Tesla Growth Story May Be Shifting To Solvency Story

the first time in more than two years. A former Tesla bulla said that Frankly, Elon Musk faces code read Joining us now is David Coudla, his chief executive officer in chief investment strategist at Mainstay Capital Management. I want to start with Tesla just to get your sense. Do you think right now that Tesla faces a tipping point where we really are going to see the shares going to free fall. I think they're already in free fall.

Good morning. I think that, uh, you know, there's a couple of factors impacting the stock right now that have caused really a precipitous free fault from the two sixty seven level that that it was holding at several weeks ago. But the you know, when they came out with the kind of pull out all the stops cost cutting plan, that was kind of the code read condition. I think that the web Bush Securities uh letter or report referred to and and it's uh, it's I think that we're

really just seeing the story continue to unravel. Uh, it's more than just the demand uh that continues to demand diminish for all models of the of Tesla vehicles that we talked about earlier this year. We're just we're just seeing that, you know, the liquidity and solvency issues, you know, coming back to the floor. So, David, are you of the opinion that Tesla is going to need to come

back for more capital, maybe sooner rather than later. Well, you know they just did, right, they just had become in addition to that two point three billion that they just read, they say that's going to get into free cash flow positive. Are you in that park? Are you in that uh? Do you think that's correct? Or do you think they're gonna have to even come back again? Well,

they probably will. You know, there's there's the school of thought out there that uh, they may they may be, if they may be constantly coming back to the capital markets to stay in business, if they can't build and sell enough vehicles to to achieve profitability, and that's the real question at this point. We question if they'll have a profitable quarter anytime this year and if if they

can't achieve profitability at some point. Um, you know, it's not about a growth story anymore, it's about a solvency story. Tesla shares are currently down four point six per cent, so off the earlier lows, but still a pretty pretty rough day, especially after Friday's decline of seven point six percent. I want to shift gears to Ford because they announced that they were cutting seven thousand jobs in order to right size its business model or basically cut some of

its management trim costs to increase profitability. Does this cause a surprise, especially given the fact that this is part of the restructuring announcements that they made last fall. No, not at all. It's it's interesting, Um, you know, we we had last fall a big announcement by General Motors of what was coming when they had their head count reduction. We didn't have that out of Ford. We had they had UM made reference to it, but we didn't have

the detail. But that has been an evolutionary process. We've been talking about this with clients for months and working with our ants. It started at the highest tiers of management, uh several months ago, and they've been working through each each of the tiers of management down to the rank and file workers in the in the salary workforce. And

we're actually now in the final stretch of that. Uh. You know, when this letter came out from Jim Hackett, when we've seen all the details as part of their global restructuring plan, you know, a multi year plan uh two of globally restructuring the corporation that in that seven

thousand jobs cut globally, those in North America. Uh, some of those already accomplished fifteen hundred through the voluntary buyouts last year, and now these layoffs that have been happening through through this year already really really now it's just now we're hearing this big announcement of five hundred people that will be notified tomorrow. But this has been an

evolutionary process that's been ha for months. So David, you know, there's only and there's obviously I'm sure a fair amount of costs that can be cut across you know, the global auto industry. But at some point they're gonna have to really start driving top line growth. Where do you think growth for Ford and maybe for GM can come from. Is it simply new products or do they have to go to new markets? Do you see a top line growth story for Ford? I think there is a top

line growth story. I think that they've demonstrated that they continue to do well in the legacy business, and we we separate the business now the auto industry into two, the legacy business and the future of mobility and the legacy business of crossovers SUVs. In in the segments of crossovers, SUVs, trucks, they've done very well UH this year and their stock price reflects that with the gains in Ford stock in teen.

It's been an outperformer in the UH in the segment and relatively S and P five, it's been a tremendous performer. And if we look at, you know, what's coming in addition to this global restructuring, what's coming in terms of autonomous UH, their UH, their investment in riviewing, their investment in their own investments and autonomous and some of the partnerships that they're working with Toxic UH, other automakers we're seeing.

