Tesla Provides No Answers On Model 3 Production Issues: Denning

explain all is Liam Denning. He is our energy, mining and commodities columnists for Bloomberg Gadfly, and you can of course follow him on Twitter at Liam Denning. All Right, Liam elon Musk manages to put his cherry red Tesla sports car into space aboard the Falcon Heavy rocket. But can he get those are all three automobiles into show rooms? Tell us the details? Hi him? Yeah? So obviously on on Tuesday everyone got very excited about the the Falcon

Heavy launch. The issue Tesla has is obviously it's great marketing to put a car into space, but what they really need is something a bit more mundane, which is a few hundred thousand Model three is just sitting on car lots in in the Bay Area. UM, they're still having problems getting production of the Model three up, and on last night's call UM they didn't give an answer to repeat repeated questions from analysts asking you know, so exactly how many are you churning out a week now.

They are keeping their targets, albeit with a caveat saying that you know, these are targets and history has known that we've struggled to meet them in the past. So it's still you know, there's still a lot of uncertasied over this question. And for a company that has UM but it's still burning cash, this is this is kind of the key question. Now, when can they get production

of the Model three really ramping? So Liam, last night I showed a video of that rocket Tesla, the SpaceX rocket shooting up to my eight year old son and he said, who's Elon Musk? What is this company? And I thought, you know, well, it's a car company, it's also a rocket company. It's also a tunnel company. It

also is a solar company. What is it focusing on and how is it's sort of allocating it's uh negative cash flow uh and its potential borrowings to it's it's it's endeavors that sort of give it the sheen of the future, right, I mean, do they give a sense of that. Well, you know, if you take a step back, it's clear that Tesla, you know, Tesla my fantastic products.

You know of the models, and if you you only have to look at what's happened to all the other carmakers in terms of how much money they're now putting into electrified vehicles to know that that Tesla has shifted the whole industry. It's basically scared them. Um, So there is that. The problem Tesla has is that while the products are generally favorably received and generate a lot of buzz, it's struggling to get it struggling to do what a lot of Silicon Valley companies have to do if they're

going to become profitable businesses. And that's the scale. So you know, Tesla's whole plan has been to sell some very highly priced luxury electric vehicles and then use that momentum and use some of the money from that to

their become a mass market player. And where it's struggling is to become a mass market player and the Model three is key to doing that, and thus far it's having real problems, um, getting to production levels you know that it originally talked about, which were like, you know,

five hundred thousand vehicles a year. I mean, right now, based on inside EV's estimates, it's looking like it's producing I don't know, somewhere between five hundred and a thousand a week, which is you know, really speed producing five thousand to ten thousand a week. Liam, Who's going to be doing all this because I basically been looking at the higher ranks of Tesla. John McNeil who joined in, he was the global sales ahead of global sales and service,

he's leaving. The former head of business development has left. Who is actually going to be doing all of this work? Um? I mean, I'm you know, Elon Musk is a capable guy, and Tesler does have a lot of brand eck with here out in out on the West coast, so you know, I'm sure they will attract whomever they need. But to

your point, it's just another ref flag. I mean, part of the problem with Tesla is it does have this mystique um and this cult like quality that means even you know, flipped results and and um, you know, terrible cash burn and miss tearnings and all that sort of thing doesn't really affect the stock price too much. But at the same time, there are a lot of red flags the management turnover, the missed targets. I would say

last year's Solar City deal looks very questionable to me. Um, you know this this is this is kind of the balance there. There is always plenty of fodder when Tesla reports results for both bulls and bears, which is why you see the stock not move a great deal even if the results for that are terrible. Yeah, Liam Denning, thank you so much for being with us. Liam Denning, Energy Mining and Commodities calmness with Bloomberg guard Fly. We've seen a market rise in benchmark US rates so far

this year. Have we just seen the beginning or is this the end? Can we expect this to sort of be the plateau for a couple of months as people reassess their expectations. Here to talk about that with us is Leo Groshowski, chief investment officer at b n y Melon Wealth Management, which oversees two eight billion dollars. He joins us here in our eleven three oh Studios, LEO, where are we with respect to the treasury yield rise? We do have another third year auction today at one

