Hold On To Tesla, As Management Tackles Balance Sheet: Houchois

an April Fool's joke. Here to talk about the bull case for Tesla is Philippe h equity analyst at Jeffrey's coming to us from London. Philip, there is so much negativity around Tesla right now as people ratchet down their production estimates. H, I'm wondering, what's the bull case here? Very morning, I'll qualify your coming. Um. We we upgrade from on the performed to hold day. Talking about the

world case is probably a bit premature. Um. Although we have some some admiration and sympathy for what Tesla has achieved so far, our view is mostly that a lot of that news have been crystallized in the shower price last week and apparently today as well, and we think at this stage the probability of management getting a bit more curious about capital, structure, funding and guidance is likely

to stick as a show price. Well, just to just to push back a little bit, I think that a lot of people are watching the bonds right now and watching the prices sink, basically locking Tesla out of the unsecured bond market. A lot of people believe that Tesla will have to raise equity and I'm just wondering, you know, if they can't raise four billion dollars by the first quarter next year, uh, They're debt could easily come under more pressure. At what point, you know, does this become

a spiral? You know? Absolutely? I mean we were factored in the two point five to three billion capital race for some time um with a view that it might be mix of equity and debt. At this stage it seems like it would be higher than what we have in our estimates and also very much no weighted those kew towards the equity, so the dilution impact, of course is more severe, and raising capital in those circumstances with

what happening in the bond side isn't easy. At the same time, we've seen before is if you raise capital in a what we call it professional manner, that you reassure investors that you have desition of something, you have a plan um, then you de risk the profile investment profiles the company, and I think that's possibly an opportune It isn't able to Testla today, so we need to be aware of the risk of more capital needed to

be raised. At the same time, the benefit of stabilizing the story in the balance sheet is not to be to be neglected either. At what point do you believe investors will step back and lenders will not want to lend the company any more money. Is there a specific challenge that Tesla has and is there a time frame? Well, as we said before, I know a lot of the issues around Tesla are self inflicted. UM I think the market will probably welcome a slight pause in this aggressive

guidance better visibility on how reasonably productively ramped up. So it's a combination of how the company is willing to package your message um allebal credibility on what can be achieving, What is too optimistic, and of course the amounts involved, and I think it's it's it's a difficult balance, um, but I think now is the right that is the right time to do it. Because of what seemed that

it might have been a short term issue. It has been a short term issue for three quarters now, so it no longer qualifies and they need to do something a bit more um drastic, I think, to stimilize the equity story and something, you know, Philippe. One thing that I'm struggling to get my mind around is what is the main problem that that the Tesla faces right now?

Is it? Is it a financing problem? Is it the fact that they have overpromised and underlivered quarter after quarter with the Model three delivery expected to also underwhelm people, or is it a management issue? And what we saw with Elon Musk and the April Falls tweet that didn't go over very well. I think at this stage the main issue is probably um the industrial approach. Now they

have chosen a manufacturing process that is highly automated. Um. It is well known that in manufacturing there is a trade off between automation and and flexibility, and so that's one of one of the issues and if you're not running a full capacity, then your your your running costs

are very high. And then there's another question mark, but it's very much a question mark is whether some of the proud development has lacked the invalidation, in which case some of the components may not be totally validated, and that might have be some of the reasons behind continue issues of fit and finish that some consumers have reported. Um So there's uncertainty there, but certainly it seems like very much the consequence of excessively aggressive manufacturing decisions made

by the current management. But Philippe, it's not even just the current management. A recent review by Car and Driver magazine about the Tesla Model three said, quote, it's difficult to gauge exactly how disappointing the Model three's result is in that real world seventy five mile power highway fuel economy test. Indeed, they say that if it's a little cold outside lop off about a third of the range. If it gets even colder, the range will be even worse.

