Tesla May Have Much Less Cash Than Reported: Johnson (Podcast)

I think they're probably best characterized as a mixed bag, but there was drama on the conference call, as are typically as with Tesla when it was announced that the CFO surprisingly is going to depart. The company of stockers down about one percent this morning and trading joining us a kind of dig through what's going on with Tesla is Gordon Johnson. Gordon is a managing director research channels covering alternative energy, metals and mining and equipment from Vertical Group.

He joins us in our Bloomberg Interactive Broker Studios here in New York. Gordon, thanks for joining us. Let me just start with the c f O news. It just seems like I just remember him coming back for a second stint. The CFO and now he's leaving. What's going on? Right? So I think that when you combine with the CFO leaving, which was unexpected um, you've had four vice presidents of finance leave since seventeen. You have the chief accounting officer at Tessa leave um with just a month on the

job unexpectedly um. And now you have the CFO leaving and effectively the new CFO was just promoted to vice president in December and has no specific accounting experience. I think this is a huge loss of institutional knowledge UM and a concern again given the finance departures we've seen

at Tesla more recently. So Gordon, you're you're a longtime Tesla beer right and you are you maintain a seventy two dollar pre share price target, which is a huge decline from where we are today, and you said you would be aggressively adding to any Tesla short positions here. Correct, bondom markets don't agree with you because the bonds are actually going up and usually the bottom markets is a

smart money. Why are they wrong? Right? So? I think the reason they're wrong is because Tesla reported a hash balance of three point seven billion. However, if you look at their interest income in the quarter, and divided by that cash balance, you get an annualized return of roughly eight or point eight percent, whereas in the in the fourth quarter, the three year Treasury bill returned two point

six percent. So, either they're the most inefficient managers of cash we've ever seen, which I think is highly unlikely. Are their cash balance is significantly less than what they're reporting. So I think that's why the bond investors are reacting um uh positively, but we're still quite concerned they're not going to be able to pay off that that convertible uh in March. Okay, hold on a second. So you're saying that they're they're massaging the numbers. Is that the idea.

I don't want to say they're pressaging the numbers, but I think what they do is they delay paying their suppliers until days after the quarter to allow them to report a cash balance UM at the end of the quarter that is much higher than the average cash balance. And you can see this in Q three, Q two, Q one UM and and it hasn't always been the case.

So um Again, Either they're the worst managers of cash, worse than you know, a retail investor who could just park their money in three month treasury bills or their cash balance is significantly less than what they're reporting. We think it's the latter that sounds a little bit like massaging in the numbers to me, UM, I think, let's let's move. So how about the underlying fundamentals? Um, is you know what did you see in the quarter last night? Uh?

To give you a sense that you know, they are remain challenged to meet some of their either the product production goals and or profit goals. Right, So keep in mind, we just updated our bottom up model and we projected a gap EPs number of seventy nine. Since they came in at seventy eight, the street was out of over a dollar. Think about this. Tesla built three years of backlog via the Model three, and like the Sports Illustrated article said today, it was a bait and switch strategy.

They said it was gonna be twenty seven and a half thousand dollars be fully autonomous. I mean you could literally crawl on the back, sleep and drive coast to coast and you're gonna have free supercharging. None of that's true. The car costs fifty five thousand dollars out the gate um. Clearly, I don't think anybody in their right mind is going to allow Tesla to drive them around without paying attention. There's been fifty two deaths reported either associated indirectly or

directly with Tesla, and clearly the supercharging costs money. So what they did in Q three is they took that huge mode of backlog and basically in Q three and four sold cars to the best part of that backlog, i e. The guys who are willing to pay the most. So if you look to what they're guiding for next year, for this year rather twenty nineteen, they're saying three hundred

and sixty to four hundred thousand cars sold. If you look at their Q four deliveries, multiply that by four and use the low end of that guidance, they're actually guiding cells unit cells down in twenty nineteen, despite the fact that on Q four numbers they're trading out a ninety times forward e PE multiple when other car companies traded six to five six, five to six times. We think there's big risk in the in in the stock. Certainly, I think most would agree with you that there's big

