Motley Fool Hidden Gems Investing - Tesla’s Competition

Episode Date: April 3, 2023

 Tesla hit all time records for production and deliveries but left Wall Street unsatisfied.  (00:21) Deidre Woollard and Asit Sharma discuss:  - Rivian’s profitability problem.  - How Tesla is trying to “push competitors into a bad spot.”  - Strategy shifts at Netflix.  - If streamers have pricing power. (13:11) Sierra Baldwin catches up with financial hype woman, Berna Anat, about her upcoming book, “Money Out Loud: All the Financial Stuff No One Taught Us.”  Companies discussed: TSLA, RIVN, NFLX, DIS  Host: Deidre Woollard  Guests: Asit Sharma, Sierra Baldwin, Berna Anat  Producer: Ricky Mulvey  Engineers: Dan Boyd, Heather Horton Learn more about your ad choices. Visit megaphone.fm/adchoices

Deidre Willard Tesla's delivery numbers underwhelm and Netflix changes its strategy. I'm Deidre Willard, and this is Motley Fool Money. Welcome to Motley Fool Money. I'm Deidre Willard, sitting in for Chris Hill, and I'm joined by Motley Fool analyst, Asit Sharma. Hi, Asit, how are you doing today? I'm great, Deidre. How are you? Doing well. Well, let's talk about Tesla numbers. Tesla delivered its delivery numbers for the first quarter, produced over 440,000 vehicles, up 4% from the previous quarter, 36% year-over-year. That sounds pretty good,

but it missed Wall Street expectations. Is that a cause for concern? If you're a long-term investor in Tesla, it shouldn't be a cause for concern simply because a few thousand deliveries that are off of Wall Street consensus estimates isn't going to move the needle on the bigger goal. That is for Tesla to try to continue to grow its production at a 50% annual clip in the near-term, which it's pretty close to doing. As you point out, this is a sequential increase from the last quarter. To me, these numbers are fine. I should point out, both production and deliveries were all-time records this quarter. Interesting. We also got numbers from Rivian, obviously much, much smaller.

They delivered 8,145 vehicles. They were expected to deliver around 7,000. Obviously, very small. But at some point, are they going to be a strong competition for Tesla? And do they compete at the same level? Yeah. Rivian is so interesting. Deidre, because it's also starting, as Tesla did, with a higher-end product. Its trucks are extremely popular in the market for such a small manufacturer. They have this growth path, which is really nice to watch. But on the other hand, they're so far from being profitable. This company needs scale, and it needs positive automotive gross margin to be a formidable competitor to Tesla. Gross profit for last year was $-$3.1 billion. The net loss that

Rivian produced was $6.8 billion. This is one thing that tells an investor, Rivian could be a formidable competitor if they can manage to grow. To grow, they're going to need capital down the road. The balance sheet is fine for now, being that we're flush with cash with their IPO. But this type of gross profit loss, it burns cash. You'll see them going back to the markets in a very short period to try to keep scaling. Now, like Tesla, they have this enormous compounded annual growth rate of production, trying to double this year's total production. I think there were just under 25,000 vehicles last year, shooting for $50,000 in 2023. At that type of rate, there's a shot of them being

among a number of automakers that together will pose the competitive threat. That's really where I see this affecting Tesla's prowess in the future, so many different manufacturers that are starting to reach scale, whether they're big legacy automakers or smaller upstart competitors like Rivian. There's a lot of competition, like you mentioned. One of the quick critiques I've heard about Tesla is, they haven't changed their design style in a while. Most of the Tesla production that they announced, still the Model 3 and Model Y, it is starting to change that vehicle mix a bit. But as it brings on more capacity, new factories, does it have to change that vehicle mix? And does it eventually