That's not a management issue, that's a technical issue. That is a product concept issue, and it's something that has been has been part of the development of electric cars, and it seems to be maybe a perception among investors or customers that they can be a seamless transition away from unbush engine cars into electric cars. And the reality is still very much technology that is underdevelopment, underdevelopment um with no disappointments on the way as well as excacting

no development in terms of no driving agreement. And so I think it's it's I think there has been a lot of different opinions, some negative in some sources more positive. I think it's very much a product that is evolving and that may be a surprise for investor residents. Do you do you drive a Tesla? I do not? Okay, alright, just checking, Thanks very much. Uh. Philippe Husha He is equity analyst for Jefferies joining us from London, talking about

Tesla and the company's future. Right now, the company's stock is down nearly seven percent, shares a Tesla lower by more than eighteen dollars a share. Well, China retaliated against the US with three billion dollars worth of goods from the US getting slapped with tariffs. We're talking pork, We're talking other perhaps Jin saying things that are pretty peripheral in in size and in scope. So you know, the question is our markets missing the real show with the

China US standoff? It isn't more severe than perhaps some people are counting on with US. I am so pleased to bring in Bill Rhodes, President and Chief Executive of William R. Rhodes Global Advisors, better known as Banker to the World, with his decades of experience at the front seat of international banking negotiations. Bill, thank you so much for being here. So what do you make of the twoford tat US China tariffs? Well, first of all, it's great to be uh here with Hugh Lisa and with

Pim as always uh. I think no one should be surprised at this because President Trump ran on doing something with China. The question is are we doing it intelligently or are we not? Because we have to remember that Chi Jinping is now basically Emperor of China, and on this program number of months ago I predicted that he would be able to consolidate his power as core leader and now basically he is the leader almost for life,

depending on how long he wants to stay around. So we're dealing with the different situation than we would have been a year ago. And we also need China if we're going to have a successful negotiation with North Korea and Kim Jong Oon. And that was brought I think holmed everyone with a visit of Kim Kim Jong Oon to Beijing. UH So, whether we like it or not,

we can't just talk about trade with China. We also have to be very cognizant that without China's support where of their petroleum and uh an energy comes from China, we won't have a happy outcome in in that negotiation. So at the end of the day, we're gonna have to sit down with the Chinese and work things out. Uh. One of the major aspects also that I think needs to be uh worked on has been talked about, but I haven't seen much done about is the intellectual property

area because there's no town. China has been very deficient in this area for quite some time, uh, not only the American companies but also with European companies. But but I guess that then I'm wondering, as I listened to you, so far, markets are taking the tariff talk as more bike, more bark than bite. Do you think that they're overly sanguine based on this sort of larger picture issues that

the U. S And China are dealing with. Well, I think that you have to take these discussions on trade seriously because, uh, you know, we've been looking, particularly in the high tech area, we've been looking at China as the market of the future. Uh you know, whether it be Apple, Qualcom. I could just run through the names Facebook, etcetera, and uh what the Chinese are doing. And let's let's not forget where Ali Baba has come in ten years and ten cent. I mean nobody heard of Ali Baba

ten years ago. So there there's a lot at stake here. The Qualcom situation in particular, they've held up this, uh this merger, uh you know, approval for Qualcom, which is key for them now that the Roadcom deal has fallen apart, and their attitude is, well, we want to take more time to look at it, which is basically saying, uh, if we can work some other deals and some other things,

will approve it. So we've got a lot at stake here. Uh. And instead of having a talk with Mr Putin, I think maybe our president ought to be sitting down with Shi Jinping on all of these issues because I think that's much more important for the United States and sitting down with Putin at the stage of the game. Although I'm sure Mr Putin is very happy that that the President called him and said let's talk, I think our major concern should be China in all of these areas.