risk in the stock, just based on how much. It's been swinging around. But Gordon, I'm wondering, let's say Tesla is able to pay off its convertible bond. Uh is your pieces wrong? I mean, is that is that going to be enough of prolonging any sort of liquidity event that Tesla can keep on going trying to make it work. No, I mean everybody says if they're able to raise debt, you know that's gonna be great for the stock. Look,

they burn a lot of money. Um keep in mind in in in the fourth quarter they had huge demand pool in the United States because their tax credit got cut in half one one nineteen in in in the Netherlands, right, European cells of Tesla and ten were up six percent if you assume that that's because Netherlands cells were up a hundred and fifty eight percent. Germany was down forty, Spain was down like roughly twenty, the UK was down

roughly thirty. The point is the Netherlands had a big tax in centive for for Tesla cars that got cut January one. We think Netherlands cells are gonna be down eight percent in Q one. So the point is they've had a big benefit in Q four that benefit is over UM. I think they're guiding to huge decline. We think the street numbers for Q one on revenue are roughly one point five billion too high given Tesla's guide and UM and you have real competition coming in in

the back half this year. So I think they go back into losing money in Q one. I think basically that's there, that's effectively their guidance. I think they lose more money in Q two and more money in Q three and four. UM. So if you give a company money who just perpetually burns cash, is that a good thing? I don't think so. So. I I just think their business model was floor I think Elon Musk's tried to change the way you manufacture cars from the car companies

that have done it before. It hasn't worked, and I think the costs are too high. I think they're gonna burn a lot of money this year. Gordon Johnson, thank you so much for being with us. Gordon Johnson, Managing director focused on Alternative Energy, Metals and Mining and Equipment UH spaces for the Vertical Group in New York, joining us here in our eleven three oh studios. Well, we

are right in the midst of tech earnings. We had Facebook last night, the blowout quarter, that stock is up, Microsoft that generally inline quarter stocks off a little bit today, and of course after the close tonight, we have Amazon. So to help us kind of way through all things tech, we have David Garrity joining us. David's the chief market strategist at laid Law and Company. He joins us in our Bloomberg eleven three oh studios. David, thank you for

joining us. Let's start with Facebook. Wow, what a quarter, I think. Uh, I guess it's just people saying, I guess this thing is not going to be rolled over by the regulators. Well, one would argue that there are signs of life in terms of Facebook, and one has to bear in mind also looking at the fourth quarter, like other online internet companies, there is a bump in the calendar year end um, and certainly they saw that, but clearly against the negative news slow scene over the

course of two thousand and eighteen. Um, you know, there are signs that people now think that there's alive and

well and all clear can be found on Facebook. But one has to consider the news that came out just recently within the last day or so that Apple had decided to basically remove Facebook from the Apple App Store, which brings up the basic point that while people may be concerned about public sector regulators, when it comes down to looking at the structure of the technology industry where you have companies like Facebook who depend upon others operating

system platforms, whether it's Android from Google or whether it's iOS from Apple, Facebook really is in a world that other people ship set the conditions for and from that standpoint, Facebook, for lack of a better term, has to depend on the kindness of strangers. Okay, can you just give us a sense of how important this really is. I mean, if Apple removes Facebook from its app store, can people not buy or not download the Facebook app on their iPhones?

Is that what this is basically saying. Or they just have to work a little harder to do so. People can still work a little bit harder go through their

web browsers. But the issue is if there are things that are made more difficult for consumers over time, it certainly serves to dampen adoption in that regard, and I would argue that if we start looking at what Apple has been saying in terms of the company's policy towards upholding individuals rights to data privacy is that the reason why they did this, certainly because what was happening in the case of Facebook is that they were essentially misusing the app store platform to go out and to pay

um Facebook subscribers or Facebook users, uh, you know, twenty dollars to basically take down all of their data. And this was not something that Apple had been made aware of when this was being put up on the Apple App Store. And again I would just go back and say that, you know, Tim cook out of the technology sector c e O S has been fairly straightforward and and an upright in regarding data privacy as being an

