In this podcast, Motley Fool analysts 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.
Motley Fool employee 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.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on April 3, 2023.
Deidre Woollard: Tesla's delivery numbers underwhelm and Netflix changes its strategy. I'm Deidre Woollard and this is Motley Fool Money. Welcome to Motley Fool Money. I'm Deidre Woollard sitting in for Chris Hill and I am joined by Motley Fool analyst Asit Sharma. Hi, Asit, how are you doing today?
Asit Sharma: I'm great, Deidre. How are you?
Deidre Woollard: Doing well. Well, let's talk about Tesla numbers. So Tesla delivered numbers for the first quarter, produced over 440,000 vehicles, a 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?
Asit Sharma: 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 and 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. And as you point out, this is a sequential increase from the last quarter. So to me, these numbers are fine. I mean, I should point out that both production and deliveries were all-time records this quarter.
Deidre Woollard: Interesting. So we also got numbers from Rivian, and 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 strong competition for Tesla and do they compete at the same level?
Asit Sharma: Rivian is so interesting, Deidre, because it's also starting as Tesla did with 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 automotive gross margin, positive automotive gross margin to be a formidable competitor to Tesla. Gross profit for last year was negative $3.1 billion and the net loss that Rivian produced was $6.8 billion. So this is one thing that tells investors Rivian could be a formidable competitor if they can manage to grow and to grow, they're going to need capital down the road.
The balance sheet is fine for now, being they were flushed with cash with their IPO, but this type of gross profit loss it burns cash. So 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, total production. I think they were just under 25,000 vehicles last year shooting for 50,000 in 2023. So that type of rate, yeah, there's a shot of them being among a number of automakers that together will post 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.
Deidre Woollard: So there's a lot of competition like you mentioned. One of the critiques I've heard about Tesla is they haven't changed their design style in a while. So most of the Tesla production that they announced, still the Model 3 and Model Y, it is starting to bring in a moot change that vehicle mix 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?
Asit Sharma: Ultimately, Tesla will have to evolve with the market because new companies that are coming into the EV market, they'll each have their own take on what the regional appetite is. So, for example, there's a Vietnamese car manufacturer that's going to be producing EV vehicles in my backyard here in Raleigh, North Carolina and they will have a completely different form factor than Ford's approach, than Tesla's approach. So 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. So 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. So they keep referring to this idea of the regional build and now we've got gigafactories in the US, 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.
Deidre Woollard: Telling to last year the story was really about Tesla price cuts and 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?
Asit Sharma: I think it means that Tesla is in a very aggressive way, trying to push all of its current and future adversaries into a sub-optimal 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 industries, it's really interesting study from just a manufacturing output basis. So they take all this margin and they're giving it up. 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. So it forces competitors like BYD in 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 US. So I see this more and more as an aggressive first volley in this, what's going to be a very long-term battle, and 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.
Deidre Woollard: It'll be interesting to see what they report when they have their earnings in a couple of weeks.
Asit Sharma: True, Deidre. I think those earnings will look slimmer on the profit side but there is an equation for them long-term.
Deidre Woollard: Well, let's talk a little bit about Netflix. I don't know about you, but I spent 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, they're slowing their content. Netflix has backed out as some movies. Why is Netflix changing at this point?
Asit Sharma: I think Netflix is internally looking at the same things that Disney has. 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 they're putting in the same amount or more amounts into content production. But on the top and 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 actually quoting Bob Iger, he paired down the production schedules. He mentioned that Disney is going to have this year they're going to put out and Netflix is seeing the same thing. They were in early innovators, 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. 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. As much content they have, it's still each quarter each month, a few big shows that are pulling their weight. I think they're just looking at now that Netflix is more profitable than they were in past years of trying to maintain profitability and just be a more rational business, especially with the competition that keeps coming in the door and this round-table fight for subscribers every month.
Deidre Woollard: 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. Also in the film VP Ian Blake. 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 look to just more things to get people in the door. Do awards still matter?
Asit Sharma: 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 do indie films, to get people from the arthouse films at home on a Friday night and watching indie film. As the whole industry, the streaming industry has grown, we've taken that offer and COVID helped a lot without, of course, COVID was a huge kneecap for theaters and some of them are coming back. I was driving to past a theater that had closed just the other day in my hometown and 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. I think part of this is, again, it could be like a cutthroat rationalization on the part of management and we're going to cut costs. We don't really need to be so focused on pulling people out of theaters and 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 new subscribers. But if we're pulling in costs, that's one place and you do 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 trying to get a few big hits. Remember Netflix, this is their bread and butter is taking analytics of what you watch, Deidre and what l watch. Yes, I was watching some streaming content on Netflix's weekend and figuring out what great show can we make out of this next year? Seeing this intersecting or Colin Venn diagrams of interests that our viewers have. What can we take out of this make new production? That's a lot cheaper than having a really wide variety of offerings.
Deidre Woollard: Thanks for the job today.
Asit Sharma: Thanks so much. Enjoy it as always.
