The EV Truck War Is Officially On

In this podcast, Motley Fool senior analyst Bill Barker and host Deidre Woollard discuss:

• The futuristic appeal of Tesla's Cybertruck compared to more traditional models.
• Why Ford announced a price drop on the F-150 Lightning.
• How Eli Lilly could win big in the weight-loss wars.

The majority of borrowers haven't been paying off their student loan debt. Motley Fool contributor Matt Frankel explains what the resumption of payments could mean for the economy.

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 July 17, 2023.

Deidre Woollard: Cybertruck rolls out and EV deals follow. Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Deidre Woollard here with Motley Fool analysts Bill Barker. How are you today, Bill?

Bill Barker: I'm well, thanks for asking. How are you?

Deidre Woollard: I'm doing great. Over the weekend, Tesla tweeted out the first picture of the Cybertruck. One of my colleagues pointed out that they didn't show it rolling off the assembly line. They hadn't surrounded by workers, so I don't know if that's a signal or not. But this Cybertruck, it's a weird thing. It's very different looking. It's been delayed for two years. There was that botched reveal in 2019 where they through a metal ball at the allegedly bulletproof glass that it was so not bulletproof. Given all this hype, all the waiting, is there still that huge demand for this thing?

Bill Barker: Well, there's demand for trucks and growing demand for E trucks. You're right. It is a little surprising that they didn't show it more inaction than what they did. But given the last go around, I think just not bringing it out and bubble wrap was probably a little bit of a [laughs] period of Victory.

Deidre Woollard: Yeah.

Bill Barker: I think the look of the truck is odd only if you're not used to watching Star Wars or Battleship Galactica. I think it looks comfortable in those universes. The universe of Texas and Colorado, it's an open question whether people want something that looks like it might fire lasers at you.

Deidre Woollard: Yeah, I think that's part of the interesting things. There's supposedly between one-and-a-half and 2 million reservations. Who knows how many reservations I'll actually turn into things? But you made a really good point there, which is, this looks so different. The truck market for EVs, it's still beginning. You've got Rivian's got one, GM's got the Hummer truck. They're bringing up the Silverado. I think that may be out. There's a Ford 150 lighting. The lighting is interesting because that's the one that I think people want. We just found out that they are going to drop the price on those. Cheapest version of the lighting now going to start around 50,000, which is a 17 percent cut. Is this due to the Cybertruck, do you think?

Bill Barker: I think the timing of the announcement might very well have something to do with the announcement. It's more complicated than that though certainly the F150 and all of its iterations is the real star in the portfolio for Ford. They certainly want it to continue being that way with it being the best-selling truck and having been so for the better part of half a century, I guess. They're going to protect that. One of the ways to protect it is to bring down your margins and sell for a lower price and sell more and hoping that the production volume is going to scale to where you start making some of that back on the volume. I think that a large part of the price reduction here is probably attributable to the tax incentives in the Inflation Reduction Act, which are really only applicable for trucks under $70,000, I think. Given that, it's really hard to acquire, it's 80,000 for trucks, $55,000 for the sticker price on a car. Anyway, with this reduction, they're going to allow far more people to qualify for that additional up to $7,500 credit, and I think that's a big chunk that they're in position now to actually produce enough of these. If they have to and they want to where they can bring the price down enough and throw in that tax credit on top of it to attract quite a bit more volume.

Deidre Woollard: Maybe they had this in the works and maybe they bounced it a little early once the Cybertruck went out. Who knows how these companies work?

Bill Barker: Well, I think that the price that they take and being the top seller is running into the probably elevated projections that Tesla has of being able to produce hundreds of thousands of these and having over a million already ordered. Whether that's entirely an accurate description of the real numbers, we'll never know, but Ford is going to want to protect its mode on this one and protect the jam of its line. Lowering prices is one way to do it, and the fact that it'll probably reduce some profits is OK as long as they remain number 1. That's such a big calling card for the company.

Deidre Woollard: Nothing about the fourth lighting. It looks like a regular truck, whereas the Cybertruck looks definitely not, as you said, like a regular truck.

