AI Has a Power Problem: Why the U.S. Power Grid Can't Keep Up | The Real Eisman Playbook Ep 69

[00:00:05]Hey, this is Steve Eisman and welcome to another episode of the real Eisman playbook. So today we are going to talk about sustainable energy and mobility and you know a couple weeks ago we had Stacy Rasgen on from Bernstein and we were joking that I was joking with him that his group semiconductors is the center of the universe. our guest today, Ben Kell of Baird. I don't know if it's the center of the universe, but it's certainly adjacent.

[00:00:34]And the reason is that if this AI story is going to come to fruition, the binding constraint clearly is both the construction of data centers and the power that the data centers require. And Ben covers a real hodgepodge of companies that deal with those issues.

[00:00:52]And he also covers electronic vehicles.

[00:00:55]and we're going to explore those companies and we're going to do it in depth and then afterwards I'll come back with some lessons learned.

[00:01:06]Hi, this is Steve Eisman and this is another episode of the real Eisman playbook. So if the center of the universe is semiconductors and Nvidia and maybe hyperscalers, although that's debatable right now, the next circle would be what I would call a hodgepodge of companies that provide alternative energy energy to data centers that also do electronic vehicles. So call it center of the universe once removed. And today to explore this really interesting group, we have Ben Callow who is the sustainable energy and mobility analyst at Bair.

[00:01:45]>> Yes, thanks for having me on.

[00:01:47]>> Yeah, it's this is going to be very interesting. So before we dig down into like the themes and companies because you really cover a hodgepodge of different companies.

[00:01:57]>> I mean you cover Tesla, you cover Genova. The two really don't have much to do with one another other than that you cover them.

[00:02:03]>> Yes. If we were at a cocktail party and I and I we we just met and you told me what you did and I I said to you, >> you know, I invest I I have a general idea of things.

[00:02:14]>> Could you give me like a twominut summation about what's going on in your world? Because it seems to me from what I read >> so much is going on in your world. Yeah, >> I would say we cover companies that are key to electrifying the grid uh and uh companies that uh will use that electricity whether it's u uh Tesla with electric vehicles or it's uh you know electricity to power data centers um uh but more and more we're seeing uh more strains on the grid uh and so any companies helping to solve that problem uh not just in the United States but globally as well.

[00:02:46]>> So there's a grid problem largely because of data centers but also because electricity was growing before then too.

[00:02:52]Yeah, I I think a lot of times we we think it's only data centers. That's the one because it's so chunky uh load sources coming on uh that gets the most of attention and it's become a you know a a political boogeyman in some states uh it gets a lot of headlines but uh onshoring manufacturing in the United States uh aging infrastructure so shutting down coal plants not just because of environmental reasons or not because of environmental reasons because um uh they're old 75 years uh plants that need to be shut down inefficient.

[00:03:22]Uh so you combine that with onshoring and then electrification of uh homes uh vehicles that's more of a Europe type phenomena but also impacting the US and globally as well. All that put together uh and we're in a tough spot with our electricity grid.

[00:03:38]>> We're going to come to that because that's a controversial topic. But before we even get to that, let's just try to scale it.

[00:03:44]>> Yeah.

[00:03:44]>> Would it be more or less accurate to say that the electronic grid in the United States is growing roughly 3% per year?

[00:03:51]Or is it more or is it less?

[00:03:53]>> It's more. The range you could drive a truck through of what people say that we need uh in terms of uh >> because it's not like the data is so great.

[00:04:00]>> No, the range of estimates could be 100 gawatts of new capacity needed by 2035.

[00:04:06]Okay.

[00:04:06]>> Which would you know uh up to 350. At 350, you're more than doubling all the electricity generation in the United States.

[00:04:14]>> How much electricity generation is there today? So today you know there there is about just over 150 gawatt. Yes.

[00:04:23]>> Okay.

[00:04:23]>> Now you measure that in terowatt hours of production because you have all different sorts of uh you know capacity factors where you know wind at the lowest it only produces you know 20% capacity of the time. Uh and then nuclear at the highest where it's producing 99% of the time.

[00:04:37]>> Producing 99% of the time. Okay. And what about gas turbines? Aren't they producing most of the time?

[00:04:42]>> Gas turbines you run in the high 80 percentage combined cycle turbines. How much gigawatts are are we growing every single year? More or less?

[00:04:50]>> Over the next five years, we'll be growing at like a 30 gawatt type clip >> per year.

[00:04:56]>> Per year? Yes.

[00:04:57]>> 30 gigawatts per year?

[00:04:58]>> Yes.

[00:04:59]>> So like scale that for me like how much how much electricity does New York City use in a year?

[00:05:06]>> So you could think about like a one megawatt which one megawatt could turn into a,000 gawatts, right? But one megawatt could produce enough electricity for roughly a thousand homes.

[00:05:15]>> A thousand homes. Yeah.

[00:05:17]>> Okay.

[00:05:18]>> So you're talking 30 gawatts per year.

[00:05:21]Yeah.

[00:05:22]>> Which that's an enormous number. It's not easy. It's not easy to produce enough electricity to create 30 gawatts per year.