have to start doing new redesigns? Ultimately, Tesla will have to evolve with the market. New companies that are coming into the EV market, they'll each have their own take on what the regional appetite is. For example, there's a Vietnamese car manufacturer that's going to be producing EV vehicles in my backyard here in Raleigh, North Carolina. They will have a completely different form factor than Ford's approach, than Tesla's approach. This puts the pressure on Tesla to innovate what I call the form factors of its cars, to borrow a phrase from the tech world. But something else that's interesting, you mentioned this regional mix of vehicle builds,

which Tesla also called out in its press release on its production. That's something interesting, too, for shareholders to watch. Tesla used to be into this concept of batching vehicles together late in their production cycle every quarter, and then shipping them to a certain destination. You're building in one place, you're getting all the vehicles ready, and then you're sending them to another place. What they're trying to do is to build throughout the quarter on a more regional basis because they were hitting a lot of logistical supply chain issues at the end of each quarter. They keep referring to this idea of the regional build. Now we've got gigafactories in the U.S., in Europe, in China. There's a new factory that's

going to come online in Mexico. As Tesla improves its ability to decrease the number of cars in transit at the end of each quarter, that's going to be positive for their margin and I think give them a little bit of room to delay those inevitable form factor changes. Talyn, last year, the story was really about Tesla price cuts. Now it looks like they might be building inventory. You talked before about competition. Obviously, margins might have to decrease. What does that lower price tag really mean? I think it means that Tesla is, in a very aggressive way, trying to push all of its current and future adversaries into a suboptimal position. Tesla's already reached

really great profit and cash flow as an automobile manufacturer. It's a company that's obsessed with improving its technology, with improving the efficiency of its manufacturing. It makes some of the largest casts for vehicles in the world. There are few manufacturers in the world that have progressed at such a rate of innovation as Tesla has. If you look across It's a really interesting study from just a manufacturing output basis. They take all this margin, and they're giving some of it up because they already know if they reach their scale where they want to go, they've got a lot of volume, so they'll make money on volume versus profit, with a high profit margin.

But they're giving up some of that right now, just as other automakers are trying to crack into the market. forces competitors like BYD and China to now cut prices. It forces competitors like Ford or GM to rethink how they're going to sell their cars as they're building out their factories in the U.S. So, I sort of see this more and more as an aggressive first volley in what's going to be a very long-term battle. It's setting the whole industry into rethinking what their margins are going to look like. Tesla can give up the margin now and still make good money. It'll be interesting to see what they report when they have their earnings in a

couple of weeks. True, true, Deidre. I think those earnings will look slimmer on the profit side, but there is an equation for them long-term. Well, let's talk a little bit about Netflix. I don't know about you, but I spend some of my weekend streaming content. It's what we all do now. But there seems to be maybe a little bit of a shift in the streaming universe. Disney, they announced layoffs, kind of slowing their content. Netflix has backed out of some movies. Why is Netflix changing at this point? I think Netflix is internally looking at the same things that Disney is. Disney has the fresh eyes of Bob Iger, who came back

on board as CEO and said, look, the streaming stuff is great, guys, but we have to make a profit. There is a lot of turnover in the subscription business these days with many choices. Here you have companies that are putting in the same amount or more amounts into content production. But on the top end, the side that brings in customers, it's harder and harder to keep loyal customers. There's part of this rationalization that's going on through the industry, which says, look, let's maximize quality over quantity. I'm quoting Bob Iger. He pared down the production schedules you mentioned that Disney is going to have this year, they're going to put out. And Netflix is seeing the same thing. They were an early innovator, spent tremendously

billions on content to try to have that first-mover advantage, to get into localized markets, to have just an amazing amount of shows and give you an amazing amount of choice. But what happens if now, all of a sudden, you can't keep raising prices because other entrants are there, and most of your business still follows the Pareto principle that a few bits of content drive the bulk of new additions in a quarter, or drive the bulk of viewing hours. I know that this is, as much content as they have, it's still each quarter, each month, a few big shows that are pulling the weight. I think they're just looking at, now that Netflix is more profitable than they were in past years, trying to maintain