Bill Barker: Yeah, we'll see what the market is for a truck that looks as unique as the Cybertruck currently looks. Certainly, it does not seem likely that Ford is going to want to produce a different-looking truck from the most popular truck in the world.

Deidre Woollard: What these bigger vehicles you've often got more range anxiety. Tesla originally promised 500 miles on a single charge for the Cybertruck. There was a rumor from a bearded Tesla guy on Twitter saying company might only roll out with the 350-mile version to start with. Some other brands, Jim Silverado, for example, promising 450. With trucks, it seems ranges more important because you've got towing to consider.

Bill Barker: Sure. As powerful an item as ranges and the consumer's decision on whether to buy an electrical car, it's that much more so for trucks which are heavier vehicles and are loaded up with far more weight. The description of 500 miles is always going to be an unloaded vehicle, probably. Certainly, Tesla has a little bit of a history of over-promising, both on the timing of delivery of things and any number of other things while having obviously achieved phenomenal things outside of what it promises to do on the calendar. You've got people that are going to be testing this. What is 500 miles really mean? It means if you've got a full charge, it means if you've got an empty vehicle, it means if you've got a 75-pound kid driving it, we don't know. I think that there's going to be less range than advertised and that's going to be an issue that gets improved over time, but Tesla doesn't want questions out there about the range when it's trying to make sales, and I'm afraid they're not going to be able to get away from those questions being asked.

Deidre Woollard: Oh, I'm sure there will be videos and documentation and all things. It's interesting to watch because we've got Tesla reports later this week, Ford reports, I believe next week, EVs are still growing, but they're growing a little less rapidly. You talked earlier about the government incentives. We've seen price cuts. Tesla is now pretty much the standard for them, North American charging stations, so we're getting more of that. Is that going to lead to EV sales increasing or does something else needs to happen or is this just the cycle that we're in?

Bill Barker: Well, there are a number of vectors that a consumer is going to be deciding. One of them, the top one is money. Before it has done a great job of getting out there, saying some of these trucks are coming down $10,000 in the sticker price, then you're going to throw on the tax incentive, and somebody who was considering this a week ago and is now considering getting it for $15,000 less or 1,750 less is really going to be excited to execute on what they were hesitant about if price was the issue. As you say, the charging stations there are certainly more of those closer together in the Northeast where most of these EV sales in California are occurring. Trucks are going to be a different issue. There aren't going to be as many close-together charging stations in the geographies where the trucks are more likely to be bought. I think that's going to be a challenge for it is a couple of years into this already and is selling a few thousand of these a year, not the levels of the hundreds of thousands that ultimately they hope to be selling. Charging station availability will improve, but it's going to be harder to do it in rural geographies.

Deidre Woollard: Let's take a pivot and talk about a little mergers and acquisitions. We always seem to get these on a Sunday night. This one actually I think came out on Saturday. Eli Lilly, their purchasing an obesity drug maker Versanis' for up to 1.93 billion. That's, of course, if certain sales and development milestones beliefs are met. Eli Lilly, they make Mounjaro, that is a diabetes drug, but it's on the path to getting approved for weight loss. This obesity gold rush, it seems to be quite something. It seems like every company is trying to cash in right now.

Bill Barker: Well, there's a number of reasons for that. One of the prevalence of obesity in America is alarming and has been growing and nothing has changed that. These drugs might do something to change it. But also for the drug company's pursuit of that market comes at less of a political cost and you compare and contrast the two stories that Eli Lilly is in the middle of today. One of the acquisition of a company doing an obesity drug and the other new trial results for their Alzheimer's drug. One of those two, when it comes into the market, is going to be greeted with demands of that the pricing be affordable and it's really not the obesity drug. I think there is less of a political push that, my goodness it's nobody's fault that they are way more than they'd like to. They should be able to get their hands on these drugs at a price that is incredibly affordable, and drug companies are doing wrong by developing these drugs and then charging a lot of money for them. I think that's an area where companies can have more pricing power. Alzheimer's is something, I think obviously those that suffer from it don't have any of the behaviors that obesity has. Those are conditions that are beyond the control of those suffering. I think that that raises a political willingness to put pressure on companies to make the cost affordable, despite what the drug companies will tell you is the enormous amount of money that they spend developing the drugs and the pricing points that they need to make it worthwhile to their shareholders to pursue the incredibly important discoveries as any cure or amelioration of Alzheimer's would be.