[00:05:29]>> Yes. And this is only uh this is like base load demand of electricity too.

[00:05:34]>> What does that mean base load? So on you know 247 basically like the nuclear side or you know on the renewable side geothermal is the best source of base load in addition to nuclear or hydro and that's really what has to be powered by data centers and so firm power uh that's how much capacity. So you actually have incremental capacity needed beyond that.

[00:05:53]Oh, so in other words, there's the amount that that's basically used normally. Yes. That's base load. Yes.

[00:05:58]And then if it's a really really really hot summer or a really really cold winter and you have to have more than base load because otherwise people freeze to death or or cook.

[00:06:09]>> Yeah. What we're seeing here in New York, just anecdotally, my office is down the street uh here in Midtown and our building will have uh curtailment days and this is oldfashioned way of freeing up the grid. So on a hot hot day like this uh they might send out a note to all the tenants no air conditioning between 12 and 4:00 at night and it's the frequency of those events are becoming uh more >> and it just shows the kind of stress on the grid and this is before data centers because really they get all the attention but there haven't really been gigawatt data centers that have be built yet.

[00:06:44]>> But let's talk about that for a sec. I'm on like every single substack you could possibly imagine. Okay. And this is not rational argumentation. You'll have one person, I won't name who that person is, who basically says there are no data centers being developed. It's all >> Yeah.

[00:07:00]>> And then you have other people who say here are all the data centers that are being built.

[00:07:05]>> And for someone like me where this is not my area of expertise, I'm like, I don't know what to make with that because, you know, you're talking about two people who basically hate each other's guts. Yes.

[00:07:15]>> Lit. Literally. So from where you sit because even the people who are very bullish on AI yeah >> even they will admit that if if >> data centers don't get built at the pace that needed to build them >> AI has to slow down. So, you know, I'm thinking about Dan Ies, for example, who has been on our show. Great guy.

[00:07:37]>> He's very bullish. God bless him. But even he admits that the binding constraint of his thesis is power. You cover basically all the people who supply the energy to the data centers.

[00:07:51]You don't cover the people who build the data centers, but but those data centers don't function without your companies.

[00:07:56]So, what are you hearing from your companies about the pace of the buildout of data centers?

[00:08:01]>> Sure. Uh the pace is uh is [clears throat] constrained by labor and energy. Uh projects are going forward.

[00:08:08]Uh we we'll point to one uh project in Wyoming. It's a Google project. Um uh reportedly uh it had Crusoe as uh the developer. Google fired Crusoe.

[00:08:20]>> Cruso was the construction company >> construction company and it created a a vacuum of of uh information in the market when that happened because Crusoe was walked away. people thought the project stopped. They thought the governor stopped the project and people parts of the development uh uh chain have come out and said the project's going forward. Um I think that it's complicated because there are so many different counterparties in these data centers that you have cross-selling across all all the place. Um and so and I think you have uh projects like any kind of development where uh a developer is developing multiple tracks of projects. The one that's in the lead will go forward and the others will be scrapped. Just meaning that they have to do permitting, land selection and then they have to find an interconnect. Let's just say a developer has 10 different data centers. In the end it might not be 10 data centers. Uh there might be only two. So there is some double counting going on. I believe that's my view on it. Uh now I do think that things are pushing ahead. Now the only real gigawatt scale data center that's been built is by SpaceX. Um uh there there's others that will claim that that there's been kind of add-ons to get you to that level. Um but we're still in the very early phases and that just to throw another complexity to it. The industry is moving to this 800vt architecture with the new Nvidia chips which basically requires more power more power.

[00:09:43]>> It requires more of a grid equipment like from a GEV.

[00:09:47]>> What what do you mean more of a grid equipment?

[00:09:49]>> So the different type of power electronics to to change the voltage of power that goes into the data center both on the outside and the inside. Most power is produced at AC like so we hear ACDC and then the direct current is what the data center runs off of. So somebody has to convert something has to convert it.

[00:10:07]>> Yeah. Or like Bloom Energy produces 800 volt DC power naturally. But you have a lot of power electronics. But that's an even earlier phases. So now there's also this another potential uh pause in development as those new chips come to market because if I'm just like a early days now planning a data center, do I do I rush ahead with the old Nvidia chips or do I wait till the new ones come on?

[00:10:33]And so there are it's going to be very lumpy. I mean, and if you think about >> So the development is going to be lumpy under the best of circumstances.

[00:10:40]>> Under the best of circumstances.

[00:10:41]>> That's interesting. All right. So let's let's talk about some companies because cuz some of the companies you cover are very interesting. Um let's start with um what I'll admit is my favorite company that you that you cover because I own it. Okay.

[00:10:53]>> Which is GE Vernova. So for those of you who don't know, Genova used to be part of GE. While it was part of GE, it was going through terrible times. I remember people put out research notes where they would do like the breakup value of GE and GE VOVA had negative value and today it's over 100 bill 100 billion I lose track 150 billion so the stock's done incredibly well >> just give us a you have a buy recommendation on it just give us a little background like what why is GEV such an interesting company in this time frame and then I also would like ask because I don't actually don't know talk about their nuclear stuff >> yeah uh so uh they operate on three segments two get the most attention one really has got the most attention uh uh uh previously and it's changing now but the power segment gets the most attention. Uh they primarily sell natural gas turbines >> which are huge >> which are huge. We're talking multiple hundreds of megawatts. Um and they're >> I don't think people understand like like a gas turbine it's massive. I mean it's [laughter] really massive.