Bill Rhodes, in January, you penned an op ed piece, and you've put your pen to paper many times the book Banker to the world. What did you say in that op ed piece? And maybe you could just reiterate it for people. Thank you for mentioning that pim I basically predicted um that we would have a correction of ten. I guess the low point was twelve. And we have a lot of volatility, which certainly is happening because there are so many uncertainties, including the ones that Leaves and

I have just been talking about. And I think we also one of the things that a lot of people have not taken seriously is we've had so much liquidity pumped in the markets by the major central banks of the world. Uh, and we've had this trying to reach and search for yield, and eventually it's come that's gonna come home and bite you. And because people think it will go on forever, and of course the FEDS taking

the lead and ratcheting back with their balance sheet. Uh, it's not just raising interest rates, which everyone seems to you know, I think as a major preoccupation, uh for the future, which is important, But I gotta tell you maybe just as important and more important is we're reducing that balance sheet, the quantitative easing, and as that money gets taken out, interest rates go up, and I think you'll start to see movement in the e c B, the Bank Bank of England also, so stocks stocks are

down two percent this year, okay, by the SMP five, you think they have another eight percent at least to go. No, what I was saying is, at the time I penned this, which is of January, Uh, when the hit came three months later, it dropped to be exact eleven and a half percent. So I was just calling for that correction. But I'm just saying the same points that are there. I think are going to come back to buy this

later on in the year. Uh. And I think at at the very you know wordst we we might have a total adjustment of some but at least the ten percent we've already seen that correction, but I think we have further corrections to come. Which sector of US equities were just in general, which as a class do you think will be hardest hit? I think the tech side is the most vulnerable frame, even now, even with the sell off that we've seen recently. Yeah, I think so.

And then the other thing which a surprise people, UH is everyone expected the bank's stocks to be soaring and they haven't. And this is UH, this has been a big surprise to UH a lot of fund managers, and some of these fund managers aren't doing too well, as you've seen by some of the announcements over the last

couple of days. UH. This market is one that is going to be a rough ride with high volatility and the possibility that you can get some more major adjustments before you have flattening out, and then you have the whole point is if it's going to raise three or four times, UH, there's no doubt that unemployment's going to

drop below four percent. And notwithstanding UH what I think is not going to be as stronger first quarter as people thought, I still think you have to take a look at the growth may not be as high as people UH. As people think. And so you have a lot of a lot of these things floating around. Can can you do thirty seconds on Mexico? The election began officially yesterday. Well, I think that that is a big unknown, uh for the n after talks, because they have elections

in July. And so running ahead now is Lopez Overlord, who is a wild card. He's to the sort of extreme left in Mexico, and we're not clear how he would move ahead on after if we don't get the talks done. So really, uh, there's a date here where if we can't get these enough to talks done before the elections in in Mexico, then that's a whole new ballgame. Thank you very much for being with us, Bill Rhodes. He is the author of Bankers to the World, Leadership

Lessons from the front Lines of Global Finance. This is Bloomberg, Humana and Walmart, a marriage made in heaven. Well, perhaps here to join us and discuss this po nil tie up is Max Neeson, biotech, pharma and healthcare columnist and Tara La Chapelle, deal's columnist, both of Bloomberg gad Fly. They both write fabulous columns. Read them. Uh, Tara. I want to start with you because you cover the M and A market on a more broad level, and I'm

wondering how concentrated has the healthcare specific deals been. I mean, in other words, how massive has the wave been this year? I want to set this up that way. Yeah, I mean it started with CVS Etna back in December. Really surprising deal, um, And it makes sense for strategic reasons which we've been writing. But the finances are what's so jarring. And now that we're seeing other companies explore similar really

large mega deals, a lot of debt involved. Um, it's a little bit of cause for concerning you know, you have to question where what is behind this M and A wave and in the end is it going to be better for shareholders and for these companies. So Max, that raises the question of Humana and Walmart, and you know I oppose that to you. Do you think that this deal makes sense? Um? I think it does in in in a number of different ways. For one, Human

is pretty heavily concentrated on the medicare market. That's a good overlap with the kind of Walmart's core customer base. They already have a partnership for Medicare, prescription drug programs, so they know how to work to each other with each other, and um, you know, Walmart. Anything they can do to kind of drive store traffic, whether it's by driving human and releas to clinics or making sure they