individual right. And certainly the company in its actions Apple is showing that they're going to be taking Facebook on in because you know, Jeff Zuckerberg on the earnings call last night seemed to suggest that after a year of hard work at the company and investment in personnel to monitor content and privacy see and investments in technology, that the company had in his mind, kind of turned the corner on what was a very difficult time for the company um and that they've gotten to handle on it

and they're ready to move forward and go back to being the innovative and focus on the business. Do you think the company has turned the corner from that regulatory overhang type of perspective. Well, I mean, those are wonderful comments that go into an earnings conference called script But when we start coming up against factors and it's here really more in the case of Apple. Not to sort of focus in too hard on this, but dealing with

public sector regulators is one thing. Obviously it takes time for them to act. That can be slow. But when you have a private sector partner, and I don't know to what extent you can really can say Apple is a partner, it just happens to be that Facebook is operating off of an iOS platform in part to get

to the subscriber base that Apple has. If a private sector company decides to act and clearly act quickly, this can be something that I think has far more negative impact potentially going down the road the necessar early something that might come out of the public sector. But don't diminish the fact that the public sector itself may be poised from the regulatory standpoint to impose significant finds relative

to Facebook. All right, so, David, it sounds like you have a lot of barishness around the edges about Facebook, and yet this is not reflected at all in the shares today. Shares of Facebook are up, they're surging, They're up at the biggest one day gains in January. So do you think that the shares should be much lower than where they are today or do you think that these are all just potential headwinds that investors need to be thinking about, even as UH they go full speed

into Facebook shares. And clearly, if you look back over the last two months, with the market having sold off going into Christmas, Facebook down a dollars was probably a bye going into the earnings, I would say that what we're seeing here with Facebook as a relief rally, if we go back and look at the high on the stock up of over to twenty back in July, UM, I would say that that's probably a level we're still not going to get back to. You know, clearly this

is a trade UH. And from that standpoint, I see Facebook is still being in a situation where they don't really control their own destiny given the operations and how they're structured depending upon these other technology platforms. I mean, just to raise an issue and segue over towards Amazon. If we start looking at Amazon having gone through and looked at various sectors to go into to basically take on advertising, advertising revenues for Amazon is a growth area.

And if Amazon has far better access to an insight into what consumers are actually doing, Amazon can sort of say, look, we respect people's privacy in terms of their data. We're not out basically stepping on all sorts of people's toes to get to that data. We can get through it with far less complication. They can go in and say, will provide you with the targeting that Facebook provides. I guess what, We'll do it at a better price. So you I'm glad you brought up Amazon. Of course, they

report earnings after the close tonight. One of the issues in the digital advertising space, one of the concerns I think for Madison Avenue and from big advertisers is that it's effectively a Dwopoli between Google and Facebook, and they've been dying for a third party, whether it's Snapchat or Twitter or whatever. And but now it appears that Amazon is really starting to focus on the advertising side of the business um and they're actually putting up a huge

growth rates and ad spending. Do you think that Amazon can in effect become that third major platform for advertisers in the digital space. I would say that Amazon, you know, has the potential to displace Facebook in terms of the significant role to be played in the online advertising market. And if I were a Facebook investor, I would certainly

be concerned about that. You know, Amazon clearly has a number of different channels for growth beyond their traditional retail, which clearly is going to benefit from the r end holiday shopping season. And certainly, if we look at cloud computing, Amazon web services the number one leading platform add on advertising relative to this, and certainly the prospects for Amazon I would say as an investment certainly superior, I would say on a relative basis to likes of a Facebook.