pm Eastern. Uh. There was a lot of weakness yesterday at the ten year auction. What sort of the ceiling for this cycle? Our best guests and at this point it's it's it's an educated guess. Um, we've got a range of three and a quarter percent on the upside for two thou eighteen, which we which we haven't changed, so that that was our range going into this year. We still think we could get to a three and

a quarter level. It just to be clear, So ten ure yields could go to three and a quarter and then stop, we think so we think so that's our best gut and again we're we're That seemed like a very barish call a while ago, but not as much this morning at So I'm amazed though, at the degree to which the market seems to think that three percent is sort of a magic number, and you know three percent would trigger decline in the equity market. I think

the market is recalibrating right. January was a recalibration for the equity market to higher earnings, and now we're seeing a market recalibrate to you know, forty basis point to fifty basis point increase in the ten year in the tenure yield. Okay, So if three is not the magic number, have we already passed it? I mean, what when does it start to matter how high treasury yields are with respect to the equity market performance? It always matters, But

it's what's driving the yield higher? Okay? So that the real driver for um PE multiples, particularly late stage equity market PE multiples inflation. Right, So I think the market is correct in focusing on inflation. But our work shows that if inflation is in a range of zero to two percent, a market multiple of just over eighteen times is allowable. If inflation moves up to two, to that range historically allowed by the market is still around seventeen

times earnings. So there is a gradual reduction in the PE multiple allowed by the market. As inflation begins to rise, all eyes focused on next week's CPI number. Right that that becomes a big number. Um, it looks like it's going to remain below two percent year over year. Um If we see that perk above two percent, we already have the ten uere break even tips at a two eleven. Right, that's up pretty significantly. I think directionally, you're already seeing

pe multiples get questioned. Now. The market today is trading at a multiple of seventeen point five times arreestimate for this year's earnings. The good news is all of this is happening in the midst of a very very powerful learnings reporting season. Right, we're about of the way through, and of the companies based on Bloomberg's work, right are reporting better than expected earnings last year. At this time that number was it looks like we're going to have

a fifteen percent year over your quarter. And the numbers that we put in place post tax reform for this year one five for the SMP operating this year are actually looking like they might be too conservative. So right now that's not been the focus. But the market's trading at a seventeen and a half times multiple on earnings this year that we think may turn out to be conservative. That's not cheap, but it's not overvalued. Leo, I wonder if you could just tell us about your day on Friday.

Where were you last Friday? When the when we s some loss two you know, in front of like many in front of screens looking at the employment numbers, right and feeling feeling the recalibration occur over good news potentially being bad news. What does that feel like to a professional such as yourself, You immediately fast forward to the clothes, right, Where where might this close? Where might this go? Because remember him, We've been coming off of an extraordinary period

of low volatility. I've talked I talked about throughout two thousand seventeen. It is not normal to have market returns of nearly with volatility. The VIX is now on the headlines every day. Right, last year, heads tilted when you talked about the VIX, and I had to put it in the context of one percent market moves. Last year, we had eight days in the entire year where the market closed up or down one percent. Right, We've more than had that already this year. So I think it's

about investor reaction. But I'm interested in your reaction because you know your pro and your behavior. You know the behavior of what pros their behavior. It can be different than non professional investors. And I'm wondering, what did you feel on Friday and then over the weekend when you came in on Monday and we saw that four pc drop in the SMP. What was going through your mind and what was happening? What kind of energy was there

in the in the office where you were. Well, Friday was a day of of sort of concern and watch right, Monday was a day of of action and overreaction. Right, and then we you quickly go into what what do we do about this? Right? And so Tuesday morning we quickly had a call with all of our clients and intermediaries, and we drew three to four times the normal audience for such a call. In mid December we had a

standard call outlook two thousand eighteen. Well, the call that we hastily arranged on Tuesday more drew more than three times the audience that we drew in mid December for a market outlook call. So there there's definitely a great deal of anxiety. We're looking at a market up three actually two from March nine of oh I through last night's close. There's a lot of profits to be had that investors don't want to see whither away. So what was the main concern? What was the main question? What