[00:11:54]>> Yeah. And so that accounts for you know 90% of that of the the equipment sales in that uh in that part of the business right they also sell they buy GE uh aerospace uh turbines >> for planes >> well they buy uh to power the grid too and so now they retrofit there's companies yes there's companies doing this like FTI Aviation is talking about taking their old engines and uh putting them onto the grid.

[00:12:21]>> Wow. Um, and so that's >> by the way, just just so everybody knows, >> a jet engine, >> Yeah.

[00:12:27]>> looks just like a gas turbine. It's just that the gas tour is a lot bigger.

[00:12:31]>> Yeah. And and it it I I use that to point out that they're do repurposing jet engines for the grid because it shows you how the time to power is such a big need. So being able to hook up fast for data centers because they're in what I consider an arms race, the data centers to build out and they don't want to wait around. Uh this is why you know Bloom, we talk about Bloom too, but that's why they've been able to enter the market too because they can get product out there quickly and then they service these uh these power turbines.

[00:13:00]The thing about that segment that's so interesting is that they've been able to book out until 2030 uh with price. So they're be able to GEV. They've been raising >> it's that long tail the business. So in other words, >> something that's booked today >> is not actually going to get into utility plan till 2030.

[00:13:19]>> Yeah. till 2031 though. Right. Yeah.

[00:13:21]>> That's how that's how long tailed this is.

[00:13:23]>> Yes.

[00:13:23]>> Uh the other uh segment.

[00:13:25]>> So basically you're saying you don't build this stuff like Tidly Winks.

[00:13:28]>> No. No, you don't build like Tilly Winks and you know the permitting phase. Uh and that's a problem too from environmental permits. At the federal level, we don't care about uh CO2 anymore, right?

[00:13:38]>> But the hyperscalers still do have their targets on CO2. Uh and they want flexibility going forward. But the knocks and socks which are just air pollutants uh at a city level and a regional level, state level are very important. And so that can take six months to get those air permits uh for that. And the other big segment is electrification.

[00:13:58]>> And what is that >> that is selling high voltage equipment.

[00:14:00]So think about big transformers, things to hook up to the grid. um you know, as either the uh >> kind of like the nuts and bolts, >> the nuts and bolts of this grid. And whether you're building out transmission lines or hooking up new uh load pieces [clears throat] like a whether it's a a manufacturing plant or it's a data center, um you need this equipment uh transformers. Uh the one thing that they're doing is as they sell more into data centers, they're cross-selling that equipment into the data center. So right now, >> so they sell the turbine with the with the transformer >> with the transformer.

[00:14:31]>> I I saw they had a deal with Chevron where they did that. That was last week >> and that I read your note increas increases their uh their content there.

[00:14:39]Uh and so those are the and they're also getting priced in that business >> and they have wind but nobody cares about no cares about wind sucks.

[00:14:46]>> The way I look at it is like the wind is like a a call option. Uh there's they're doing some self-help on that business.

[00:14:51]They have these offshore wind projects they won't do again. S work off. Yeah.

[00:14:54]Whatever.

[00:14:55]>> Let's talk about nuclear. Explain. I that's one part of the business that I actually don't know. What what is their nuclear business? So the uh they're partnered with Hitachi uh and this is uh you know this is a an old partnership uh where they are uh create they've created their own uh small modular reactors. You get there's a lot of attention around small modular reactors. Uh there are companies like Oakllo new scale that went public via spa and other ways that are that are focused on developing SMRs.

[00:15:24]>> What's SMRs?

[00:15:25]>> Small modular reactor.

[00:15:27]>> So what does that mean? I've heard this.

[00:15:28]What is a small modular reactor?

[00:15:31]>> Sure. Um, it's not as small as you think it is.

[00:15:33]>> Yeah. I was wondering, [laughter] in other words, it's bigger than this room.

[00:15:36]>> Yeah. Yeah. Definitely bigger than this room. Uh, it's not quite as big as, you know, like three mile line where you're talking multiple gigawatts in many cases. Uh, these tend to be 300 400 megawatts, 250 megawatt. So, smaller size. Okay.

[00:15:50]>> But the the supply chain for one, >> it's a new product. So, the like the supply chain has to be built. Yeah. This is new. Okay.

[00:15:58]>> Uh so, you know, financing is an issue.

[00:16:00]Uh the the pro projects you really need to have the same one like seven of them before you can start really uh financing them through, you know, traditional methods.

[00:16:10]>> So, what what would someone buy a small modular reactor for?

[00:16:15]>> So, >> I mean, cuz I'm not hooking it up to my own home.

[00:16:18]>> No. Uh you would hook it up to a data center. Um >> so, it would power a data center. It would power a data center or a small city.

[00:16:24]>> Yeah. And so, uh, GEV, they're building their first one, uh, in Ontario.