So just real quick on Amazon, what do you think is going to be the biggest surprise today? I think the biggest surprise may be very well continue to be sort of the growth that we've been seeing in terms of cloud services. I think the numbers we had out of Microsoft last night were very favorable in that regard, and this is certainly a transition that continues on a

secular basis. You know, granted some of the impact we saw with regards to Microsoft, as there might have been some slowing in terms of some of the data server activities things that had impacted Intel previously. But obviously, you know, Amazon is not exposed to that. David Garritty, always wonderful having you. Thank you so much for being with us. Thank you, David Garretty, of course, joining us here in our Bloomberg eleven three oh studio's chief market strategist for

laid Law and Company in New York. Facebook shares up thirteen percent on the heels of that revenue beat and frank earnings per share beat all around, giving people a sense of relief. As David said, there is a big question mark when it comes to Venezuela, and it's a huge oil reserves. When will it actually start to begin

pumping those reserves out and putting them into circulation. Joining us down to talk about this and its effect on global oil prices is Dr ellen Wald, President of Transversal Consulting, also a nonresident Senior Fellow at the Atlantic Council's Global Energy Center and contributor to Bloomberg Opinion. Uh. Dr ellen Wall, thank you so much for being with us. So let's start with the effect that so far the political turmoil in Venezuela has had an oil markets. It's sent the

price up. Does this make sense to you? It does make sense to me, because Venezuela's oil, even though right now Venezuela actually isn't producing all that much. I think it's numbers in December where something like one point one seven million barrels per day, which is very low for a country like Venezuela. But Venezuela produces a heavy sour crude type of crude oil that's very much in demand

and is not really being produced as much. Right now, we get a lot of light crude coming from the United States, and the refineries are really looking for the type of oil Venezuela produces, and that's probably why we're seeing oil prices rise just somewhat right now. Well, Dr Wald, Venezuela has one of the largest reserves on the planet, within roughly three billion barrels. Can they even get it out of the ground, Well, that is the big question.

And Venezuela's oil is actually much more difficult to extract than say, Saudi Arabia's oil. So even though Saudi Arabia doesn't have as quite as much oil as Venezuela. It produces a lot more. Their infrastructure is much better and it's much easier to extract. But Venezuela could be producing a lot more than it is. In fact, it's produced as much as over three million barrels per day, so it's really not living up to its potential. Now. The question is, right now, they're facing a lot of problems

with their infrastructure. Uh. There, people are are starving and unable to work, and the company is essentially failing. So say, uh, we got rid of all the political trouble and they got a new government that was really willing to support the company in what it needs. Just how fast could they ramp up production? And that is the question. I think that they actually could do a lot to get

that oil flowing very quickly. Perhaps not as much as as three million barrels a day, but they certainly could increase possibly almost to two and that would really help their economy get out of the terrible state it's in. So let's say there is resume change in the next couple of months. Let's say Huang Guido does take over Nicholas Maduro's force out of power. This is a huge conjecture. Obviously,

let's just say that that happens. If Venezuela could get their oil production back online, how much would that flood the market? What would that do to the price of oil? I think it would definitely push prices down. Um, you know, there's still part of OPEC, there's still as far as we know, you know, OPEC doesn't seem to have any intention to get rid of its production uh cuts right now.

But Venezuela is allowed to produce under that up to I think one point nine seven million barrels a day, and they really would do well to push themselves up to that limit if they can, as quickly as they can. So we definitely could see if if they did get that oil in the market, it would push prices down. So, Dr Wald, what role if any, do you think Russia and China are playing or can play in Venezuela. Um, whether it's on the political side or more about you know,

they are interest in the oil reserves in Venezuela. What role do you think they are playing and maybe could play going forward? Well, this this is a big question, and particularly with regards to Russia, because Russia's loaned them, loan them money, and in fact, Ross snaffed the run of the Russian oil companies actually has a lean on SITCO for its loan. So basically, if if PDVSAY does not pay the interest on its loans to Russia, then Russia can actually take control of forty nine nine percent

of the Citgo Refining Company in the United States. According to they hold that as collateral. Now, of course the question would be will the United States permit that. They do have measures they can take to say no, We're not going to allow that on national security grounds. But it really could uh bring this crisis almost into a US Russia issue as opposed to just of Venezuela Russia China issue. Now, China and Russia are definitely going to do all they can to support Venezuela. Uh, first, they

