Motley Fool Money - 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

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh boy. Fantastic. You guys go hard, man. Daredevil Born Again, official podcast Tuesdays, and stream season two of Marvel Television's Daredevil Born Again on Disney Plus. out, everybody's after some savings. You're listening to Motley Full 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 Full 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'm not to follow your lead. I'm also going to say allegedly we reopen on Friday. Yeah. But could protect myself a little bit on that one. 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 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. 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. That's the funny thing about investing. And I mean, 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 that's sort of secondary, if, you know, 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, because clearly they're in a little bit of a tough stretch. And so then the question really is, like, is this just a tough stretch? Or is it a sign of something else?

because it's clearly a much more competitive market for EVs today than ever before. 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. BID'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?

Well, I think a lot of that just really boils down to competition, right? I mean, that is the nature of competition. And as we see more options or more alternatives flood the market, I mean, it gives consumers more of a choice. You know, Tesla's always been, at least to this point, sort of a higher cost option for consumers looking for that EV market. And so that was, you know, that was obviously. obviously, strategy they took on to the very start, right? Develop the high end and then let it sort of trickle down to the lower end as time goes on. And so I think now more than ever, we're seeing maybe it's kind of 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, right? I mean, 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. And 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, right, 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 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, does Tesla have an oversupply problem? Well, yeah, I think to agree, right? I mean, they, several years back, I mean, I'm glad you brought up Hertz. That's a good example, because Hertz went really all in on sort of the Tesla idea, thinking, well, this is going to be sort of the new paradigm of rentals. And that just doesn't really, that doesn't really work for a lot of reasons. I mean, I've noted before on these shows, I mean, just my own personal experience going, flying into Atlanta to go visit my parents down in Southwest Georgia, requires a three and a half

hour drive from the airport. And they were trying to push me into an EV. And 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 state, 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 embraced TVs. 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. 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 number one. 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, I mean, it's worth something like $3 trillion. So, it's a big, big, big pond.

So I think for Tesla, as a pure automotive play, I don't think being number one really matters, but I think a lot of it really kind of boils down to what Tesla is beyond just being a car maker, right? Because that's always been the argument for the stock, right? For the investment is it's not just a car company, it's a battery company, it's an AI company, it's a solar company, whatever it may be. And some of that may pan out. Some of it may not. So I think, you know, 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. You might start to see a quicker pivot to this something more than a car company later this summer. The autonomous Robotaxie 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 smart ass? 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, I, I, I, I, I,

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 robotaxy or autonomous robo-taxie, I mean, that's something. It's going to take some time for that concept to really fully prove out. And 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, you know, 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. Okay, 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's gotten pretty

impressive. To me, it's everything else, right? If you're driving in an autonomous car around other human drivers, like that, that becomes sort of a hybrid situation where I'm not sure how people will react with computers when it comes to, you know, all of us being on the road. So it could get a little bit messy before it actually starts working out. So I think time is probably the biggest variable in that equation. And to be fair, you're probably not. 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 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 Sircana, 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 mean, 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 game commercial on the Simpsons.

Now, if you don't know this, Google it. And that's really, I'm just going to Google Simpsons. by aggregate gain and let it take you from there. It'll show you the clip that I'm talking about because it essentially is it kind of plays into what we're talking about here, combining two things to kind of 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 read stuff like it's, I wonder how much, because this story, this idea focuses so much on things like razors and soap and body odor and

shampoo and whatnot. I mean, I wonder how much of this actually has to do with today's, with our new work paradigm, right? I mean, 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 Crunchberries, right? I mean,

I love cereal. Crunchberries 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 exfolion, right? So, I mean, like, you're looking at all of these opportunities, and we can really go down the rabbit hole if you want. Yeah, listeners, if you've got ideas for items 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 Tempersili's purchase of mattress firm. This is a $4 billion deal that combined the company would have 3,000 stores, 71 manufacturing facilities. What's interesting, though, is that these companies aren't direct competitors. If you're not deep into the mattress world, tempersile makes mattresses, whereas mattress firm sells them is a retailer. So with that in mind, Jason, why does the FTC have an issue with this potential deal? Well, I mean, certainly as a 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 a business. One of those things where, if we find a company where, but a lot of times it sort of 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 sort of maintain more control over that supply chain, we typically consider that a competitive advantage. Oftentimes, that is something that comes from inception or is a part of sort of the company's strategy as the company's being built out. And this would be, you know, a vertical merger, so to speak, right? I mean, this would be something where, you know, this isn't something where the company sort of playing this out this way. It's just they're going to try to make the best of a given situation.

So it is clearly a competitive advantage, something that does matter. But furthermore, it does feel like with the FTC in this case, They seem to feel like they have a lot of documentation where they say that, and I quote, Tempricially 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, 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 at.

On a related note, like this, 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 happened throughout the year. The FTC is taking a pretty aggressive stance against a number of mergers. So if you're Temperseli 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. I mean, we've talked a little bit about what's been going on here over the last several weeks

and everything that's going to be leading up to this election. And I think regardless of where you stand on the election, 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 ourselves stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll be off tomorrow for July 4, but back on Friday with the radio show. We'll see you then. In the meantime, enjoy the holiday.