profitability and just be a more rational business, especially with the competition that keeps coming in the door and this roundtable fight for subscribers every month. Yeah, I think that's right. They had a couple of two high-profile execs leave last week. One of them, Lisa Nishimura, she'd been there since the DVD days, and also indie film VP Ian Brick. So, Netflix, they wanted to win awards. They've won awards now. And now it seems like maybe there's a shift away from that strategy as they kind of look to just more things to get people in the or do awards still matter? I think they do, Deidre, but maybe not as much as they used to. Back in the day, when you and I were following the Netflix story,

early years, it was like they were trying to pull people out of theaters. Let's go after that theatrical market with great content. Let's throw documentaries, let's throw indie films to get people from the art house films at home on a Friday night and watch an indie film. As the whole streaming industry has grown, we've taken that offer. And COVID helped a lot with that, of course. COVID was a huge kneecap for theaters. Some of them are coming back. I was driving to pass a theater that had closed just the other day in my hometown. They're reopening. They're going to reopen this spring. I was so excited. But I really haven't been in theaters that much in several years.

So, I think part of this is, again, it could be like a cutthroat rationalization on the part of management. If we're going to cut costs, we don't really need to be so focused on pulling people out of theaters. We still want to compete. We want to win awards at the end of the year, because that's great for our brand. And of course, we want to pull in new subscribers. But if we're pulling in costs, that's one place. We don't need to spend as much on these really esoteric documentaries or supporting the indie filmmaking. Maybe not. Let's look at that Pareto principle. We could spend less money, try to get a few big hits. And remember, Netflix, this is their bread and butter. Taking analytics of what you watch,

Deidre, and what I watch, yes, I was watching some streaming content on Netflix this weekend, and figuring out, what great show can we make out of this next year? Seeing these intersecting, or call them Venn diagrams of interest that our viewers have, what can we take out of this, make a new production. That's a lot cheaper than having a really wide variety of offerings. Thanks for the chat today. Thanks so much. Enjoyed it as always. You might not have heard of frugal flexing, but you've probably seen it. Berna Anat is a financial hype woman and the author of the upcoming book, Money Out Loud. Motley Fool's Ciara Baldwin caught up with Anat to discuss her book and

strategy for talking money with your family. When it comes to how we feel about money in the very first chapter of your book, and one of the first things that you ask readers to do before they get to any of the fun stuff like budgeting and investing is to unpack their childhood money memories. And you talk about how most of us form some of our earliest money habits through emotional context and our everyday experiences in our childhood lives. Can you share an example of an early childhood money memory that shaped your relationship with money later in life? Yes, big time. So it's fun to talk through this very first chapter because this really is one of my favorite things about money in general. And it's one of the things that people are the most

like, like people are like, okay, give me your best tips. And I'm like, okay, let's dig into your trauma. And they're like, no, thank you. Who wants this? But of course, if you're doing it responsibly, what I'm asking you to do is just take a look, like you said, back at your earliest money memories and start to try to make connections as to how that translates into your money habits now as an adult or a quote unquote adult. For folks like myself, a lot of us first gen child of immigrants folks, our earliest money memories have nothing to do with actual like money lessons or things that people taught us or like explicit, like I'm showing you how to do this. Like you said, we are learning these things through the context of often very emotionally like

experiences that have to do with money. One of my earliest money memories, I was around maybe 14, 15 when I realized that my parents were getting caught up in what I understood later to be the giant housing crisis of the, uh, of the aughts, the 2000 aughts. Um, my parents, I learned much, much later. And I learned this through watching the big short. I didn't learn this by talking to them. I learned this through watching this movie and being like, is that, is that what happened to my parents? Uh, they got caught up in the subprime, uh, mortgage mess. And the way that that manifested in our family was first, there was all this excitement about like, oh my gosh, we're going to buy this house. It's so exciting. Suddenly we feel like rocketed into