[00:16:29]Ontario. Yeah. In Ontario. And, uh, they have the plans to build several other ones there. Uh, they have plans in Europe. Uh, Tennessee Valley Authority.

[00:16:39]>> I hear Germany may go back to nuclear after they got rid of it.

[00:16:42]>> Yeah. Yeah.

[00:16:42]>> Just in time for the Ukraine war.

[00:16:44]>> Yeah. Yeah. Exactly. When you have the pinch on natural gas like they do, I think that they're moving in that direction. Uh but then also like in different parts of the United States and Tennessee Valley Authority in the southeast uh they're they're going to build out something. This is part of uh the Japanese investment in the US. Uh and I think if anyone can do this and there's lots of skepticism. I would say I'm more skeptical on the timeline of some of these companies and that have very aggressive timelines around like 2035 and having you know dozens of these these uh uh these plants out there. Uh I think GEV, you know, is is targeting, you know, late 2030s to bring on, you know, uh uh uh enough where it moves the needle.

[00:17:25]>> Late 2030s.

[00:17:26]>> Yeah. The first one will come on by 2035, >> but it's still going to be too soon.

[00:17:30]2035 is the first one.

[00:17:32]>> God knows where we'll all be in 205.

[00:17:34]>> Exactly. Exactly. But you know what? One good thing about that, I had an investor that was a client that was short GV in the last uh uh earnings print, and he asked me a very good question. than what I thought peak earnings for GV would be and because they have this service tail in the business you could stretch it to mid next decade I think in my opinion before you see peak earnings uh so I think there's a long runway for for the stock there >> let's switch to you cover Tesla you cover Rivian you cover what was it Lucid >> so call it electronic vehicles before we even get into any of the company specific stuff like just tell me what's going on in electronic vehicles I have no position in this group. Okay.

[00:18:18]But one of the things that I I find puzzling I I always joke with someone about Tesla.

[00:18:23]>> Like imagine it's 2022 and you work at a hedge fund and you're an analyst and you go to your boss and you say, "We got to short Tesla." And the boss says, "What are you crazy?" And you say, "No, no, I'm not crazy. I here's my model." And my model says that in the next over the next four years, Tesla's earnings will go straight down every single year so that by the time you get to the end of 2025, the earnings will be less than half. And the portfolio manager says, "Well, that's a pretty compelling thesis. Let's short it."

[00:18:59]And it happened exactly [laughter] as you as this guy predicts, and you didn't make any money, >> right?

[00:19:05]>> Okay. So, what's happening? Let's talk just pure fundamentals. What is happening? Forget about the the robots and forget about for the moment um self-driving cars, just the electronic vehicle business that Lucid's in, that Rivian's in, that Tesla's in. What's that business like right now? Hi, Steve Eisman here. Lately, I've realized that when my energy dips or I feel off, it's usually hydration related. Not sleep, not coffee, hydration. Drip Drop is my go-to fix because it helps me bounce back quickly, stay clear-headed, and get back to my day without feeling like I'm playing catch-up. Drip Drop is doctordeveloped, proven fast hydration that helps your body and mind work together. Think support for busy days, long workouts, summer travel, and everything in between. Because hydration isn't just something you do when you're behind, it's how you stay ahead. Drip Drop uses science-based formulas for rapid hydration so you feel results fast while getting three times the electrolytes of leading sports drinks and honestly all of their products taste amazing. There are 16 original flavors and 8 zero sugar plus options. Drip is a daily routine product not just for workouts. To make it easy, Drip Drop has flexible subscription options so you're never stuck without proven fast hydration. Whether you're hitting the gym, juggling work, or just trying to keep up with an always on calendar, right now, DripDrop is offering podcast listeners 20% off your first order. Go to dripdrop.com and use promo code Eisman. That's dripdrop.com, promo code eisman for 20% off. Stock up now at dripdrop.com and use promo code Eisman.

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[00:22:03]>> So, EV business um right now, uh EV sales US still growing. Uh single-digit numbers here in the US. Uh Tesla's business in the US uh a flattish at best.

[00:22:15]>> Flattish.

[00:22:15]>> Yeah. In the US.

[00:22:17]>> Yeah. This will be a down year most likely uh in in their EV business. Um uh or a flat year overall. Um there's strength that this quarter was strong should be strong in uh uh across uh all regions. Um but the big things there I think there's still growth in overall electric vehicle sales. Uh Europe, I would say China is the strongest, then Europe, and then the US.

[00:22:41]>> Can you talk a little bit about I mean the China competition, I mean is real.

[00:22:45]They make decent cars and they make them for a lot less. So how are these companies going to compete outside the US?

[00:22:49]>> It's very difficult. Tesla uh has been competing in that market and that's why it's hard to compete with Tesla in the US market because they they make good cars at relatively affordable prices. Uh the Chinese though uh you know I was just in Europe for two weeks and almost every major city has at least two BYD showrooms in Europe and you actually every city.

[00:23:10]>> Yeah. And you actually see the cars out there.

[00:23:12]>> BYD is the biggest electronic vehicle company in China.

