Adam Jonas: Welcome to Thoughts on the Market. I'm Adam Jonas, Global Head of Autos and Shared Mobility.
Michelle Weaver: And I'm Michelle Weaver, U. S. Thematic and Equity Strategist at Morgan Stanley.
Adam Jonas: 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 10am 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?
Michelle Weaver: 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 try to strike a fairly positive tone, 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 U.S. auto industry?
Adam Jonas: 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 Art of a Deal to understand, some of the nuanced negotiating strategies that we're dealing with here right now. I would say this, though. There is unanimous opposition from all channels of the auto industry to tariffs on Mexico and Canada. That includes suppliers, dealers, and OEMs. Many of them think that it; they can't possibly be enforced for too long. But no is brave enough to actually put that in writing or manage the company that way.
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 – at 25 percent 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 stressed on the auto side.
So that would, Michelle, to put numbers on it – it would take monthly auto payment from an already record high of like $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 percent. And 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?
Michelle Weaver: Yeah, 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 prime time.
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.
Adam Jonas: I think I could use a lot of help with that actually, 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?
Michelle Weaver: 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 on 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 a 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?
Adam Jonas: One of the really cool things about the conference this year is there were so many Waymo vehicles just driving around the streets of San Francisco.
And, you know, 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, 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 sites or getting to a meeting – and you realize the future is here right now. This is not science fiction. This technology exists. Waymo has, you know, well over a thousand 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.
So, 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 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; that GenAI, Large Language Models, and GenerativeAI 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, combination of all three – these vehicles are now agentic.
So, kind of closing the loop; like, 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. So, 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.
Michelle Weaver: Yeah, I mean, I took a Waymo while I was there, and they're incredible. They're so comfortable.
Adam Jonas: 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. Like that’s weird.
Michelle Weaver: 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?
Adam Jonas: I mean, this is a revelation. History books are going to be written about this time when the machine started to make the machines and some of them look like us. Not all of them will, but some of them will. And they look like us because we're, you know, meat bots, if you will. There's eight or nine billion of us all over and they can learn by watching us do things.
And you know, 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, you know, doing some tasks. And then I see some workers with like a humanoid; like a hand 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 infrastructure. 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 cyber security 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.
And 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.
Michelle Weaver: Yeah. I mean, the conference was amazing. It was like a glimpse into the future. Thank you for taking the time to talk.
Adam Jonas: 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.
Thoughts on the Market is also available on Apple Podcasts, Spotify, YouTube and other major podcast platforms.
For more Ideas, visit www.morganstanley.com/ideas