Deidre Woollard: We might not have heard of frugal flexing but you've probably seen it or not is a financial hype woman and the author of the upcoming book, Money Out Loud, Motley Fool's Sierra Baldwin caught up with not to discuss her book and strategy for talking money with your family.
Sierra Baldwin: 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. 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?
Berna Anat: Yes, big time. It's fun to talk through this very first chapter because it really is one of my favorite things about money in general, and it's one of the things that people are the most like. People are like, OK, give me your best tips and I'm like, OK, let's dig into your trauma and they're like, no, thank you [laughs] 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 "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 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 experiences that have to do with money. One of my earliest money memories, l 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 odds, the 2000 odds. My parents, I learn 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 moving being like is that what happened to my parents? They got caught up in the subprime mortgage mess.
The way 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. 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 classic scene of going into the kitchen and seeing my parent's bills spread all over the table. But they're talking about money in Tagalog, in the Filipino language and so we're supposed to not really understand as my brothers and I didn't grow up learning Tagalog. But the way that money moves 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 the braggy things that she usually did. We stopped going to the house. The house was something that we didn't talk about it anymore.
It was a very clear contextual like we don't talk about that house anymore. I heard the word bankruptcy mentioned randomly between my parents, but never directly to us. Then I now look back and see that my parents really went through a depressive episode after that both of them. Again, this was all like me and my brothers were supposed to turn the other way, keep our heads in our extracurriculars, keep our heads in our academics. We all just swept that under the rug. I look back at that now and it's underlying 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 is not to be talked about, money is to be hidden away. Our mistakes are definitely to be hidden under the rug. Also, money is not to be discussed in a positive or negative way with each other at all. 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. Also low key these days, my hesitance to invest in homes and the house. There's still a little part of me that's like buying a house, that sounds nuts. But knowing that these are things that I learn through context, I learn them through emotional t trauma. They might not necessarily be true and that's what we try to unpack in that first chapter.
Sierra Baldwin: 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?
Berna Anat: Very first disclaimer that I also say in the book is that this is a deeply unscientific theory. This is more something that I notice 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. 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 can 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, my family at least being we have rice at home, do you think we have new Jordan's money if you think the other family is so cool because they just got new Nokia cellphone, go live with them. We're bringing Tupperwares of food and hiding them in our bags to go to the grocery store. I'm watching lots of financial stress happen in my house, I'm like, so we're frugal, so we're broke, so we're lower middle-class. That's the idea. Cut two, we go to 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 even though I know that 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.
Now we're flexing. Now, money is to be shared. Money is to be really thrown at each other, in each other's spaces. Money is used to show status. Really when it comes to, for a lot of us who are first-gen folks, money is supposed to help us put a banner over our heads of just 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, the back-and-forth between we're frugal, we're ashamed. We don't talk about it. We're broke, we don't have enough. Abundance. This is confusing and we're showing people the abundance we have and we're 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 signal so many different things especially when we're young and we're still developing our financial brains? When I talk about this theory in front of other folks, I get a lot of, "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. Because again, money is this thing that we're not supposed to talk about, we don't even know that this is an issue that we can try to highlight or talk to each other about. 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. Like we're talking about the things in Chapter 1, help people start to make connections between what they experience, what they happen in their families, in their childhood, and their upbringing, and why they feel so confused or ashamed or insert X, like destabilizing feeling about money in their minds. We're just trying to connect dots.
Sierra Baldwin: Just to 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?
Berna Anat: Yes. If you read the book, you might know this, but the drum I beat, every single chapter is community. Talk to people, literally money out loud, open your mouth, talk about what's going on with you. I think the community is incredibly important in every aspect. If I'm going to get really woo-woo ancestral about it, I think all the time about the fact that my answers, my Filipino culture didn't do anything alone. Everything was done communally. I think there's a lot of really important conversations and thought hallways happening these days that this American habit of individualism and bootstrapping and we should all just be very strong and of ourselves. There's some truth to that but that is also what breeds our shame in these individualized shadows and silos of we're going to keep things to ourselves. The reason I have a career, the reason that I feel so energized in my career every single day and then talking about this book 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, I have been doing this weird budgeting system for 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 you 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. In order to protect your financial peace, I need you to get up out of your head. 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 a whole group of people. It hasn'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. Or you can start to share little bits of your financial self, start to feel seen, start to see other people. Then this whole financial journey becomes not something that you're just carrying this giant backpack by yourself, but a collective effort. That's really how I end Money Out Loud, is that money as a collective effort can really change the world, but more than that, it'll change your own financial perspective on things. Not feeling alone, it makes such an impact on your well-being and your health and just the space that you feel in your brain, and we could all use more space in our brain. Just share it. Share what you can with the folks around you that you feel safe with, and just start to wiggle out of that isolation chamber. It'll feel good.
Sierra Baldwin: I love that. 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.
Berna Anat: Thank you so much, Sierra, I really appreciate it.
Deidre Woollard: 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 Woollard. Thanks for listening. We'll see you tomorrow.
