WSJ What’s News - Bets on Tesla Growth Clash With Challenged Auto Business

Episode Date: July 24, 2024

A.M. Edition for July 24. Shares in Tesla slide in off-hours trading after its earnings miss expectations amid a tough market for EVs. WSJ Heard on the Street columnist Stephen Wilmot breaks down the results. Plus, the Department of Transportation probes Delta Air Lines’ tech-induced meltdown as cancellations drag on. And, a House investigation finds that the drug middlemen that promise to control costs instead steer patients toward pricier medicines. The WSJ’s Liz Essley White has the story. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

With Uber Reserve, you can book your Uber ride in advance. 90 days in advance. Perfect for all you forward thinkers and planning gurus. Reserve your Uber ride up to 90 days in advance. Uber Reserve. See Uber app for details. Tesla's auto woes clash with Elon Musk's AI dreams. Plus, officials investigate the meltdown at Delta Airlines as cancellations drag on.

And Congress looks into whether drug middlemen known as pharmacy benefit managers are actually saving people money. The committee, in effect, is saying that they are really taking advantage of their position to pad their own bottom lines. It's Wednesday, July 24th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. Shares of Tesla have fallen more than 7 percent off hours after the automaker posted its second straight quarter of tumbling profits and missed Wall Street expectations on both income and

free cash flow as it contends with slower demand for its vehicles and stiffer competition. But while Tesla's core business may be facing a bumpy road, Journal heard on the street columnist Stephen Wilmot told me that its results validated claims by chief executive Elon Musk that it's become more than just a car company. This is the bright spot in what were otherwise not very encouraging earnings. The energy business in particular doubled its revenue. That's the unit that sells battery storage units and solar panels. However, it's still kind of small. It had quarterly revenue of just over $3 billion,

about 12% of the total. There's also the services and other business where Tesla sells used cars. There's the parts business. Its supercharger network is in there. So if you drive something other than a Tesla and use the supercharger network, then you would be contributing to that business. So together, services and energy account for 22% of the company's total revenue. So that's actually growing into a meaningful part of Tesla's overall operation. Stephen, growing, but is it enough to sustain investor enthusiasm? After all, Elon Musk has been urging folks not to look at Tesla like it's just a carmaker anymore. Well, the problem is that the other businesses that Elon Musk loves to talk about and that

really make sense of the valuation are not the energy business and the services business. It would really need to be autonomy, robotics, AI, and those businesses are still very, very early stage. And this really gets to the heart of why Tesla is such a divisive stock, which is that it is a car company, but it's also a kind of tech startup. And those two things are almost polar opposites in terms of how you'd approach them for valuation. For instance, UBS earlier this month laid out that Tesla's automotive business had been valued by the market fairly consistently between 200 and 300 billion dollars over the past four years. Now, Tesla currently has a market value of

790 billion. So there's a huge gap. And when quarterly numbers come out, all of these growth bets essentially get a bit sidelined because there's not much to say. And investors have to focus on what actually pays the bills. Federal transportation officials are investigating Delta Airlines, whose operations are still snarled after last week's tech outage. According to FlightAware, Delta has scrapped more than 5,000 flights since Friday. It canceled about 13 percent of its mainline schedule yesterday and warned that cancellations would likely continue for a few more days, even as other major carriers have largely

bounced back by now. The U.S. Department of Transportation said it's probing Delta's flight disruptions, as well as reports of what it called concerning customer service failures. Delta said it's cooperating and that it's focused on restoring its operations. Meanwhile, we are exclusively reporting that U.S US air safety regulators are launching a review of Southwest Airlines after a string of recent close calls. Those include flights that descended to low altitudes too early, including one earlier this month, and a flight that took off from a closed runway.

Southwest acknowledged the Federal Aviation Administration's audit and said it had been working closely with it in reviewing recent episodes. The audit is expected to be completed within three months and focus on pilot training, landing approaches, and certain maintenance procedures. In other markets news we're watching, the Bank of Canada is expected to cut interest rates today after previously doing so last month. All 14 economists surveyed by the journal are predicting a quarter-point cut as Canada addresses waning consumption, as well as a rapidly weakening labor market characterized by moderating wage pressure

and rising unemployment. And back in the U.S., the Commerce Department is set to report new home sales figures for June later this morning. That follows existing home sales numbers released yesterday, which showed four straight months of declines amid high prices and elevated mortgage rates. The Trump campaign has filed a long-shot challenge with the Federal Election Commission to block Vice President Kamala Harris from receiving campaign funds that were put in her name hours after President Biden ended his re-election bid, claiming that Harris fraudulently grabbed funds contributed to a different candidate.

