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- [00:01]
A
Welcome to Thoughts on the Market. I'm Adam Jonas, Global head of autos and Shared Mobility.
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B
And I'm Michelle Weaver, US Thematic and Equity Strategist at Morgan Stanley.
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A
Michelle and I are just back from Morgan Stanley's Technology, Media and Telecom conference in San Francisco and we brought our listeners several episodes from the conference last week. And now we're here with a final wrap up of some of the most important themes that emerged. It's Tuesday, March 11th at 10:00am in New York. Michelle, I want to get into the major themes from the conference, but tariffs have been dominating the news lately and they also came up frequently during the conference. How are tech, media and telecom companies talking about tariffs?
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B
So companies exposure to tariffs at the conference was really in a pretty wide range. You've got software on the low end of exposure and then hardware on the pretty elevated end. And most companies talking about tariffs tried to strike a fairly positive tone and, and they think it's really a risk that they can manage through. When we think about what companies are going to do to mitigate their exposure and mitigate that risk, it seemed like the primary method of mitigation was really relying on pricing power and passing off those increased costs to customers. And then the amount of time it's going to take to actually see these price changes start to flow through would really vary on a company to company basis and is partially dependent on how much inventory they're holding. And then further diversifying manufacturing footprints was another common method of mitigation. The tariff situation is clearly still very much live, very dynamic, and the focus on diversifying has really been moving away from China exposure. And then Adam, from your perspective, how are the most recently announced tariffs going to impact the US Auto industry?
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A
I wish I had a crystal ball and even if I did, I'm not sure it would matter because it changes so much day to day. I don't think you have to read the book the Art of the Deal to understand some of the nuanced negotiating strategies that we're dealing with here right now. I would say this though. There is opposition from all channels of the auto industry to tariffs on Mexico and Canada. That includes suppliers, dealers and OEMs. From our perspective, what we're telling clients is we think that by the end of the year we're probably talking about something other than tariffs. The tariffs in Canada and Mexico affecting 4 million vehicles and some of the higher value added vehicles like cars and trucks would add a real severe inflationary impact on a consumer that's already really stretched on the auto side Michelle, she'll put numbers on it. It would take monthly auto payment from an already record high of $750 a month and take it potentially well above $800 a month. It would take the average price of a car up order of magnitude 5, 6 in some cases 10%. I don't think the auto consumer is strong enough for that. If these things were put in place, you'd have 15 million SAR in play, down from 16.2, 16.3 million last year. So I don't want to say it's a full bluff, but let's call it an aggressive negotiating strategy that's very likely to change. Widening the lens beyond tariffs Michelle, you've been at this conference for the past several years. How have conversations around AI evolved since the launch of ChatGPT in November of 2022?
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B
Yeah, Adam, so if I think back to 2023, there was a lot of excitement around AI, but we didn't see a lot of concrete plans for adoption yet. And there weren't many AI tools ready for primetime. Then in 2024 we started to see more AI adoption use cases, but they were concentrated in easier to implement solutions, things like chatbots, coding assistance tools. And then when I think to what we saw this year, it's been a lot more unique, more business specific use cases and methods of AI adoption. I think a good example here came from ebay. They've introduced AI enabled features on both the supply side and the demand side. So for sellers they introduced a feature called Magical Listing where you can just take a picture of something you have and then the tool fills in a description, a title and other details and then creates a draft listing that's ready to upload. Makes it way easier for you to sell stuff on the platform. Then on the demand side they've launched a feature called Shop the Look, which allows users to much more efficiently filter through a ton of unique listings. They can put in their size preferences, style preferences, and then it recommends things that it thinks you'll like.
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A
I think I could use a lot of help with that actually. On Shop the Look Agentic AI is a very big topic this year. Our listeners may remember you had a conversation with Keith Weiss on earlier this year on that topic. Have you been hearing about any interesting use cases at the conference on this topic?
- [04:38]
B
Absolutely. AI agents have been a big topic at the conference, especially within software presentations. And just to remind everyone, an AI agent is something that is able to go off and think through a bunch of different steps. It has more complex reasoning abilities than some of the other AI tools you might be familiar with, and one really compelling example of an AI agent use case here came from Salesforce about resolving a delivery. So you had a delivery driver. They were trying to deliver a package, and the address on the label didn't exist. So they didn't know what to do. They couldn't deliver it. They called in, they left a voice message, and then they just read off the numbers they saw in the package and any information they had on the box. From just this voice message, the agent was able to listen and understand the situation, go through multiple systems with the numbers and the references that the delivery driver provided, and then match that information they had on the label to find the order, and then propose a plan to the delivery driver to contact the customer to keep the box moving. And all this happened in a minute. So that's a pretty good example of more sophisticated reasoning. And the input there was just a voice message. So that's much different from just interacting with a chatbot on a website. And then, Adam, for you, we heard a lot of talk around autonomous vehicles, or AVs, at the conference. What are some of your key takeaways there for how AV adoption and innovation is progressing?
