell by the way the two of you interact that I think you're mostly on the same page. But it's fine if you're not always on the same page. Most couples aren't. So, let's talk a little bit about goals. So, you know, first of all, there's always the goals that just about anyone with a certified financial

plan or designation like me will say just about everyone should have. And we'll talk very briefly about those. But then there's the individual goals and the couple goals. So, that's where there might be some more give and take or compromise. And we'll get into those as well. and you have some ideas about what those would be. But let's start with the prerequisites. We'll just go through these real quickly. Do you have an emergency fund, right? That pile of cash that you can rely on if there's a big ticket expense or as Paul pointed out, if you temporarily lose your job for a while. We do. I think I'd like it to be six months and it's probably like three months. Good. Okay. Well, we'll conclude by the way with a to-do list. So that's one thing to add

to the to-do list. Do you generally pay off that credit card each month? Yeah. Okay. So the good news is you don't have a revolving balance, so credit card debt is not an issue. How about an estate plan, a will and a trust or something like that? We do not. We shouldn't really get one, though. Ah, another opportunity. All right. So we'll add that to the to-do list. You can do a lot of it on your own just by updating your beneficiary designations on things like your IRAs and 401ks. I assume you would name each other, but then you'd name secondaries in case something happens to both of you. You can change your bank accounts to payable on death accounts and your brokerage accounts to transfer on death accounts. You could do all that on your own,

which makes your estate planning a lot easier. But you probably should, in the end, get a will. I know you have pets, don't have kids, but you have pets. You could put in your will who you want to take care of the pets. You could even create a trust so that would pay for the care of your pets. So, these are things you would talk with an attorney to get a truly solid estate plan. All right. If one of you passed away, would the other be fine financially? Devastated emotionally, of course, but financially, would you be fine? Yeah. I think they would be fine. Yeah. We both have life insurance on each other. Okay. So, you already have the life insurance. So, no need to get more life insurance.

And then finally, are you saving for retirement? Yeah. Yeah, just doing the company 401k. I think we each have an IRA. At least, I think I do. I do know it. No, I don't have an IRA. Have you sat down and calculated whether you're saving enough to retire around your mid-60s or so? No. No. I just use the little calculator on Schwab. I go in and see if it looks okay. My company uses Schwab, too. Okay, got it. All right, so that's another opportunity. We'll add that to the to-do list.

Now, let's get into the individual goals that you told us about. Emily, you have an interesting one. You want to open a bed and breakfast and grow all the food that you would cook for the guests for breakfast and dinner a couple times a week. Tell us about that. Well, I love gardening, and I love cooking, and I love hosting. So, it just feels like, I don't even know if I would call it a career, a passion of mine that's calling to me.

So one day, probably not in Denver, but somewhere else. And Paul and I talked about this. I mean, about in breakfast, I think Paul would love a hobby farm, actually, where we welcome guests in. We'd have to buy the property, you know, get the gardens. I'd love to do some learning before we get there, maybe go on some experiences in Europe and across the country. I think there's only a few places where this is actually how the bed and breakfast work in America. But I think this is a thing in other countries, though. So do you have any experience doing this type of work?

I have experience gardening and cooking for others, but not hosting a B&B. We have a VRBO property, but we are not there with the folks that come. So no experience. We did actually a long time ago when we first bought our house. we airbnb'd the bedroom like we lived here and we airbnb'd the room i'm in actually that was so we do have a little bit of experience i don't recommend that i was gonna say how did that go it was like 40 a night so we only got like college students and uh we had our dogs and that was also not okay with people i mean we're in colorado you can imagine what they wanted to do here yeah the

college it would come over like 2 a.m like you know kind of like half drunk and like wake up the dogs and we're like, Oh boy. So Paul, how do you feel about that goal? I think it's really cool. I'd love to, you know, be part of that. Like I'm, I love everything cycling. So whether that's gravel bike riding, mountain bike riding, I used to be a big road biker, but now mountain biking has taken over my life in Colorado. So I would love to like, you know, lead people on biking tours at this Airbnb. My dad lives on a farm. So I kind of know a little bit about like, you know, living on when it's like to live on like a hobby farm. So helping out there would be cool. And in general, I think my goal, financial goal, I just want to have like more freedom

in like 10 years. I don't want to be so reliant on my job. Like I want to work because I like working and it gives me purpose. But if I want to take three months off, cause I want to go like across the country, I want to be able to do that without like such a huge financial hit. so i think that like freedom is related to like emily's b&b because it's like we would need a lot of like financial freedom to kind of do something like that right which gets to the individual goal that you expressed which is to be financially independent in 10 years so it sounds to me like it's not necessarily being fully retired but just having the freedom to sort of do things you want while still sort of moving in and out of the job force yeah and i will say like i've i've been

