The Rundown - Tesla Knocks Earnings Report Out of the Park, Boeing Workers Reject Deal to End Strike

Episode Date: October 24, 2024

Stock market update for October 24, 2024. Follow our Leading Indicator podcast on social media: Instagram TikTok Hear from experts, analysts, & economists as they break down the top market headlines, dive into strategies of public companies, and uncover tech trends.

Public.com presents the rundown. Your daily market update in five minutes. My name is Zadadmani, and today is Thursday, October 24th. In today's episode, we recap Tesla's earnings and tell you why investors are loving it. We also tell you about the latest troubles at Boeing and why the company might run out of cash them. Then stick around to the end of the show to find out why UPS stock is up, Southwest stock is down, and how much money Tesla makes from selling regulatory credits. It's hundreds of millions of dollars.

All right, let's go. But we had a tough day in the market yesterday. It was a sea of red with the S&P 500 drop in about 1%. And it was even worse for the NASDAQ would drop by 1.6%, putting an end to a five-day win streak for that index. Now, the big drop yesterday could be because of the bond market. Now, personally, I don't really talk about bonds a lot because it is extremely boring. But bonds do play a major role in the economy.

and something weird is happening right now with bond yields. It's confusing a lot of people. See, the 10-year treasury yield has gone up over the past few weeks. And the reason that's weird is because the Fed is cutting rates. Typically, when the Fed cut rates, bond yields go down. That's not what's happening right now. Like, for example, last month, the 10-year treasury yield was at 3.6%. This is right after the Fed cut rates by 50 basis points.

Since then, the 10-year yield has gone up to 4.2%. It's the highest level in three months. So despite the Fed funds rates being cut, bond yields have gone up. That's unusual, and it's confusing a lot of investors right now. So why is this important? The 10-year treasury yield is like the reference point for other things like mortgage rates. So when the 10-year treasury yield goes up, it probably means that mortgage rates are going to go up as well. And big picture, it also indicates that investors don't think that the Fed will cut interest rates as aggressively as they have indicated.

So yeah, that's a quick recap of the weird, happening in the bond market. Like I said, the bond market is usually very boring. I can already tell us some of you guys are probably zoning out on that one. So hopefully that's enough bond talk for the rest of the year. Let's run through some headlines. And we have to start with Tesla. Their shares are popping this morning after the company reported earnings last night. And boy, did they deliver. No pun intended. Tesla's revenues jumped by 8% and their profits climbed to over $2.1 billion beating estimates. And the key metric that investors were paying close attention to leading into the report was profit margin. And Tesla delivered above estimates on that as well,

thanks to a drop in cost for raw materials. So it's becoming cheaper for them to make their cars. Operating income increased to $2.7 billion in Q3, resulting in a 10.8% operating margin. That's better than the 6.3% that they had in the previous quarter. Now, on top of that, Tesla is starting to make some profits from their cyber trucks as well. The company, said they sold over 16,000 cyber trucks in Q3, and they achieved a positive gross margin on those sales, meaning that they're not selling the cyber truck for a loss anymore. And I'm not going to lie, I've been seeing a lot of cyber trucks driving around here in Houston. Still think the design is kind of weird, but at least it's different. So yeah, overall, pretty solid quarter for Tesla

and CEO Elon Musk seems to be pretty optimistic about Tesla's future. On the earnings call, he said that Tesla expects to grow by 20 to 30% next year. And Elon said that Tesla expects to achieve fully autonomous driving for their existing vehicles by next year. So yeah, Elon is still doing his Elon thing of making big promises. And man, Tesla investors are hyped right now. Tesla stock is up more than 14%. And for a company the size of Tesla, that is insane. We'll have to see if the rally can sustain throughout the day. But initial reaction to these earnings have been very positive. Let's shift gears and talk about Boeing. They're having a tough week. They're dealing with striking workers, billions of dollars in losses with no end in sight.