use their pharmacies building their pharmacy business, that's also their benefit. Um. The question is, you know, whether they can actually drive the full amount of that benefit, considering they're kind of relative lack of experience and healthcare and managing and early

health um. And also the fact that you know Astarmagine this is you know, the third in a in a line of deals, and these deals themselves come come on the heels of you know, United Health having spent almost a decade kind of following this integrated insurer provider model. So everyone's sort of playing catch up, and it's a question if they'll they'll all be able to do it well and do it profitably. At the same time, Max am I just sort of getting stuck on this idea

that this is not a healthcare company. Humanity is an insurance company. They are a healthcare ensure but they do not provide any of the healthcare that we're talking about is that accurate um, they actually have to do some role. I mean pretty much any insure is actively managing the care.

No I understand that, but I mean they do not employ the doctors, the nurses, the pharmacists, or they're looking to employ more human as a separate deal with I believe, like a home hospical and and they've been doing some investments that they have a having investment in care coordinators to which kind of actively work to to keep people out of the emergency rooms and things like that. So this would be an opportunity for them to, you know, should this combination go forward to play more of a

role in care provision. Well, Walmart's clinic press since being kind of the potential avenue, you'd imagine they'd invest heavily in that if they go through with steal Tara. I'm struck by the fact that Walmart shares are down more than three percent. Well Humanity shares are up more than five percent. Market seems to be judging this is a

boon for Humana and a possible bust for Walmart. True, although we've gotten used to seeing a choirer shares rise on emany news, but traditionally the acchoire is supposed to fall. It's the way you know merger are but typically work. So it's not super unusual to see Walmart down, but it is a sign that perhaps UM shareholders a little bit worried about this deal. Again, it's not a super

obvious fit, but it does make senses. Max explained for Walmart to do this, and you can see, you know, with the Amazon threat there why they would go this route. But also I would look at if you consider the CVS Etna deal and the signa express script steal in comparison to this possible transaction between Walmart and Humanity, this one would be a lot more financially healthy Walmart starting with a pristine balance sheet, They've got you know, investment

greeting that's the tops for the industry. They really have a lot of room to do something this size if they wanted to. It wouldn't be as disconcerting as CBS at now, where you know they're taking on a whole lot of leverage for something that's a little bit outside their wheelhouse. In this case, I mean, the deal would be a creative and it really wouldn't do a whole lot to leverage. But why humanimax. Um, well human. I think it's some combination of the customer overlap and fit

the prior relationship and just a size thing here. Um. You know, the the only big ensure left standing, uh, other than Human is is Anthem, which is a much bigger mouthful, and they're much more focused on sort of the corporate market, which would be a little bit trickier for Walmart. Um, this one, you know, it doesn't quite have that kind of potential conflict of interest. And also, um, it's just a more bite sized way of getting into

this market. And I think the thing that doesn't get mentioned quite as much is it's also an opportunity for Walmart and more aggressively or more in you know, more in house manner. Man need the healthcare of their one point five million US employees. They already do, um some of some care abirds sing on their own yourself insured, but this would be a way to take that entirely in house. Tara la Chappelle, can you do twenty seconds on CBS viacom just give us an update. Sure, it

sounds like those talks are progressing and as expected. I think that that deal we'll see that at sometime next quarter um. It makes a whole lot of sense ZBS and Viacom to TV network operators that need more scale in this environment as all the distributors have emerging, So it makes sense for these guys to get back together potentially.

Thank you both very much. Tara La Chapelle our deal's columnist for Bloomberg Gadfly, and you can follow Tara on Twitter at Tara la c H. So that's t A r A l A c H. And Max Neisson, our Gadfly columnst for all things biotech, pharmaceutical and healthcare, and you can follow him on Twitter at Max Neson N I S E N. I've already had three cups of coffee today, and I'm a little bit concerned about what that might mean from my body, not only just with respect to being too hyped up, but perhaps what it

has to do with cancer. Here to discuss this issue, Jennifer bratashs she covers the US retail sector for with staples and restaurants being her focus for Bloomberg Intelligence. John, thank you so much for being with us. There was a court ruling in California basically forcing Starbucks and some others to reveal some connection between cancer and coffee. Please explain,