these upper echelons of the American dream because we own this brand new beautiful house. And then slowly I started to see things tick away that didn't seem as positive. I remember we would go to the house less. I remember literally that like classic scene of going into the kitchen and seeing my parents' bills spread all over the table, but they're talking about money in Tagalog in the Filipino language. And so we're not, we're supposed to not really understand as my, my family and I, my brothers and I didn't grow up learning Tagalog, but the way that money moves in, in family, especially money tension, you could feel that tension. You don't need to be told that there's financial tension happening. You don't need that to be translated. It's very

much contextual. You could feel it in the air. I could feel the tension in my family. I could feel the shame with which my family stopped talking so much about the new house with other people. My mom being a big Facebooker stopped posting so much about like the braggy, braggy things that she usually did. And then I would see my, we stopped going to the house. The house was something that we didn't talk about anymore. And it was a very clear contextually, like we don't talk about that house anymore. I heard the word bankruptcy mentioned randomly between my parents, but never directly to us.

And then I now look back and see that my parents really went through sort of a depressive episode after that, both of them. And again, this was all like me and my brothers are supposed to sort of turn the other way, keep our heads in our extracurriculars, keep our heads in our academics. And we all just sort of swept that under the rug. And I look back at that now and what it taught me was, I mean, it sort of underlined the lesson that a lot of us learn about money, which is we don't talk about it, especially when it goes bad. We do not talk about the shame. We don't talk about the mistakes. We don't talk about, or maybe

even examine what got us to those things that were both in and out of our control. Money's not to be talked about. Money's to be hidden away. Our mistakes are definitely to be hidden under the rug and also money's not to be discussed in a positive or negative way with each other at all and it really added up to a lot of the shame and the silence and the ignorance that I felt about money into my adult life and also low-key these days my hesitance to like invest in homes and and the house there's still a little part of me that's like buy a house that sounds nuts but knowing that these are things that I learned through context I learned them like my I learned them through sort of emotional lowercase t trauma, and they might not necessarily be true.

And that's what we try to unpack in that first chapter. You also share some stories about how your parents would ping pong between being frugal and also spending money to impress others. Can you explain your frugal flex theory and talk a little bit about how that led to emotionally conflicting spending habits for you later in life as well? Very first disclaimer that I also say in the book is that this is a deeply unscientific theory. This is more something that I noticed when talking to a lot of other folks, especially first-gen child of immigrant folks

about our experiences with money. My frugal flex theory helps for me to explain why so many of us get to adulthood and feel so confused about how we're supposed to see money, how we're supposed to interact with money, how to handle money. So imagine frugal on one side of the spectrum and flex on the other side of the spectrum.

My idea, my thought is that on any given day, our family could either be on the frugal side of the spectrum or the flex side of the spectrum, but it changes all the time. Really, it could change within the day. You can start the day off with your, my family, at least being like, we have rice at home. You think we have like new Jordan's money. If you think your family, the other family is so cool because they just got new, like Nokia's dating myself. They just got a new Nokia cell phone, go live with them. You know, we're like bringing Tupperware of food, Tupperwares of food and hiding them in our bags to go to the grocery store. We're, uh, I'm watching lots of financial stress happen in my house. I'm like,

okay, so we're frugal. So, so we're, we're broke. So we're lower middle class. That's, that's the idea. Cut to, we go to like a family gathering later that day. My mom is wearing her head to toe potentially fake Louis Vuitton stuff, wearing her best things. We get to the party. All the other aunties and moms are wearing their best of the best of the best. Even though I know that like we're all working very similar jobs. I don't know how anybody is affording this stuff. We might all go out to dinner. Suddenly they're fighting over the bill. We're all talking about vacations we're taking. Okay. So now we're flexing. Now money is to be shared. Money is to be really thrown at each other, like in each other's faces. Money is used to show status. And really when it comes to,