[00:23:15]>> Yeah, it is. Uh but then there's also like Neos I saw Neos in Germany. the German uh market is is is very at risk because you see these cab like half cab fleets are Chinese electric vehicles really uh are moving in that direction.

[00:23:30]>> You know it's incredible what the destruction that has happened in the German car market. Yeah. I mean the German autos just they they let the electronic vehicle business get completely away from them.

[00:23:40]>> And you know if I went back and I I go I go to Europe probably twice a year to visit clients. Um, and if I go back, you know, just three years, four years maybe at the most ago, and you talk to a client like about this, they would say, "No one here will buy uh Chinese cars."

[00:23:55]Uh, but it started off very slowly chipping away and now, you know, market share is picking up and I think it will continue to accelerate and we'll see that in other regions as well. Uh, you know, whether it's Canada or elsewhere.

[00:24:08]>> Just talk to me about Tesla for a little bit. Um, we're going to talk about whether you think SpaceX's going to buy them, but that's let's that's that's we'll push that aside just for a second.

[00:24:16]You're recommending it.

[00:24:17]>> Why are you recommending?

[00:24:19]>> Sure. I think uh at the core uh it's one of the most innovative uh companies in in our country um in the world and at the foundation of that uh their ability to hire from the best the best best engineers out there. uh it's often ranked, you know, uh top one of two places go work from the major engineering schools and the other place is SpaceX.

[00:24:42]>> Would you agree with the statement >> that if the only business that Tesla had was the electronic vehicle business, >> the stock's way overvalued?

[00:24:52]>> Yes.

[00:24:52]>> Okay. So, that that you concur?

[00:24:54]>> Yes.

[00:24:54]>> Okay. So, let's talk about um self-driving cars and robots. Like I mean Elon makes promises about self-driving cars the last several years that he hasn't even come close to fulfilling. So what gives you confidence that that this is going to work?

[00:25:09]>> Sure. Uh and then because that's the only reason let's circle circle back to the energy portion of the business too because that's important. Um >> yes I think for the last almost 10 years he said next year this next year next year next year next year and so it's taken longer. Um I think that uh what we'll see from here is that uh the uh it will accelerate and that mean uh the number of cars in the road uh for the robo taxi will accelerate. Um and specifically in Texas we'll see that happen first. uh in the Austin region, uh Houston, Dallas. Um they're fully permitted there with the uh the roll out of the robo taxi with the the cyber cab, which is the purpose-built vehicle, the two-seater gold car. Um uh that that will help. It's purpose-built, you know, no steering wheel, no brakes now under the new federal rules, they don't have to have that. um and then we'll see it accelerate into other regions. Whereas in uh if you're in California or in Phoenix right now and San Francisco specifically, it seems like every fifth car is a Whimo. Uh and then you have Zuks there as well, which Zuks is an Amazonbacked company uh that's also doing um uh driver out services and it's going to be a competitive market. It's not going to be a winner take all market. Um, but I think that we're going to see a handful of players, call it five, uh, in the market. But Tesla having a vision only, so only using cameras, not LAR or radar. Uh, it I think it can scale more quickly once they >> Why why people have criticized it? Y >> because they said it's not adequate technology. But you Why do you think it could scale more easily?

[00:26:55]>> Yeah. with uh there's less of the groundwork that needs to be done because they're constantly pulling all of the data from all their vehicle fleet because they own the manufacturing uh part of the value chain. They can uh uh the feedback loop is quicker for them to make changes to the vehicle and like they don't need to do all like you'll see now in New York Whimo has you know they're testing the area they're mapping the area that is done by the current vehicle fleet of Tesla on the road right now. ice >> and it's feeding back into full uh full machine learning.

[00:27:28]>> So in other words, because of of people who actually own a Tesla just driving around New York, whatever they're doing, that feeds back.

[00:27:34]>> All that data, whether or not they have they bought full self-driving, uh that data goes back to Tesla.

[00:27:40]>> I see. Okay. You wanted to talk about energy, what Tesla's doing in energy.

[00:27:44]>> Uh sure. Uh this this is it's important now because it's uh 20% of their operating income comes from the energy business and it's >> describe the energy business. I don't have most people don't even know that they have anything.

[00:27:57]>> Yeah. So they bought Solar City. Uh now I cover Solar City too and uh that was somewhat of a a bailout. Yes.

[00:28:05]>> Not [laughter] that those nice to bail out your cousins.

[00:28:11]>> Yeah. Yeah. Exactly. and all of your you have crossboard members all over the place. Yes. No kidding. But we can talk about this what with uh with SpaceX too and and uh how it's similar and dissimilar too. That business is primarily uh what they call mega packs.

[00:28:25]Um and these are big batteries for the grid. Okay.

[00:28:28]>> Whether it's coupled with renewables like solar or now more and more they're being put you know standalone to balance the grid uh in periods of fluctuation.

[00:28:38]Uh and this is a global business. They have three plants one in California.

[00:28:41]They're building one in Texas and they have one in Shanghai uh to service China and other parts of the world. Uh this business is growing um you know uh uh over 30% a year on the top line. Uh has you know pretty stable healthy margins uh and is contributing you know uh really a meaningful portion of the cash flow that is going to be reinvested into some of the future stuff like robo taxi and optimus robots. Um, so I just I consider this the auto business and that business as kind of the core here and now business.