good morning and thanks thanks for having me so. So, Yes, there was a lawsuit that was filed by a nonprofit organization that counsels for education and research on toxins UM, and our judgment was was given earlier this week, UM from the superior court judge who ruled that UM, these these coffee companies and other retailers that sell coffee in their stores UM may have to show or disclose that there's a potential cancer risk UM from one of the

chemicals that is a byproduct of the roasting processing coffee. UM, and that that's the chemical acrylamide. So is this something that would actually have an effect on Starbucks? Is roasting process? I mean, could they switch to something else? Um? Actually, it's a it's a chemical process that happens when beans are roasted. UM. It's not unique to coffee. It also happens UM with other foods when they're cooked at a high temperature. So French fries would be another example, or

potato chips. UM. So it's a fairly common byproduct of that process. UM. Within the roasting process, UM, there are variations. So darker roasts actually have less of this chemical in them than the lighter roasts. UM. And certain bean types have less than others. So the Arabica beans actually have

slightly less than other varieties. But both of those things are actually probably a little bit better for Starbucks within the context of the situation, Jen, where where where are the studies that have looked into this and sort of how they have they actually drawn links between you know, cancer incidences and coffee drinkage. Yeah, so so you know, there's a there's a lot of of interest in the link between coffee and cancer, and you find results of

studies looking at in both directions. UM. But at the moment, the most clarity that we have is that you know, in the dietary guidelines for Americans from the u s d A, if they still say that up to five cups of coffee a day is okay for Americans, UM. The World Health Organization does not lift coffee on its

carcinogen list UM. And so the the the concerns are have been really sighted coming from studies where the levels were higher in animal tests that we're done UM, and that was with acrylomide that was in their drinking water. So it wasn't directly coming out of coffee and it was slightly different. UM. And of course there are on

the other side of the equation. You have a lot of studies that say that they're actually benefits UM of drinking coffee because it contains antioxidants which protect the body against free radicals, and that it can actually help prevent um some types of cancer. UM. But there's no clear answer from either side UM on this topic at this

point in time. And I would imagine what that because of California's presence in the coffee market in terms of consumers, it would make it difficult to just tailor packaging with warning labels that are just specific to stores in California. That's correct, UM. And so if you if you look at Starbucks is the largest defendant in this case, about of their total store base is located in California. UM.

And right now there are ninety different companies. I think part of the suit a handful of them have actually already settled. One of the potential outcomes is that they don't need to actually put the label on the coffee cup itself. UM. You know, like like you would see a cigarette package with the warning label, but rather post

warning in stores on a poster or on lineage. UM. And if that's the case, then it becomes a little bit more manageable for these companies than having to have a separate supply of cups that are branded you know or you know, or have this warning label on them. Just in California, I imagine that it could potentially dent sales, though people don't really want to see a skull and

crossbones on their coffee, very true. Um, you know, it's it's in all honesty, you know, because because anytime there's something between coffee and cancer and the news, I think most people have some kind of of sense that you know that it may not be the best for you. It's probably not the worst thing that most people put in their bodies. Um. So my guess is that it is unlikely to have a major impact on that first morning cup of coffee. But where you could see it

show up is in other parts of the day. People may decide to forego a second cup in the afternoon or or you know, or replace that with something else. Um. And more of a greater concern is that, you know, one of the things with this this lawsuit, they're they're actually asking four fines as much as each person who has been exposed to the chemical since two thousand and

two in California, UM. And if that actually happens, then you could be talking about, you know, a potential of hundreds of millions in fines that these companies may have to pay. All the shares of Starbucks they are lower right now by a little bit more than two percent. Our thanks to Jennifer bartashers are a senior analyst for US Retail Staples and Restaurants for all things are related to Bloomberg Intelligence. Much appreciated. Thanks for listening to the

Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramoids one. Before the podcast, you can always catch us worldwide on Bloomberg Radio