Now, the week actually started off pretty great for Boeing. They reached a tentative deal with the union that's been on strike for like five, six weeks now. And there was optimism that the union would accept this deal and workers would go back to work this week. That's not what happened, though. When the union workers went to go vote this Wednesday on the deal, 64% of union members voted no on the deal. This deal would have increased union wages by 35% over the next four years. I guess that wasn't enough. So the strike of more than 30,000 workers is still on. And man, this strike is costing Boeing a lot of money, approximately $1 billion a month. And the company actually reported their Q3 earnings on Wednesday, and they said they lost over $6 billion in Q3. So the company is just burning through

cash right now. Boeing did say they have around $10.5 billion in cash and short-term investments as of the end of Q3. So, you know, they could ride this out for a few more months. But at some point, they're going to run out of cash if they don't strike a deal with the union. Now, Boeing does have access to a $10 billion credit line from a new equity offering, but things aren't looking so great right now. Boeing's stock was down around 2% yesterday, and it's down another 3% today in pre-market trading. Let's talk about some stocks making moves today.

UPS is a big winner today. Their shares are soaring after the shipping company beat earnings for the quarter. Now, a large part of UPS's growth was driven by e-commerce. specifically Sheehan and Timu. A lot of us are buying cheap stuff from those apps. Guilty as charge. And that's keeping UPS going right now. Shares of UPS were up around 9% in reaction to these earnings.

Now on the flip side, shares of Southwest Airlines are tanking after they reported earnings and agreed to a board shakeup with activist investor Elliott management. Now what's interesting here is that Southwest's stock initially jumped around 3% but is now down more than 4%

at the time of this recording. All within a one hour time period. Southwest's earnings were kind of a mix bag. Their profits fell from a year ago, but did top Wall Street estimates. But the bigger news, obviously, is the board shakeup. The activist investor, Elliott Management, will be getting six seats on the Southwest Board of Directors. The board chairman, Gary Kelly, is expected to retire early, but current CEO, Bob Jordan will stay on as CEO. Southwest is going through a lot of changes right now. They're planning to pretty much remake their entire business model. They're going to be

offering premium seating. They're going to let flyers pick what seats they want to sit in. I mean, they're turning into a traditional airline. And the new management is hoping that that's, going to help turn the airline around. So we'll see what happens. Let's wrap the show with a fun fact. Tesla made $739 million from selling regulatory credits in Q3. This is according to their latest earnings report from yesterday. That's the second most ever for them and it's pretty much pure profit. See, the way these regulatory credits work is that there's a certain emission requirement that these car makers have to meet. And since Tesla only makes EVs, they easily meet the emission requirements and therefore acquire a ton of credit for essentially having no emissions. And since there are

some carmakers out there that aren't meeting these emission requirements, they can buy regulatory credits from Tesla to offset their poor emissions. It's actually a great gig for Tesla. They make hundreds of millions of dollars by selling these credits. And like I said, it's pure profit for them. And I feel like not that many people talk about it. I'm actually really curious to know how it works. Is there like some sort of eBay type website where these regulatory credits go on sale? Like, how does it all work? I want to watch like a 45-minute YouTube video on this. Well, all right, guys, that's the rundown for today. Hope you guys enjoyed today's episode. We did a lot of Tesla talk today, but I think they deserved it after seeing their stock pop like 14%. We got one more show

tomorrow to wrap up the week. We're going to need a market rally over the next two days if we want the five-week wind streak to stay alive. If you guys enjoyed today's episode, don't forget to hit us with a five-star rating on Apple and Spotify. Vote in today's Spotify poll. Leave us a comment. All that engagement really does help us out. And if you guys want more market content and insights from industry experts and economists, go check out the leading indicator podcast from public.com. The podcast is great, and go follow them on Instagram and TikTok as well

for some quick hitting clips. We'll put a link in the description for all of that. Thank you guys again for listening. Shout out to Mike and Connor for all the help behind the scenes, and we'll see you guys back here tomorrow. This is the rundown, your real-time resource for news events and trends in the markets.

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