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A
One of the really cool things about the conference this year is there are so many Waymo vehicles just driving around the streets of San Francisco. And. And before the conference, I would ask my clients, hey, who's used a Waymo? And very few hands went up. But then after a couple of days, almost all my clients had experienced Waymo, and it was like a revelation. You kind of become evangelized when you get in a car with no driver. You're driving very safely around the town, running your errands or seeing the sights or getting to a meeting, and you realize the future is here right now. This is not science fiction. This technology exists. Waymo has well over 1000 vehicles on the road. Brian Nowak and the Internet team has a really nice city by city forecast model going out to 2030, showing the expansion of that to, I think, close to 30,000 vehicles by the end of the decade. There's this real competition now between key players in tech, between some of the more advanced electric and autonomous car companies, such as Tesla and others. There are a number of players in China that are are propagating these technologies very aggressively. It seems to be a national security priority for Beijing to really, really have some dominance in these types of technologies. And the big change, Michelle, is that chatgpt moment. The Gen AI, large language models and generative AI completely has changed Robotics. It means that these cars can now learn by imitating and watching in a continuous loop, end to end. Whether you're using radar, lidar, cameras, comb of all three, these vehicles are now agentic. So closing the loop as software becomes agentic, they then make the robots become agents. And the more they drive, the better they drive. And you train these models, you have these geopolitical and technological confluences here that are going to drive a much more rapid autonomous vehicle adoption than we think investors think. And there are a number of paths to expression that we've written about in our research.
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B
Yeah, I mean, I took a waymo while I was there and they're incredible. They're so comfortable, great cars.
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I think it'll be weird when you get back in. It's interesting. Investors first say, wow, I feel it's kind of weird being in a car without a driver. Then after a little while of doing it, and you talk to our clients in San Francisco, they think it's weird to get in a ride sharing car with a human. That's weird.
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B
Yeah. Excited to see when it'll be here. Another thing you've written a lot about are humanoid robots. That is robots that take a human form factor which make them suitable for a huge range of applications. What was the most exciting humanoid innovation or discussion you had at the conference?
- [08:40]
A
I mean, this is a revelation. History books are going to be written about this time when the machines started to make the machines. And some of them looked like us. Not all of them will, but some of them will and they look like us because we're meat bots, if you will. There's 8 or 9 billion of us all over and they can learn by watching us do things. And each of the Mag 7 individually has a robotics angle which our teams have written about so eloquently. For me, it was when I went down into the Bay Area and visited a very pretty well established humanoid robot company, a private company. And I walk into their headquarters and a humanoid's just like walking towards me. And then I kind of walk a little further and there's like 12 more doing some tasks. And then I see some workers with like a training, a humanoid hand how to work. And then you turn around the corner and you see the next generation and they're wearing these outfits and they're doing all sorts of tasks and I'm just like walking around. This is crazy. It's crazy, but it's happening, right? There may be hundreds of humanoid robotic companies in China. There's a well established supply chain, you're going to see dozens of humanoid efforts in the United States from very, very well capitalized tech firms that have the chops on the compute and the data collection and the infrastruct. And then you're going to see some startups that you never heard of. So this is all happening again. Geopolitical forces are driving this too. Any advancement in the state of the art of a Waymo or autonomous car is helping to train the same computer systems and inferences and sensors that are also used in humanoids. As the humanoids get better, then you might have advancements in drones and aviation. And then as like space advancements in space and telecommunications and cybersecurity start going. It's just like a flywheel now. And even though you can measure this robot revolution in decades, the next five months, six months, you're going to have consequential capital formation. I'm just super privileged to be with you and this platform at Morgan Stanley to help our clients navigate this at such an interesting time and consequential time for markets and for the world.
- [11:00]
B
Yeah, I mean, the conference was amazing. It was like a glimpse into the future. Thank you for taking the time to talk.
- [11:05]
A
And Michelle, thank you for taking the time to talk. And to our listeners, thanks for listening. If you enjoy thoughts on the market, please leave us A review Wherever you listen to the show and share the podcast with a friend or colleague today.
- [11:18]
B
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