Deidre Woollard: That's true. We've already seen that with Biogen's drug Laquembi, that's Alzheimer's drug when that was announced, the FDA approval, the first thing was the concern about the price. Well, this Versanis' drug, this is going to be hard to pronounce, but it's bimagrumab and it does something a little bit different than the semaglutide drugs which are like Ozempic. It helps people lose fat while maintaining muscle mass. That's interesting because there's been a lot of the Hollywood talk about like Ozempic face, where your face gets gone because you've lost muscle mass. It seems like it could be a key advantage. Huge market, this is supposed to be a $40 billion market by 2031. We've got Novo Nordisk. They do Ozempic and also Wegovy, so with Eli Lilly in the mix, is this something where as an investor you might want to get a basket of different pharmaceuticals that are focusing on this space?

Bill Barker: Well, in really any of these companies, you're investing in a basket of various drugs that are treating various diseases and are going to outlive their patent protection at various times. Any one of these companies, Novo Nordisk or Lilly, or some of the other major pharmaceuticals that have attempts, trials, or drugs on the market, you're really, for the most part, investing in a basket of drugs as it is, and getting a pure play is something that you take a big risk and bigger reward on a one drug, pure-play one disease, trial level company. Eli Lilly can easily take that risk as it's done with its acquisition today. But most investors should be aware that a one drug, one disease, pre-market, especially for something that is going to attract a lot of competition comes with a lot of risks.

Deidre Woollard: Absolutely, and that's the difference between investing in some of those smaller biotechs that are pre-approval, things like that. Very risky one disease, this Eli Lilly is the opposite of that because it's got so many things. It's got five other obesity drugs in Phase 1 and Phase 2. It's got, like you mentioned, Alzheimer's, ulcerative colitis, all other types of different things in the pipeline. We recently had a bull versus bear argument on Fool.com and it was about Eli Lilly. The only bear argument that the rider really made was that maybe the success is already priced in because it's got a forward PE ratio of over 50, which is high for the industry. I think the industry standard is around 17. If you're looking at a giant like this, is the price more important than the potential? How do you think about it as an investor?

Bill Barker: Well, I think it's a strong point given the price of Lilly right now. Now, the argument against that is probably Eli Lilly has done a phenomenal job of delivering excessively good returns to shareholders, and that's one of the reasons why the price is where it is, is a belief that that will continue to happen. Since the bull-bear argument was done, you've got these two pieces of news coming out already won the acquisition of the further obesity drug and also the good trial results from the Alzheimer's drug. There's a portfolio of good news that one wishes all of these companies to come out with regarding good trial results, and not all of them obviously will be. The price does seem it's traveling pretty close to its 52-week high. I'd agree that to me I'd want to wait and look at the company outside of the 24, 48 hour period when great news is being released. I think that juices the stock it has done so with Lilly over the last couple of trading days. I think that all those not moving up to date moved up very strongly on Friday. I think that you're probably going to be able to find a better price at some point, the markets at 52-week highs, and Lilly is almost there itself.

Deidre Woollard: When everybody else gets excited, that's the time to maybe get a little less excited.

Bill Barker: Well, let's get excited for the actual results of trials that are helping to cure things like Alzheimer's that's certainly worth as much excitement as one can generate. But it doesn't necessarily, as we talked about, the pricing of the drug which hasn't been announced. The drug isn't approved yet. It's had very good trial results. Lilly is expecting something before the end of the year and it looks positive, but what price they can get for it and what price society is going to tolerate for that are things not entirely in Lilly's control.

Deidre Woollard: Absolutely. Bill, last question for you. Would you drive a Cybertruck?

Bill Barker: If given one, yes. [laughs] I don't have a lot of use for a truck in my life, but there's a price at which I will own a Cybertruck for sure. It's a very low price. But if somebody wants to hook me up with that, of course.

Deidre Woollard: We'll let Elon Musk know. Thanks for your time today, Bill.

Bill Barker: Thank you.