their money. They've loaned Venezuela money. They want Venezuela to pay that interest. If a new government comes into power, that government could say, you know what, those loans were made under the Madurou government and that government was illegitimate and so we're not going to pay you. So they definitely have a vested interest in keeping the Madurou government in power. Okay, just real quick here. I'm glad that you went there because that was going to be my

next question. Given the fact that China and Rush would like to see Nicholas Maduro remain in charge, how much does that make it unlikely that we do see a regime change. Well, I really think right now things are up in the air. It does seem unlikely given the fact that there have been attempts in the past and Maduro has uh you know, has rebuffed them. He does

seem to have control over the army. And really, when it comes to regime change, when it comes to revolution like this, it does seem that control over the army is can be a deciding factor. That being said, it's very difficult to predict revolution. Um, we did a very bad job of it in it with regard to Iran in so I don't want to say that it's not possible. Dr Ellen Wall, President Transversal Consulting, Thank you so much

for joining us. She is a nonresident fellow at the Atlantic Council's Global Energy Center and a contributor to Bloombergh Opinion. Thank you so much for joining us to discuss what is going on in Venezuela, and uh, you know the instability there on the political side, and what it means for their vast energy reserves. Again, over three million barrels in the ground in Venezuela, the largest reserve on the planet. Clearly a significant driver of global oil prices from a

supplied demand perspective. How is this going to play out politically? How is this going to play out? We will keep our watch. The official manufacturing data that came out of China overnight showed a bit of stabilization, but the numbers that we're getting out of Chinese companies are pretty bleak.

Just to give you a picture of the more than twenty four hundred mainland listed firms that have announced preliminary figures for their earnings were issued guidance this season, uh nearly four hundred of them said they'll post a loss. There has been disappointment after disappointment. Joining us now to talk about the Chinese economy and what we're learning about it is Leland Miller, chief executive of China Beige Book International,

joining us here in our Blue brig Interactive Broker Studios. Leland, I am so glad to have you here. What is The big takeaway for you as you passed through some of these numbers that we see from corporations, well, the big takeaway is that the numbers that markets are looking at buy and large for macro, the g d P numbers, some of the manufacturing p m I numbers look weak, but they don't look very weak and as a result, they're not reflective of what's actually happening across the Chinese

economy right now. There is not mild weakness. There's not the same weakness that you saw earlier in eighteen, which I think was relative be mode weakness. You have much more substantial weakness right now. And it's it's a problem because it's not being uh, it's not being understood by investors. They're just seeing the same trends continue. But but these are not the same trends there So Leland, I think

the market feels. I think the market probably would say it's probably discounting in certainly a slowing Chinese economy, and if they were to put a number on it in terms of GDP, it might be six or six and a half percent. Yes, that's down from ten. We recognize that we're trying to price that into our models. What do you think the real underlying growth of the Chinese economy is right now for the fourth quarter. I think

it's it's less than half that it's probably around two. Uh. You know, we we try and annualized, so so we so what we what we try to um. We try not to harp too much on the GDP number because GDP, of course doesn't tell most of the story. If you build a bridge, we tell the story at the time. If you build a bridge and then you tear it down, and you build a bridge again, you tear it down, you build a bridge tearer, you can get to whatever

GDP number you want. So it doesn't reflect restructuring and reform and other important parts of what the Chinese are doing. But the growth right now compared to what we saw earlier in seventeen substantially weaker. Uh. And so it's it's it's just it's the idea that it's just down a tick from six seven and down to six four. It's just it's it's it's a it's a lunacy. So is this analogous you Well, we've been seeing a lot of parallels.

So one of the things that we alerted clients to back in the fall was that the run up to en was looking a lot like the run up to Steen.