We're seeing that the some vision, that strategic vision out Afford UH and Auto two point out that we think the growth is there as they shore up their operations around the world for profitability and that davidising Business David Goodla, thank you so much for being with us, chief executive officer and chief investment strategistic mainstay Capital Management. Let's turn our focus to Deutsche Bank shares now at an all

time record low. UH. There are a lot of reasons why people downgrading their profitability forecasts, the Commerce bank tie up that failed, but there also are some regulatory issues, money laundering concerns, management issues with how these issues are treated. And joining us here is Elliot Stein. He's senior litigation

analyst for Bloomberg Intelligence. So Elliott I want to start with his New York Times story outlining how there were some bank who are tasked with the anti bank staff, who are tasked with the anti money laundering responsibilities, that flagged suspicious transactions related to President Trump and his son in law Jared Kushner, and that senior management didn't take

them up on it. What did you make of the story. So, I think it's important to remember the context here in Deutsche Bank has been under cloud of money laundering investigations for a while. UM. They settled in seen with the New York Department Financial Services and the Federal Reserve over

money launder issues, including transactions in Russia. UM. But what's interesting is that they did not settle with the Justice Department at that time, and so when that happened, UM, we expected that there would be continued investigations by d o J and ultimately settlements or fines at some point.

What's happening now is that every time you see more links between Deutsche Bank and Trump related investigations, it adds a further cloud to those ongoing investigations, and as we saw the market react today, it adds to the headline risk for the bank. So what is the materiality in your perspective of some of these continuing money laundering issues

for the company. Well, so overall, we based on their UM find the amount of their fins in tween UM and UM when they settled UH investigations related to sanctions violations which are similar but not exactly the same, we expect their ultimate UM exposure at this point to be to a billion dollars based on the amounts they paid to New York authorities. And we looked at um how much d J settlements usually are as a ratio compared to the New York settlements. Um, it could be a

little lower than that. But you know, there's additional materiality going to your question, Paul, Um, if management in the bank intentionally suppressed suspicious activity reports because they wanted to keep Donald Trump's business, it does raise questions of intentionality. Um and uh, that could make an ultimate penalty worse. Just to put this in perspective, because you bring some really interesting insights here, the idea that the d o J did not sign off on an anti money laundering

type of settlement with Deutsche Bank. How long has this gone on and when do people expect that to wrap up? Well, that's a great question, and as with almost all d o J investigations, you never really know what the timeline is because there's just not a lot of transparency. So I'm a little surprised that it's been going on for

this long. I do think that maybe the Trump related investigations add a complication to these investigations that we haven't seen in you know, ever before when you have the president, um as part of these probes as well. UM, So we don't have a firm timeline. UM. So unfortunately I can't give you a better answer. So what's what's been the response from Deutsche Bank? It just seems like it's

been years and years. I mean, you know, do they have any specific response to the latest allegations or is it just like we're trying to get our house in order. You know, yeah, I know a lot of it is that, and that they have taken remediation measures UM, and they've bolstered their compliance UM procedures. Uh. Their response in the New York Times article was that, UM, no person was

ever restricted from escalating the issue. Further, of course, that doesn't necessarily absolve them if management decided to suppress the s a R S for nefarious reasons. We should just note that President Trump did tweet about the story this morning, uh, saying basically that it is fake news and talking about

how the mainstream media is the true enemy of the people. Uh. So he was just saying, you know, the failing New York Times keep writing phony stories about how I didn't use money banks because they didn't want to do business with me. Wrong, it is because I didn't need money very old. So he is coming out against it. Just real quick, just your real quick here, Elliot. I'm wondering from your perspective, do you actually think that the shares are falling in light of this story or is it

other issues? Well? I think there are multiple issues going on in the news. Um. You you alluded to some of them at the outset um. But I do think that every time you see these stories surface about Deutsche banks money laundering risks, it reminds the market that these issues are still outstanding, that we still expect a pecuniary fine at some point, and that there may be ongoing issues.

Elliot Stein, thank you so much for joining us. Ellie is a senior litigation animals for Bloomberg Intelligence, joining us here in our Bloomberg eleven three oh studio. Well, we saw it beyond meat. The fact that there shares absolutely skyrocketed more than doubling after the initial public offering recently, it just shows how much demand there is for alternative food sources, for new ways to think about what we

eat and how we eat. Joining us now is someone who invests in early stage companies that are trying to rethink the food that we eat here in America and worldwide. Jordan Gasper, she's managing partner of Excel Foods based in New York. Jordan, thank you so much for joining us here in a Bloomberg Interactive broker Studios. So why don't you just tell us what kinds of companies you actually

invest in? Great, thank you so much for having me. UM. So we are a venture fund that's solely investment package food and beverage brands that are better for you, so all healthy living directed brands. UM. We have thirty six active portfolio companies and we typically invest in eight to ten new companies a year, and we can participate as

those companies raise capital many times over as they grown. UM. The companies range in size from pre revenue to over a hundred million revenue UM and so it's a wide range of the different types of companies that we see. UM. All of them are available in distribution. They can be purchased at Whole Foods or car Toss Costco or Target or Walmart UM. But all of the usual places that