Deidre Woollard: A resumption of student loan payments could have a big impact on the economy. I sat down with Matt Frankel to discuss what's next. Let's get into it because it's a little complicated right now. We know that the Supreme Court ruled against student loan forgiveness. There's a new plan that seems to be in the works, the savings on a valuable education or save plan, can you explain a little bit about what that's about?

Matthew Frankel: Yeah. When the Biden administration originally put out their proposal, student loan forgiveness got all the headlines and rightfully so, there was the big news to just wipe 10-$20,000 of student debt per borrower off the books. But there was a lot more included in the plan and the Supreme Court's decision didn't affect that. The save plan that you just referred to, what's actually in the original plan just wasn't called that at the time. Now that student loan forgiveness is off the table, that's jumped to the forefront. What that does is it's designed to make your student loan payments more affordable. It does two main things. It cuts the amount you're going to have to pay each month in half as a percentage of your discretionary income. Income-driven repayment plans today require borrowers to pay at most 10% of their discretionary income. This capsid at 5% for undergraduate loans. That's the first thing. Number 2, it actually raises the definition of discretionary income itself from 150% of the federal poverty line to 225%. Not only does it cut the amount of your discretionary income you have to pay. It also changes what discretionary income is to something that's more favorable for borrowers. The net result of this is a lot of borrowers are going to see that they have to pay much less per month toward their student loans than they did before the payment pause.

Deidre Woollard: Interesting. This is only for federal loans, and I saw it doesn't help the parents who took out loans for kids, right?

Matthew Frankel: The save plan does not apply to parent PLUS loans. There's a lot of great benefits for parent PLUS loans like they do get to participate in some forgiveness programs. Like for example, if the parent works in public service, they can use public service loan forgiveness for PLUS loans, which a lot of parents aren't aware of. But know that this plan itself is not designed for parent loans.

Deidre Woollard: That's the first part of the plan. Then it looks like there's a second part that takes place in about another year in July. It talks about a shorter time to loan forgiveness, which I think is really important.

Matthew Frankel: Yeah. Well, first of all, student loan interest technically starts on September 1st and repayments technically resume in October. I say technically because part of the plan was what they call a one-year on-ramp. It's essentially a grace period where any missed payments for the first year through the end of next September don't count against borrowers and interests doesn't get tacked onto the balance. That's number 1. You mentioned a shorter time to forgiveness that's designed for lower-balanced borrowers. One of the parts of the plan says any loan that was originally under $12,000 is forgiven after 10 years of on-time repayment under the safe plan or any income-driven repayment plan, as opposed to 20 years for higher-balance loans, which could the current forgiveness repayment timeframe for higher-balance loans is 20 years for undergraduate loans or 25 for graduate loans. The point of this is so that anyone who borrowed money to go to community college can be completely debt-free after 10 years, even if they aren't required to make loan payments because of their income.

Deidre Woollard: Well, let's talk a little bit more about that on-ramp program that you were talking about. It's like a chance to get people restarted because I know a lot of people weren't paying during the pause, and so basically it is an on-ramp. They have a little forgiveness without getting their credit score dinged or without getting sent to debt collection. How do you feel that is going to start the process? Is it going to be a slower on-ramp because there is that forgiveness built-in?

Matthew Frankel: I hate to borrow this term from the Fed, but it could create more of a soft lending for borrowers. The payment pause was set to expire. I mean the Biden administration announced it when the Supreme Court decision came out, the payment pause would expire. But I don't think anyone really believed them [laughs] for being totally honest. How many times have we had a restart timeframe before and it ended up getting kicked down the road? But the debt-ceiling deal took it out of the Biden administration's hands and made it official. If everybody had to restart paying their student loans in October, one, it wouldn't have given the Department of Education enough time to get that saved plan up and running. Number 2, it would have created a big shock to a lot of borrowers who aren't used to having that payment in their budget. I mean, I'm a student loan borrower. I haven't made a payment on my federal student loan in over three years. I'll have to figure out where that fits in my budget now. It helps people figure it out. It's an honor system thing in that they say if you can't afford to pay, you should, but if you don't, we're not going to be counted against you. I'm actually curious to see how many people start making payments, given that the on-ramp makes it so that they won't be penalized for a year. I'm curious to see if people actually start repaying their loans or if this is essentially another payment pause. [laughs] But it should help a lot of borrowers absorb the impact and figure out their new normal when it comes to their budget.