[00:29:12]>> So let's talk about look, SpaceX just went public. Um, I mean I'm public about this. I think the valuation is insane.

[00:29:19]Um, you put out a piece arguing that you thought SpaceX was going to buy Tesla. I read your piece.

[00:29:24]>> Yeah. I my response to that and I'll be curious is what you think is we live in in an era where of deconglomeization if if that's a word. Yeah. And I mean, SpaceX already is complicated enough and that it's got space, it's got um the satellite business, and it's and it's got AI. And now you're going to add on, if this were to happen, electronic vehicles, the energy business, autonomous driving, robots. That'd be seven businesses for one company.

[00:29:58]>> Yeah.

[00:29:59]>> That's awfully complicated. Yeah.

[00:30:01]>> So, why do you think it's a good idea?

[00:30:03]>> So, I'll start with with Elon. Uh I think because it's it's an important piece. I don't think it's the only piece, but he's argued that he needs to have 25% ownership of Tesla. Um because he doesn't want uh anyone else control the AI. He wants to have uh that much control of the company. Um this is a backdoor way for him to do it because of the mix of his ownership at SpaceX.

[00:30:25]>> So what's I what is his objection to not owning 25% of Tesla?

[00:30:29]>> He doesn't feel comfortable developing AI where he doesn't have >> But he's developing AI in SpaceX. Yeah.

[00:30:34]Where where he could be thrown out though where he does have enough uh ownership of the business. Okay. Is what he said in the past. So I think that's one way for him to back door to that percentage. Two like with the Google uh equity offering um capital is a big part of this whole equation for this uh this arms race of data centers. I think having the companies together makes that easier for him to raise type of capital to keep up with the Joneses of uh of the other uh big seven or seven. He started priming the market with doing these uh it's not structured as a joint venture but they're projects with the two companies. Uh number one he's going to build a solar uh model uh module or solar panel manufacturing facility of 100 gawatts. That's a massive >> and that would be for whom?

[00:31:20]>> That is a partnership between SpaceX and Tesla. He also >> And that would be for what? What for what purpose?

[00:31:25]>> Oh uh for utility scale solar and residential solar >> to sell it.

[00:31:29]>> To sell it. Yeah.

[00:31:30]>> So, in other words, like like becoming a first solar.

[00:31:33]>> Yeah. By becoming a first solar.

[00:31:34]>> Okay. Which we'll talk about.

[00:31:36]>> We'll talk about and it's um 100 gawatts is is like that's China scale. Um it's huge. If he gets a fifth of the way there, that's bigger than first solar, right?

[00:31:44]>> Um they also have this terra fab. So, building chips uh you know, whether it's for the self-driving vehicles uh or it's something to compete with Nvidia um that they're a joint partner in. And on his last call, he said something to the effect of, "I'm tired of going to each board and having to get this stuff approved when we do a joint product project with each other."

[00:32:06]>> So, this is one board.

[00:32:07]>> Yeah. Uh, so it make it one board. Um, and I think just overall speed of making decisions. Uh, it makes sense from that as well.

[00:32:15]>> So, you think this is going to happen?

[00:32:16]>> I do think it's going to happen.

[00:32:17]>> When do you think it'll happen?

[00:32:19]>> I think that the way things are moving right now, speed is is very important.

[00:32:23]Uh, I said 18 18 months, but I think it could be this year event.

[00:32:27]>> You know, the problem is if you if you um let's say the deal got announced in a year.

[00:32:31]>> Yeah.

[00:32:32]>> Then it's another year. Yes. Before it's actually done.

[00:32:35]>> Yeah. I think that's two years. I think that's even more reason to do it sooner than later. There's nothing with the fact that it just IPOed that would stop them from doing it at this point. Um I if I could make one point about SpaceX because I think it's >> when we talk about energy being the bottleneck to to data centers or or a key element to data centers. Uh one thing I emphasize just because a lot of people laugh off his you know making data centers in space and saying like there's not the equipment the technology here already. I use it just as an example to show how important it is uh how energy is because that's really the driver there. Uh is that like energy is not scarce there. You'll get solar energy up you'll have to use cooling uh for the data center as well. Uh but that's just an extreme example to show you how important it Yeah. Yeah.

[00:33:24][laughter] How how important energy is.

[00:33:26]Yeah. I I had a uh when this is a point of humor, the um when I read the S1, there was a whole section about um things that SpaceX could do.

[00:33:39]>> Yeah.

[00:33:40]>> Which was quite a list. And one >> mining asteroids, >> right? That's what I'm bringing up. It's mining asteroids. And and I said, you know, because I'm a real science sci-fi buff. Yeah. I said, you know, mining asteroids is actually a major theme on this Apple sci-fi show called For All Mankind. So maybe Elon's writes for the show. [laughter] >> Uh no it it's interesting because there's a whole element too like if you think about the merger of the two is like Optimus would be very important in you know space exploration going in environments like that. Yeah.

[00:34:11]>> And those versus saying if you want to mine you can still mine on planet Earth.