According to FEC filings, the three fundraising entities Biden signed over to Harris held more than $159 million in cash at the end of June. Harris' team denied any wrongdoing, and the Trump campaign's challenge is unlikely to affect her spending through November. Israeli Prime Minister Benjamin Netanyahu is due to address Congress later today as he seeks to win support for his country and its war in Gaza. While focus on Israel's conduct in the war had begun to fade and some delayed arm shipments

had begun to flow, Netanyahu now faces a tricky balancing act of appealing to the more progressive flank of the Democratic Party that's seen as closer to Vice President Kamala Harris while not antagonizing former President Donald Trump. Netanyahu, who says he's seeking bipartisan support, is scheduled to meet with President Biden, Vice President Harris, and former President Trump on his visit. And the International Olympic Committee has conditionally awarded France the 2030 Winter Games on an assurance from President Emmanuel Macron that a future French government would underwrite the competition in the French Alps.

Coming up, a House investigation finds that drug middlemen promising to keep costs down have instead steered patients toward higher-priced medicines. We've got that story after the break. When your celebration of life is prepaid in advance, it becomes a gift from you to your family later because no one should have to plan for a loss while they're experiencing one. Paying in advance protects your loved ones and gives you the peace of mind you deserve. Let us help you plan every detail with professionalism and compassion.

We are your local Dignity Memorial provider. Find us at DignityMemorial.ca. In the American health care system, pharmacy benefit managers are meant to control costs for patients by negotiating with pharmaceutical companies over how much health plans will pay for drugs and setting the amount that people then pay out of pocket. But a report by the Republican-led House Committee on Oversight and Accountability this week finds that PBMs have instead pushed patients towards pricier medicines and taken other steps that have ended up costing patients, employers, and taxpayers more money. And reporter Liz Esley-White is here to break down the main conclusions of that report.

Liz, what is the committee here saying these drug middlemen are actually doing? Yeah, so the committee points out that these PBMs are steering people away from their local pharmacies and toward PBM-affiliated mail order pharmacies. And they're saying that reduces patient choice by doing that. And in addition, they're saying that there's a lot of, you know, lower cost alternative drugs that the PBMs could be favoring and helping people get a little bit more easily. And instead of doing that, they're preferring these higher cost drugs that also come with fatter heftier rebates.

And in some of those cases, the PBM does keep a portion of that rebate. I would encourage all of our listeners to read your latest report and we've left a link to it in the show notes. But because we have you here, Liz, what have the PBMs been saying about all of this? Yeah, the PBMs say that's not true. They save their clients, the insurers and employers and government agencies that they work for. They save them money.

They say their affiliated pharmacies actually are lower cost and the way that they can kind of influence independent pharmacies from overcharging their customers is by offering competition and offering a lower cost at their mail order pharmacy. But also, and I think this is a really key point that they really emphasize is that their clients choose the benefit design. So they come to an insurer or an employer and say these are all the options, ways of us being paid to do this work for you and you can pick. So they're saying that they're getting blamed for a lot of things that really their clients are choosing over other options. Going back Liz to this House committee and its report, what if anything are we

likely to see Congress do in response to the things that it says it's found? Yeah, Congress has considered bipartisan legislation on PBM reform before. Last year, people were thinking it got really close. It passed the House, it went through a big Senate committee, but it didn't make it into a spending deal that happened in March of this year. There's another must pass spending deal probably at the end of this year and the thought is it could be put in there. Which would do what? There's kind of different ideas. The Senate has a lot of ideas about curtailing PBM business

practices, saying they can't structure fees in certain ways that the Senate says would incentivize raising list prices of drugs. The House bill focused more on PBM transparency, so making sure that PBM clients and everybody involved in the transaction actually knows what's going on with every single drug transaction. All right. So some potential tweaks of how PBMs operate may be on the table, but it's a presidential election year. Big ideas can sometimes get incubated in those. Are we seeing any calls for a broader revamp

of the healthcare health insurance system? Dr. K. We'll see. The Trump administration did try to change the way that drugs are paid for with a rule that would have gotten rid of some of the major rebates that PBMs negotiate, but they backed away from that at kind of the last minute. The White House has talked about the need for transparency. So it's obviously, it's something that's on the mind of policymakers on both sides of the aisle. We'll see if it becomes a big issue in the campaign. Soterios Johnson That was Wall Street Journal reporter Liz Esley-White. Liz, thank you so much for bringing us this story.

Liz Esley-White Yeah, thanks, Luke. And before we go is your employer saying no to letting you work from anywhere and not just working from home but from another state or another country. If so, what questions do you have about why this pullback is happening and what it says about the future of work? And if not, well, we'd love to hear from you too. To weigh in, send a voice memo to wnpod at wsj.com or leave a voicemail with your name and location at 212-416-4328 and you just might hear yourself on the show.

And that's it for What's News for Wednesday morning. Today's show was produced by Kate Bulevent and Daniel Bach, with supervising producer Christina Rocca, and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show, and until then, thanks for listening.