for a lot of us who are first gen folks, money is supposed to help us kind of put a banner over our heads are just like, I've achieved the American dream. I did it. We're wealthy. But then living inside of that spectrum all the time, ping ponging, like you said, back and forth between we're frugal, we're ashamed, we don't talk about it, we're broke, we don't have enough to, uh-oh, abundance. This is confusing. And we're showing people the abundance we have. And we're like being lavish with other people. How are we supposed to understand where money really stands for us and our families? How are we supposed to understand the reality of our financial situations? If we're using it to like signal so many different things, and especially when we're young and we're

still developing our financial brains. So when I talk about this theory in front of other folks, I get a lot of like, oh my gosh, that exact thing happened in my family too. It was just as confusing. But of course, growing up, we don't have the vocabulary to talk about this. We also, because again, money is this thing that we're not supposed to talk about. We don't even know that this is like an issue that we can try to highlight or talk to each other about. And so sharing things like the frugal flex theory, really the purpose of that is to help other folks feel seen in the confusion that they experienced in their financial life. And like we're talking about the things in chapter one, help people start to make connections between what they experienced, what they happened

in their families, in their childhood and their upbringing, and why they feel so confused or ashamed or insert X, like destabilizing, destabilizing feeling about money in their minds. We're just trying to, just trying to connect dots. Just to kind of close this out here. You are the ultimate financial hype woman and you seem to have this magic ability to inject positivity into just about every area of finance. What's a good strategy that you can leave us with today for protecting our financial peace during challenging times right now? Yes. I mean, this is, you read the book, you might know this, but the drum I beat every single chapter is community. Talk to people, open, literally money out loud, open your mouth,

talk about what's going on with you. I think community is incredibly important in every aspect. And if I'm going to get real woo-woo ancestral about it, I think all the time about the fact that like my ancestors, my Filipino culture didn't do anything alone. Everything was done communally. I think there's a lot of really important conversations and sort of like thought hallways happening these days that this American kind of habit of individualism and like bootstrapping and like, we should all just like be very strong in and of ourselves. There's some truth to that. But that is also what breeds our shame in these like individualized shadows and like silos of we're going to keep things to ourself. The reason I have a career, the reason

that I feel so energized in my career every single day and in talking about this book and about money for the last few years is because I get energy from talking to other people about it. The very beginning of all this started because I was like, okay, I've been doing this weird budgeting system for like six months by myself. What if I just make a boomerang about it and put it on Instagram? Suddenly I have people to talk to about my money life. Suddenly I have people bouncing energy back to me about how this is inspiring them. Suddenly I am discovering the debt-free community on Instagram and YouTube, and I'm getting energy from those folks, from their plans and their details and their content. So in order to protect your financial peace, I need you to get up out of

your head. Like I need you to get out of the isolation chamber you've created for yourself financially and talk to people you feel safe about with money. I talk about money friends a lot in my book and it doesn't need to be like a whole group of people. It doesn't even really need to be anyone who is directly in your life if you don't feel safe talking about money with those folks. Find a community online on Discord, on Reddit, on Instagram, on YouTube, where you can start to share little bits of your financial self, start to feel seen, start to see other people, then this like find this whole financial journey becomes not something that you're just like carrying this giant backpack by yourself, but a collective effort. That's really sort of

how I end money out loud is that money as a collective effort can really, really change the world. But more than that, it'll change your own financial perspective on things. To not feel alone is it makes such an impact on your wellbeing and your health and just your, your, your general, the space that you feel in your brain. And we could all use more space in our brain. So just share it, share, share what you can with the folks around you that you feel safe with. Um, and just start to wiggle out, wiggle out of that isolation chamber. It it'll feel good. I love that. And it is quite literally in the name of your upcoming book, money out loud. Thank you so much for your time today, Berna. This has been great. And I hope we can have you

back soon. Yes. Thank you so much, Sierra. I really appreciate it. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Deidre Willard. Thanks for listening. We'll see you tomorrow.