[00:34:14]>> Yeah. Just real quickly on on the on the mining asteroid points we cover MP materials uh which is rare earth. They own the largest mine in the US. Uh and then they're making a magnet facility.

[00:34:26]The first one is sold out to GM and to uh Apple. Uh they're building another facility um that's uh two and a half times as big. U but that will be those magnets will be even more important because they go into any kind of motors.

[00:34:39]So like as these centers get built out uh like fans uh in HVAC, they all have uh magnets in there and China controls naive% [clears throat] of all the 9% and the magnets it gets even higher than that.

[00:34:52]>> Got it. Let's finish up with solar, a group I've covered for a long time. Now, you don't cover residential solar companies.

[00:34:58]>> No. Uh, thank God I did it long enough that in several different iterations disaster.

[00:35:04]>> It's very tough. It's a tough It's a tough fundamental business in the cell.

[00:35:07]Uh, like you know, this is doortodoor sales.

[00:35:10]>> You're putting little panels on people's roofs and you're selling it house to house.

[00:35:15]>> House to house. Uh, and so you have customer acquisition costs are $10,000.

[00:35:20]>> Yeah. Yeah.

[00:35:21]And so that that's tough I and I've always been I always thought that you know utility scale solar makes more sense just from a scale perspective from a cost perspective.

[00:35:28]>> Okay. But you're not so the two companies that you cover that are pure plays here are first solar.

[00:35:33]>> Yes.

[00:35:33]>> And array >> in next power. Uh next power. That's like an array uh comp that's into other.

[00:35:40]>> So you're not recommending any of them.

[00:35:43]>> I'm recommending next power. Next power.

[00:35:45]Let's leave aside next power for a second and let's just talk about first solar because because array makes the devices that turn the solar panels so that you're constantly in the sun but first solar actually makes the solar panels for the utility and you're not recommending it >> and and yet if I knew nothing >> I I' I'd say the grid's growing like crazy.

[00:36:06]>> We need power from every every possible source. First Solar is the biggest producer of solar panels in the United States. We need them. Why aren't you recommending it? Sure. Obvious question.

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[00:39:53]>> Sure. uh short-term uh they are uh they are moving capacity from Malaysia, Vietnam uh to finish it in the United States and there's still a lot and so there's there's execution risk with that. Um I'd say that's small piece of it. Uh there's also uh they're in a period right now where there's still regulatory issues uh being decided. Uh specifically uh uh the section 232 tariffs around imported uh polysilicon or panels that use polysilicon. This is all, you know, policy with China, trade war. Uh, until that gets settled, they can't book business uh because they don't know what to charge their customers and their customers don't know what to pay for it.

[00:40:35]>> So, in other words, the panels that they they make mostly everything in Malaysia.

[00:40:38]>> They have three factories also in the United States.

[00:40:40]>> In the United States, but some of it's outside the United States.

[00:40:42]>> Some of it they have a factory.

[00:40:44]>> So, they can't tell you what they could charge for the stuff that's outside the United States. Uh well, they're waiting to see how much more of a premium they can get because of the tariffs that are coming from China, but those haven't been decided yet.

[00:40:54]>> Okay. And is there any timeline?

[00:40:56]>> We're supposed to hear by July 4th. I mean, we were supposed to hear by January, too. So, some of this stuff is slipping. Uh the stock will trade with you know, easing or tense uh or more tense uh uh you know, trade with uh war with China. And so, >> so what do what do the people who own the stock want? So they want uh specific not a percentage uh like a specific penny tariff on the on the panels because if you put a percentage on the on the panels from China, they just lower the price and the percentage is smaller, right? And so it's a kind of a way around the uh around the tariff. So they want stricter tariffs um and uh just visibility on the tariffs.

[00:41:34]>> So if there was where is first solar now the stock >> price 250s >> it's been hanging here for a while. So, if the tariff situation went the way the company wants, >> Yes.

[00:41:44]>> how much upside do you think there?

[00:41:45]>> I think there's$1 $100 upside on it.

[00:41:47]>> $100 off off of 250.

[00:41:49]>> There's a lot of leverage. Every penny ASP is $2 in earnings about. Let's just make up numbers. They do $12 in earnings this year. But like, so if they >> So, so the stock's 250 and they're going to do like $12 in earnings. Yeah. But next year they could do what? If if everything came out right?

[00:42:04]>> If everything came out right that it could do as as high as 1718. Okay, got it. Back to electronic vehicles.

[00:42:11]>> Yeah, >> Lucid, Riven, they kind of make very high-end >> cars.

[00:42:19]Like, is there a story here or not really?

[00:42:22]>> I think Rivian more so than Lucid. Uh, Lucid uh, you know, has um, uh, backing of the Saudi investors there. Lucid does.

[00:42:30]>> Yeah, Lucid does. That's kept them afloat. There's there's a new CEO there.

[00:42:35]I think if anything, they become more of a technology provider. They do have good underlying technology that just hasn't been scaled. So like they do have they had a partnership with Aston Martin. Uh but this new CEO is coming in kind of doing a restart of the business right now. I'm more confident in Riven's brand and being the [clears throat] you know the first follower of Tesla in the United States. Uh they're moving >> they make a nice looking car >> and they're moving to their next generation vehicle which will get down to you know uh kind of 40 $45,000 range.