talking to some of my friends lately and they're starting to do like more like grown-up investments i guess i'd call them like i was talking with one of my buddies the other day and he just invested in like a multi-family real estate fund and i was like oh like wow that's pretty cool and it got me thinking like should i be doing stuff like that uh or is that like maybe i shouldn't because i don't understand it so you know just thinking a little bit more about other things other than my job. So the good news is, when I saw your goals, someone wanting to run an Airbnb and another spouse might be completely opposed to it. But you seem to be in that situation. So that's very good. That was my number one concern. But I'm glad to hear that not only are you on sort of the same

page, but you both have a little bit of experience doing this. One final question, and then I'll give you the diagnosis, the to-do list. On a scale of 1 to 10, Paul, how important is it that you are financially independent a decade from now. 10 being like, you absolutely, positively want to be financially independent. And then lower numbers, it'd be like, I'm a little flexible with that timeline. A six. A six. Okay, good. All right. So here we go. Here's the diagnosis and your to-do list. So the first thing, of course, is to get the estate plan. And again, you could do a lot of this on your own, but you probably should see an attorney. Because you don't have kids, you possibly could get away with doing a will or something like that

from an online, you know, from a website. But generally, I think it's still good to hire an attorney to do that. And you may already have an attorney since you have a VRBO and things like that. The B&B thing is kind of a journey, right? There is, first of all, an exploration in terms of how much you really want to do it. And I looked, and there are plenty of classes, webinars, books about how to do it. There used to be a company called Vocation Vacations, in which you took time off to work another job to see if you liked it. And one of the options was to help run a B&B. Unfortunately, this company no longer exists, but you still might be able to find a B&B that will let you work there for a little while to see if you like it. Because you may end

up feeling like, okay, this sounded like a good idea, but the day-to-day is actually kind of a grind. But on the other hand, you may love it. And that's a point where you have to start looking at the numbers. You have to figure out, okay, how much does it cost to buy the place? What are the finances? What can I project in terms of revenue and things like that? And you'll learn that, I'm sure, if you start taking classes in books. Then decide the timeline and what it takes to get there. You do that just with a regular old calculator. Then you'll decide whether, for example, you need to save up for that, or do you sell the rental property you have and then use that money to buy the B&B, especially if the rental property is not cash flow positive. If

it's cash flow positive, you might want to keep it. But if it's not cash flow positive, you might want to sell that to put it towards other goals. And then, just in terms that we talked previously about the retirement calculating, and it could also be related to the financial independence. If I were really your financial planner or your financial therapist, I could run those numbers for you. But instead, you can use a retirement calculator. My favorite retirement calculator is the CalcXML Comprehensive Retirement Planning Module, which if you do an online search for that, you'll find that. You just put in your numbers. It'll tell you basically at what point will you retire given your current trajectory, how much you're saving, how much you have, things like

that. And then you just fiddle with the numbers to see like, okay, I want to retire sooner. How much do I have to save? How much do I have to shave down my expenses to? And that will give you a general idea of where you're going now and what you can do to change that. And since Paul, you said you're kind of a six on that financial independence, that gives you a little wiggle room in terms of saying, okay, if we do this, I'll be financially independent in 13 years or so, and maybe you're fine with that. How does that sound? Does that sound good to you? Any questions? I would say, what steps do we need to start taking now to be more financially independent in 10 years? Well, it just depends on what you're doing now. You might look at your numbers,

given that you seem to be generally financially responsible, and you might already be in better shape than you think you are. So you just have to crunch the numbers. But then apart from that, it really comes down to saving more. And I think it is the VRBO that you have. Is that cash flow positive? A bit. And we only had it for two years, so it's still new. But it pays for the mortgage every month, which is great. Right. Well, so that's great. But we're not raking in the extra money. Okay. So that's good to know. If you were saying that you were actually losing money every month on it, I'd be like, hmm, that may be a situation where you sell that, take whatever money you've made, and I assume you've made money over

the last couple of years, and then put it towards other goals. But if it's at least covering the cost, that might be a worthwhile investment. You talked about the private real estate. That is something you could explore. It's not really necessary. It usually takes a decent amount of money, and they tend to be more illiquid. But you might look at the possibility and find it something worth doing. But you don't have to do that. Plenty of people become financially independent just by investing in the stock market. As always, people on the program may own stocks mentioned, and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear.

I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.