Motley Fool Hidden Gems Investing - What’s Upflation?

Episode Date: July 3, 2024

I don’t know, what’s up with you? Jason Moser and 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. Read the Bloomberg article mentioned here. Companies discussed: TSLA, TPX Host: Mary Long Guest: Jason Moser Producer: Ricky Mulvey Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

It 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 the 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. Well, it's my pleasure. I guess the biggest question, do we reopen on Friday or is that just like an implied holiday as well? I'm totally uncertain here, Mary. I'd love to

follow your lead. I'm also going to say allegedly we reopen on Friday. Yeah. But to protect myself a little bit on that one. We'll see how it goes. We'll see how it goes. You got any plans for the long-ish weekend, maybe with a break in between? You know, I think this one's going to be probably a little bit more low-key than others. Our girls are older now, and so they're off doing other things and college girl stuff. And so I think my wife and I might just visit a couple of friends here for a couple of hours. But yeah, I think it's going to be kind of a low-key holiday this year. How about you? It's always kind of nice. Also kind of 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. That takes me back to my days at Wofford College. We would tube down the river, and that was a nice four to five hour day where you would just chill out and enjoy nature. Well, hopefully I will be doing that this afternoon. Before I get to that point, though, I've got some news 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. So that's seemingly not great, but those numbers beat Wall Street estimates. So the stock jumped more than 10% yesterday on the news. Your eyes, what's the big story here? Well, I mean, it's always about expectation, right? I mean, that's the funny thing about investing. And I've always said, I mean, I care more about what management, what leadership says they're going to do. And sort of the Wall Street expectations game is, to me, that's sort of secondary, if even tertiary. But again, it's always about expectation. So 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. 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? It's clearly a much more competitive market for EVs today than ever before. Yeah. And the demand piece, I mean, there seems to be an ongoing conversation about how much consumers want EVs, if they'd prefer hybrids, kind of what that transition looks like. That said, like, let's look at competitors. BYD's second quarter EV sales increased 21%. GM, Rivian, Toyota, they all posted pretty upbeat EV sales numbers for the quarter. So what is it about Tesla? Why are their sales specifically slipping?

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 to the very start, develop the high end and then let it 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 sort of a payment plan, you're financing it over three, four, five years or beyond. So, 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 sort of demand in the EV market has been waning. Yeah, 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 3 for nearly half

of its MSRP at Hertz right now. Does that indicate that Tesla has an oversupply problem? 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 He's the new paradigm of rentals. That doesn't really work for a lot of reasons. I've noted before on these shows, it's my own personal experience flying into Atlanta to go visit my parents down in Southwest Georgia. It requires a three-and-a-half-hour drive from the airport. They were trying to push me into an EV. I'm like, look, you know what, man? I don't want an EV because I have to drive three-and-a-half 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. And so I didn't want it. Right. So I think a lot of people have come to find that we've sort of gotten through that early adopter phase. Right. We have the early adopters that have have embraced EVs. Now we need to kind of 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. up. Another angle that you sometimes see 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, kind of 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? I mean, it's always nice to be No. 1. It's always nice to be first, I guess. But if that doesn't last, it'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, big, big pond. I think for Tesla, as a pure automotive play, I don't think being No. 1 really matters. But I think a lot of it

really boils down to what Tesla is beyond just being a carmaker. That's always been the argument for the stock, for the investment. 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. 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. We might start to see a quicker pivot to this something more than a car company later this

summer. The autonomous robo-taxi is allegedly being unveiled in August. What are you keeping an eye out? What are you expecting from that pivot? I am expecting this to be a bold promise that goes unfulfilled for a long time to come. And I don't mean to sound like a, can I say smartass? I mean, I don't know, but I don't mean to sound that way when I say that. Because, I mean, Musk has a history of just making bold promises.

And while he may not necessarily hit the timeline, right, 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. So, I think when it comes to something like a robo-taxi or autonomous robo-taxi, that's something that'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 kind of just sort of really get set in our ways. But for younger folks, I think it will likely be a bit of an easier leap. So 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. OK, so 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 robo taxi to their house? Again, probably a little bit more time.