We were seeing a lot of the same problems. Uh, there was earlier in the year there was an official data that suggested that maybe things were weaker and they weren't, and people got a little bit more comfortable with the fact that that, uh, you know, our data earlier in ten actually showed that some of this official data which had you know, twenty year lows in retail or twenty year lows and investment whatever it was, Uh it was, it was not as it's not as bad, and so

earlier in the year, you you had a slowdown, but I'm not a substantial one, and I think it's been building up to that and the problems we're seeing right now. The last time we saw ch China Beige Book data this week was first quarter, So I think there's there's just a lot of parallels from from three years ago. So leveland as you talk to your clients and you you suggest that they don't focus too much on that g d P number because it can in fact be

manipulated by the government to a certain extent. What data is the best data to really look at to get a sense of what's going on in China and what influences your estimation of a two or two and a half GDP growth. So what we're working looking at very closely right now our credit data. Uh there's a belief now and this is it's well founded because this is the way China's works in the past, that they have downturns, but then they stimulate the economy, things get better, you know,

rinse and repeat. Well, the problem right now is that China has not been undergoing this credit starvation, this leveraging, this intense to leveraging for for as long as as people think. So what we've seen in the last three quarters is actually very heavy levels of borrowing from corporates. Now they have had a shut of finance crackdown, but you have seen some heavy levels of borrowing and that's not being understood. So you don't just have monetary stimulus

button you could turn on in early. They're already borrowing, but it's not leading to more investment, it's not helping growth. Given that, given the fact that we've seen this uh substantial weakness, as you've been saying, amid an elevated level of borrowing. How much more ammunition does China have to juice growth, well beyond what you think is a two percent annualized growth rate, well much less than I think

people think. And what we keep hearing over and over is that will they have fiscal stimulus, and you know they're about to do a tax cut that will make Donald Trump blush. And the reality of fiscal stimulus is that fiscal stimulus in China doesn't really mean fiscal stimuls.

They have never tried large scale fiscal stimulus. What happened in two thousand TED was hybrid monetary policy because what was happening was it was infrastructure bills and it was other things lending that came out through the state banks. It wasn't reflected in a higher budget deficit, was reflected in a higher monetary base. So you always have a monetary element to all everything they call fiscal. Now, corporations don't pay most of their taxes. S s don't pay

hardly any of their taxes. So the idea they could just cut taxes and have this massive stimulus. They can get a little bump for a quarter or two, but it's not the big it's not the big gun that they claim they have in the background. So what fiscal stimulus means, it's not really tax cuts, it means more fiscal spending. And then you get back to the monetary problem. So they're in a little bit of a difficult situation right now. They don't want to increase the monetary base.

But that's how that's the only way they know how is to is to is to expand credit and to build up infrastructure. Uh, and they're they're not getting much of return on it anymore. Okay, so this weaker than even maybe the market's discounting economic picture in China. How much is that influencing how you think China's approaching trade talks, not just the two days we're seeing here in Washington,

but just in general. Do you really believe that's pushing them and sending them to make a deal a real deal? Oh yeah, massively. It's well not a real deal. They're not gonna make a real deal because they're not being asked to make a real deal. So what they will They want to have a trade truth so they can focus inward and fix some of the problems that are

happening in the economy. Now, what what would really set things off is if these trade talks breakdown and you don't have a deal and Trump walks away from the table, and you have this layered on top of the current weakness, you will absolutely see a crisis in China. So just real quick, here a crisis in China. If that two percent growth rate is sustained in China, what does that mean for global markets? Not good things? I mean it's

all the obviously. So so basically, if you're looking at at demand from China being much much less and you're saying a trade war hit it overhead, um, you know this is China has been able to counteract the tariffs that have been put on it so far. You know, they've they've depreciated the currency until very recently, they've done subsidies to corporations that they're very good at this type of work. They can't counteract another tronche of two or

sixty seven billion of tariffs. They can't counteract tariff rates going up to on either this this has troncho the next one. So they would be uh in very very problematic situation if they were forced to try to deal with that on top of the already very low level of growth on top of the fact that the monetary stimulus isn't being kept in reserve the way they say it is. It's already being proven not very effective. Leland Miller, wonderful having you here. Thank you so much for being

with us. Leland Miller is chief executive officer of China Beige Book International, which does get an on the ground read of the Chinese economy. 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 abram Woy. It's I'm on Twitter at Lisa A. Bramwoit's one before the podcast. You can always catch us worldwide on Bloomberg Radio.