Deidre Woollard: Yeah. I'm curious about that too, because when you tell people they won't be doing that, then maybe they wait a little while. But it also maybe it lessens the blow of this macro concern. There's a lot of talk about this. A lot of economists have different opinions. Could it really de-stabilizes spending, saving? We know consumers have been spending a lot lately and that has not slowed down despite inflation. Is this when the finally the long-awaited recession might start?

Matthew Frankel: Well, the fact that they're giving that one-year on-ramp definitely helps lessen the probability of a spending recession because younger Americans are the ones that generally have more disposable income. When you first become an adult, you don't have family. When you first get out of college, you don't have as many obligations with your money, so people who haven't had to make student loan payments have had more discretionary income than ever before, and that could be set to go away. But I guess it remains to be seen who's actually going to start repaying. I'm not going to ask you if you would start repaying. I'm not going to tell you if I'm going to start repaying on this show or not. But they did say, if you can't afford to pay, you should. But they also said that interest isn't going to capitalize. There's really no benefit to starting repayment earlier other than in your balance is going to go down if your payments are more than your interest. But I don't think this is going to be the trigger to cause a recession, to better answer your question, I think if a recession it's going to happen, it's going to happen. I think that there's a high probability of that even if they forgave 100% of student loans, I think there's a high probability of a recession happening.

Deidre Woollard: Let's talk about what companies might suffer when the loan payments kick in. One of the areas I was thinking about was cars because our new car sales for the first half of the year were up 13%. A new car is so expensive, it's $46,000 is the median. Travel people have been spending like crazy going on trips. It feels like everybody I know is in Europe, what are we what should we be looking at here? Is it retail? Is it travel? Is it auto? What might suffer?

Matthew Frankel: Well, travel has been one of the biggest winners of the past couple of years. I'd say that would be one that can suffer more. People haven't been buying more stuff necessarily in the pandemic wind down. As opposed to spending money on experiences, people have been able to buy stuff this whole time. You didn't see a real surge when COVES restrictions were lifted in just people buying stuff. But travel is definitely been a big beneficiary. We're already seeing consumers spending pullback on travel. I mean, I own a vacation rental, my rent is down year-over-year, as are most people who have vacation rentals in major cities. I could see with companies like Airbnb taking a hit from this, Disney reported that its theme park attendance is down significantly year over year. This is normally their busy season when kids are out of school and you're seeing things like that suffer already. When student loan repayments start again, you're going to see discretionary spending really take a hit across the board. I would say that I'm not necessarily worried about lenders like people making their car payments and things like that because that's things people need. Before that it comes to that, they're going to cut back on things that they want and what they've wanted for the past two years or so is travel and experiences. I think that's going to be the biggest effect you're going to see.

Deidre Woollard: Yeah, that's what I'm thinking too. Let's talk about the other side of it. What companies might benefit when student loan repayments kick in?

Matthew Frankel: The natural ones are the companies that offer private student loans and refinancing and things like that. There's not going to be a big rush to refinance. The two public companies that I can mention that offer this or SoFi and Discover, both offer student loan refinancing. But right now, the interest rates you get on federal loans is better than anything you're going to get refinancing. It's a very small group of people who are going to benefit from refinancing. Essentially, to benefit from student loan refinancing right now, you have to have gotten your student loans when interest rates were relatively high. You have to have great credit and you have to not be able to benefit from income-driven repayment plans or loan forgiveness or anything like that. All of those have to be true for you to be able to benefit from a private refinancing loan right now. There is a small group of people who will. I don't see it being a massive rush to refinance, at least right now with interest rates fall, that might change. If market interest rates or the student loan refinancing go to 2-3% like they were for a while. Then things will give very interesting for those two companies I just mentioned. But for the time being, I don't see it being a massive benefit. But it certainly will occur.

Deidre Woollard: As always, people on the program may have interest in the stocks they talk about. 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.