I'm not that 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. And to be fair, you're probably not hailing a robo-taxi for a three and a half hour ride. But who knows what the future holds? Definitely. Definitely. 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 kind of pitches itself as you've heard of

inflation, you've heard of shrinkflation, but you haven't heard of upflation. What's up, dog? So 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 kind of 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 other, most every other packaged good company has posted multiple quarters of slow or declining sales

volumes. Industry-wide, retailers sold 20% fewer razor blades last year compared to 2019. According to market researcher Sarkana, deodorant sales dropped 6.5% during the same period. So to address this, companies are creating new applications for these old products. So the idea is we've got whole body deodorant rather than regular underarm 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, right? This isn't actually something new. 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. My first thought when I read this story and when we

were chatting about it back and forth. My first thought went to the Simpsons and the Viagra Gain commercial on The Simpsons. Now, if you don't know this, Google it. Google Simpsons Viagra Gain and let it take you from there. It'll show you the clip that I'm talking about. 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 and you're trying to convince consumers that they need something that maybe they really don't. I do wonder, I mean, when I, when I, when I read stuff like this, I wonder how much, because this, because this story, this idea focuses so much on things like razors and

soap and body odor and shampoo and whatnot. I mean, I wonder how much of this actually has to do with today's, with our new work paradigm, right? I mean, sort of, 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. So I do kind of wonder how much sort of 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, right? If we're going to talk about upflation, I mean, let's look at some examples of things that we could do here, right? Because I have some ideas

like Crunch Berries, right? I mean, I love cereal. Crunch Berries is one of my favorite cereals of all the time hey did you know crunch berries also makes an excellent packing material right it's a tremendous alternative to styrofoam so not only do you get the cereal but you get the packing material as well right and that's a gift for whoever receives the package of course what about crest toothpaste right i'm sure there's probably a way they could spin that to where it's also a skin exfoliant right so i mean like you're looking at all of these opportunities and we could really go down the rabbit hole if you want yeah listeners if you've got ideas for items that that could benefit from upflation or a unique angle send us your ideas at podcast at fool.com another kind of

less less exciting not upflated story going on today is that the ftc is trying to stop temper sealy's purchase of mattress firm this is a four billion dollar 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 as a retailer. So with that in mind, Jason, why does the FTC have an issue with this potential deal? Well, I mean, certainly as the company goes more vertical, as it becomes a little bit more in control of its supply chain, I mean, that's a competitive advantage we would point out with

the business. 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 you get it, 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 is a part of the company's strategy as the company's being built out. This would be a vertical merger, so to speak. I mean, 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, and I quote, Tempur-Sealy has made it abundantly clear that its acquisition of a mattress firm is intended to kneecap competitors and dominate the market, end quote. So, 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, the market, I mean, it everybody, you know, listen, everybody, everybody's looking to get a good night's sleep. Right. Mattresses matter. And so this this is this is something that they're going to keep an eye on. I'm sure 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 going to face scrutiny? Aren't you just watching every word that you're typing into your email? That's pretty strong language. That's pretty strong language. It gives you an idea of where their heads where their heads at. 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 storyline happen throughout the year. The FTC is taking a pretty aggressive stance against a number of mergers.

So if you're Tempur-Sealy or if you're any company that's looking to do a merger right now, why not wait till November and see kind of how the election and how the things of the federal government shake out before you make your next move? I think personally, that's the way I would approach it, to be honest with you. I mean, we've talked a little bit about what's been going on here over the last several weeks and in everything that's going to be leading up to this election. And I think regardless of where you stand on the election, I mean, we can all admit right now there are more potential outcomes regarding this particular election than probably any, at least in our lifetimes, if not ever, I'm not sure, but just a lot of potential outcomes as it stands today. And so it probably would make more sense to stand pat and just sort of wait to see how things are starting to shake out, because there are different perspectives, right, 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. Jason, thanks so much for taking the time before, again, the long weekend to chat with

me through some news stories today. Always a pleasure to talk with you, and I hope you enjoy the Fourth of July holiday. Well, thanks so much. You too. 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 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.