we would hope to see great products like this. So what's maybe one of the cool one or two companies that you think is really kind of a unique story in your portfolio. Family Foods. You know, it's a company that's a Mexican American brand that has come up very quickly in the space. UM. It's a family owned company that recently took in its first investors. UM. We're very proud to be part of the company, and they really have an authentic story as they're creating the next generation

of Latin foods. UM. And we think about, you know, products like chips and tortillas and taco shells. We haven't seen that much innovation in those categories. And so here we have grain free chips, we have dairy free casos, we have grain free taco shells. It's a totally different spin on what are staples that are in all of our diets. One thing that you were just saying off air was that those processed foods and the foods that we grew up with are not going to exist in

the near future. What do you mean by that? So I think that it's important to understand that there's two different types of changes that are happening simultaneously in the space. The first is is we have a huge amount of authentic young brands that are coming into the space very quickly and scaling, and they're they're the the companies that are securing the shelf space at the major retailers. So those are you know, young brands that are telling different

stories and have unique products. On the flip side, the incumbents are reformulating their holdings and so we're seeing the organic version of this or the better for you version of that, and their substitutions and the basic ingredients that processed foods are coming out as we're seeing um, you know, sort of better quality ingredients substituted. So you're talking about the cokes, the pepsis the proctor gamble is whoever creates

food and puts it out their craft craft highs. You said also that some of the end games for some of these companies that you invest in might be acquisitions by some of these larger companies. How quickly is that happening, because it seems like right now there's still are a lot of processes, there's still are a lot of foods that you know, are familiar from ten twenty years ago still on the shelves. So it's happening very quickly. UM, and I think that from our perspective, our hope is

is that all of our companies get acquired. So I'd say that, you know it, there's been more capital direct into the space than ever before. You know, we've seen a lot of institutional capital coming very quickly, which is a good sign that will have more and more brands that will grow larger because they'll have this sufficient capital to do so. UM. The strategics are more inquisitive, they

are more excited and interested in partnering with young brands. UM. We certainly hear from most of them, and they all know let us know that they're excited to get involved in the space with earlier stage companies in a variety of different ways, whether it be funding them, acquiring them, or operationally assisting them. There's been the launch of many of these accelerator programs UM the venture capital arms. But there's also behind the scenes, there's the use of their resources,

which is something that's pretty unique. And so some of these strategics will say, I've got trucks that can be used for distribution, or i have line time and manufacturing that can be used. So they're getting creative because they recognize that that the future of their businesses is in these young brands. Are there any food or maybe what's the next food category, or are there any food categories

that haven't really innovated that we're there. You know, there's no new products, there's nothing there that you kind of think it might be interesting that it may be kind of approaching your firm for funding. UM. So we're big, big believers in grain free right now. It's the next evolution of gluten free and obviously the nutritional panel is just better for you UM, particularly in baked goods. UM. One of the things that you know, we've been excited

about is, you know, baked goods have been pretty stale. UM.

They haven't been good for you. I'm highly processed a lot of sugar, and we're seeing companies like Susie's, which is one of our portfolio companies that actually is a more paleo minded product, but it's almond based and so the panels actually clean UM and you know, there's better quality ingredients, more mindfulness in it, and so it's reflected and even in the way that the product has to be distributed, it's a frozen product because the ingredients aren't

able to sit on shell for many, many weeks. Is this a regional issue? In other words, are these products being adopted on the coasts and then everywhere else in the United States? Not so much. I would have said that a couple of years ago. But if we look at one of our companies, Alpha Foods, which is our own plant protein company UM they launched last year as their first year, and all of the major retailers came in quickly, so it was Walmart, Target, Costco, Kroger, and

it was all at once. So we saw mass and conventional move faster and natural then fascinating story. It's not just the uh the I p O of beyond meat, it's kind of all across the food spectrum and lots of cattle being allocated to that. Jordan Gaspar thank you so much for joining us. Jordan's managing partner of US Sell Foods based here in New York City, joining us

in our Bloomberg Interactive Broker studio. Well. As a trade war escalates and terrorists flight back and forth between China and the US, China's textile industry looks particularly vulnerable, as the US is its biggest buyer. To get a sense of how big a deal this possibly could be. We welcome our next guest, Edward Hertzman. Word is the founder and president of Sourcing Journal, based here in New York City. He joins us in our Bloomberg Interactive Broker studio. Edward,

thanks for joining us. When I think terrorifts on clothes and apparel, I'm thinking this is a big deal potentially. Yeah. I don't think anyone really realizes how um significant this can be. Too. Already a very fragile industry. Um, you're talking about when when we look at China, Uh, it accounts for almost fort of the exports of clothing, almost seventy of the exports for footwear, and and roughly around