[00:43:02]The the initial vehicles are more expensive than that. It's called the R2.

[00:43:06]It's a smaller SUV. Uh I drove it um three weeks ago at the their launch event. It was awesome. It was great. Uh it it looks I think it looks better personally than the Model Y. Uh I think there's a satur saturation uh uh issue with the Model Y where >> what's the Model Y?

[00:43:23]>> The Model Y, the Tesla Model Y, the crossover uh the small one. But like if you go in, you know, most part a lot of parts of New York, that's all you see are the same vehicles are definitely out in California. And so, you know, people want to have a choice and and this is going to be like the first compelling choice to the Model Y um out there.

[00:43:40]Okay. Got it.

[00:43:42]>> What have I what haven't I asked you?

[00:43:44]>> Um lots of good questions there. Um I think you know one of the worries about the power side is just like over capacity because a lot of these companies are ramping up more capacity and as a solar analyst that you know it's like dog years covering solar [laughter] of the up and downs that uh you know The solar group is hard to be a bull group is is an insane group.

[00:44:09]>> It's hard to be a bull because like you've seen the story before times get good they end very quickly and and badly.

[00:44:16]>> Um I think that the runway though for energy uh you know the visibility here we got a decade of it. You know, I I believe the you know, the CEO of uh of GEV, Scott, uh talks about it being a super cycle that and that they expect to be sold out to 2035 at least, right?

[00:44:33]>> And I wasn't there uh you know, starting in this year and like the more you know we've done done our work and you know talked to developers uh we have a lot of visibility here for uh for the next decade. Now, labor is going to be an area which is going to become more and more of a bottleneck out there. Uh whether it's for data centers or just energy overall >> to get the labor.

[00:44:53]>> Yeah. Electricians. Uh everything.

[00:44:55]>> Yeah. Everything.

[00:44:55]>> Okay. All right.

[00:44:57]>> I heard because I've never owned an electronic vehicle that the that the value of electronic vehicles collapses after a few years. Is that true? And if if it's true, why?

[00:45:08]>> You know, it depends on what car. Uh Teslas have actually held up better than most. Um, one of the things I think that it will impact used car the used car market is just the rate of innovation overall and it because companies like Tesla and Rivian they don't necessarily have model years per se like for example if they need a new the steering wheel needs has a new vendor they'll just rip it out of that model and the next one on the line and put the new steering wheel in where traditional auto will wait till the following year and so they make constant changes to it which makes them obsolete >> quicker more quickly even though they can actually upgrade the vehicles via overtheair updates versus not not many auto manufacturers can do it to the same level. Um but I think it's just a rate of innovation right now. Like personally I would like I would rather lease a car now even though people say never lease a car than to buy a car just because of that residual value across that's EVs to uh >> what I heard that the battery starts to lose efficacy and and that since the most of the value of the car is in the battery that that's that hurts.

[00:46:13]>> It depends where you are. If you're in cold environments if we're in Minneapolis that it's more of an impact on it. uh for Canada uh you know uh um uh but you know they have uh warranties around their batteries and a lot you know a lot of that's are corner cases um you know of this rapid uh degradation in batteries >> Ben thank you >> thank you for having me on it was really great >> thank you >> and we're back a lot of information in that interview first of all the United States is building something on the order of 30 megawws of power per year which I mean is the equivalent of a couple of cities is how much power we're talking about here. And it's not all data center related but a lot of it is data center related. So we started with that and then we went on to uh GE Vernova where we talked about how GE makes gas turbines that are crucial in in terms of utilities providing power to data centers. You know, gas turbines are massive and they require years to make.

[00:47:20]And so when they get an order, when they report an order like this quarter, when they'll report an order, that turbine is not going to actually be built and then put into a utility until 2030, 2031.

[00:47:33]That's how long tailed this business is.

[00:47:36]And GEV has visibility on that business for well into the 2030s. Uh it also has an electrification business which is related and it has a nuclear business which is not going to be an important part of earnings till at least 2035 but it could become a big part of the company. And then we moved on to Tesla where Ben is positive because he thinks that the autonomous vehicle business is going to do well. We'll see. Elon's been promising that for 10 years. Count me a skeptic. But Ben also thinks that um SpaceX is going to buy Tesla and if he was a betting man, he thinks it will happen relatively soon because Elon wants to have total control. We also spoke about some solar companies, none of which he's all that positive on because of tariffs. And we just finished up talking about how one of the biggest constraints is going to be labor because there's such demand for all of these plants and construction that there is an enormous demand for labor and it's going to be interesting to see if the the United States can supply sufficient labor to build all the things that need to be built. Hope you enjoyed that episode. I certainly enjoyed doing it and see you soon.

[00:48:57]>> [music] >> This podcast is forformational purposes only and does not constitute investment advice. A host and guests may hold positions [music] and stocks discussed.

[00:49:07]Opinions expressed are their own and not recommendations. Please do your own due diligence and consult a licensed financial adviser before [music] making any investment decisions.