the exports for accessories coming into this country. So you're talking a lot of product made by a lot of retailers, which there isn't really a lot of places for people to go in a short you know, in a short period of time to mitigate this risk. So, um, this is going to have a real big impact Q three in Q four if it does happen. So how how big of an impact? I mean, how how substantial will the tariffs essentially be and how much will they be

unable to pass on? To consumers. Well, if we look at it, we're just talking about top line, right, we're adding to the product coming into the country. Um. A lot of the orders for back to school and holiday have already been placed, so the wholesales and the retailers already have margin in mind that they're playing with. To add on that is something that the industry doesn't even have to work with. So the question is who can absorb some of it in the short term? Who could

who's gonna have to pass it along. I mean you already have retailers like Walmart saying hey, we're gonna have to increase prices on things like furniture because that that just got hit. Um. I think the more price sensitive you are, the more of an impact that's going to have in the short term because you just don't have the margin to play with. And I think that the

idea that we have these alternative sourcing destinations. Yes, we're going to see a migration to Vietnam, we're going to see more people going to places like India, Indonesia, Bangladesh. But let's not forget they're not foolish either. They only have so much capacity and with that comes and baked in inflation because there's gonna be a rush to go there.

And a year ago, you know, we had the same conversation although nothing happened, people already started migrating, but a year over year still we're talking about very, very small percentage of migration out of China. And the the issue is that we've we've come to a period of time where people have stopped chasing the cheapest needle and they're now chasing the smartest needle. Because the conversation is kind of migrated to speed and flexibility and lowering inventory, which

China is really the perfect place to be. So if we start moving to countries like Bangladesh, while we may save money, we lose the flexibility and quick turn replenishment. So there's a lot of factors that are gonna that are gonna hurt this industry. So give us a sense of kind of where we are with these tariffs here, that these are proposed tariffs coming up and we don't even know what retail goods are, which clothing and apparel

goods will potentially be subject to these terroriforts. Correct, Yeah, So the you know, the technical term the tranche for if this goes into effect to technically hit all the remaining imports from from China, and included in that list would be apparel, footwear, and some textiles. Um, So in that case, it would be you know, all the products that we're talking about right now. Um, the point you made is it's suggested that this will come up in

the summer. If it does pass, it will probably hit around Labor Day and so the goods that are coming into the country around that time will be affected. We're hoping, you know, that this is posturing. Um, we're in a situation where, uh, you know, I'm not a political analyst, so I can't say for sure, but the economy still

is showing strong signs of things are pretty positive. Why does he want to mess around and create a global you know, trade war which will negatively negatively impact the economy. So some people are hoping that somehow this will be resolved before the summertime. A lot of people are pricing that in currently to markets certainly that it will be resolved at some point before this goes into effect. I'm just wondering which areas of retail are the most price sensitive,

because you were talking about how that matters here. Well, obviously, you know, when you talk about you know, commodity goods, UM, things that are well, first we talk about like perishable goods, things like that that that don't have a long life life sheelf that have to be replenished quickly. Um. You know, when you talk about retailers that are selling things for you can imagine what impact of that would be. And the consumers that are purchasing from there don't have a

lot of discretionary income. Some of the luxury retailers are concerned that when things like this happen, it trickles down right, so you go from luxury to aspirational luxury, aspirational luxury down to the mid stream you know, you know, mid tier, mid tier down to you know, off price and discount. So it could potentially hit every single facet of retail.

And then when it when you're talking about discretionary uh income and discretionary products, um, these are tend to be the things that are affected uh first when it comes to purchasing decisions. Well, it's interesting we did hear Walmart in the last quarterly earnings talk about, you know, suggesting that there might be some some issue with terms of

raising prices and inflation. What is your sense of how much just real quickly the you think that the consumer will have to bear if in fact this does go through. I think what the retailers are saying is that in the short term they're going to try to work um, They're gonna try to work through it. Um. But that's just a short term solution. So some people what they're going to do, whether that's the right or wrong decision, is they're going to try to maybe UM, move some

goods in pre labor day and try to that. This is what happened before G twenty, a lot of people started airing goods in and hoping that it would um avoid the increased tariffs. Now the problem there is again it's counterintuitive to keeping your inventory levels low. UM. But these are only short term solutions. I mean, you're gonna see anywhere from a ten to twenty pc increase at retail, depending on the on the product. Edward Hurtsman, thank you

so much for being with us. Thank you. Edward Hertzman is founder and president of Sourcing Journal, based in New York. This is one of the the biggest trade publication catering to the sourcing, apparel and textile industry. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa A. Bram Wits. I'm on Twitter at Lisa Bramwoits.

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