did you tell them? So much depends on where you're you know, if you haven't rebalanced a portfolio for a while, right, and you're you're probably still too overweight equities and this is a good wake up call and is it too late to sell? No, So hold on a second. So you actually did not say what everybody is saying out there based on uh Google searches. You didn't say by the dip, it's oh, it's like, where do you think the market's going? And you hate to answer questions with questions,

but where you what's your time horizon? If you're making acid allocation views on a twelve to eighteen month forward basis. One of our conclusions was we're closer to a buying opportunity than a selling opportun Broadly speaking, Okay, however, there's two point eight trillion dollars sitting on our nation's money market mutual funds, according to the Investment Company Institute, two point eight trillion. There are a lot of investors who

have been waiting for opportunities. Now, if you're waiting for ten or twenty our advice as you might not get there. And this was a sell off that had fundamental underpins but was exacerbated by technicals, and it did appear to

us on Tuesday, right to be getting overdone? Okay, so you use it as an entry point if you're sitting on cash, use it if you haven't rebalanced, though, and you have an equity target that after last year, right, you're you're up seventeen or eighteen percent above your target? Is it too late to rebalance and use what's happened this week as a wake up call? Absolutely not right?

So the yawns that one might normally get around diversification rebalancing, and I tell you I'm in front of clients a lot, and throughout last year, some of that gets gets the donkey nott and it's time to act. Thanks very much for being with us. Leo Groshowski. He is the chief investment officer for b N y Melon Wealth Management, helping to manage more than two hundred and thirty billion dollars.

You're driving along, you really feel like you could use a cup of coffee, and instead of going to your phone, you can just hit your dashboard and then go to a store and your coffee will be ready for you. That is a vision among some automakers. And Rick Ruskin joins us now. He's senior manager for online commerce at General Motors and he joins us here my phone to

talk about this program that started in December. So can you please explain to us what is this INCR e commerce platform and how has it been received since it was rolled out in December. Yeah, sure, good morning. So Marketplace is a first of its kind UH commerce platform that we've built specifically for on dash interactions and transactions

and GM vehicles, UM. And it really gives the connected driver, uh the opportunity for you know, that sort of connected experience with merchants and brands that they use and they love. So as you mentioned, think about ordering and paying for your morning cup of coffee with the tap of the dashboard, or reserving parking, reserving hotel room, were even reserving a table at t g I Fridays, again, all from the

dash So Rick, here's my question. I don't know if you use ways, but when I've ever used ways, which is a way to tell you the directions to get somewhere when you're driving, I'm always shocked by the number of Duncan donuts that are highlighted and advertised on the app. And I'm wondering, I imagine dalk pays Ways a lot of money for that advertising. And I'm wondering, from your perspective, do some of these uh stores, these brands pay you

to be more prominently advertised on the dashboard. Yeah. So first of all, it's uh, we we are a for profit companies, So we put together a business model that really works for GM and for our merchant partners. So think of it almost as a media platform the same way that weighs. You know, first and foremost is about navigation, but they're selling those media placements. We too, give our merchant partners an opportunity to you know, build those those experiences,

uh and have that presence on the dashboard. But then you know, like the advertising they buy in many different digital uh you know mediums were the same, and so they're looking for ways to connect with connected drivers. Rick, I just wonder if we could go through some of the technology partners that you have brought together for this so people can understand that it is a conglomeration of talent that is making this happen. UH Seattle area based Zvo.

Now that you've got a lot of veterans there from Microsoft and Amazon, tell us what ZVO is doing in this partnership yeah, absolutely so. Um, when you think about the ways that merchants can can bring their content onto the dashboard, what was really critical for us was to find what I'll call middleware technology partners that would have

that relationship with those merchant partners. They actually bring the content from the merchant partner temple at tize it and safely and securely bring it onto our dashboard in ways that have been sort of first designed and tested by our user experience and drive a workload teams. So rather than us having a direct relationship with each one of the merchants, were able to work with Zevo. Uh. And then there's a couple other partners Sonic Mobile down in

Atlanta and Conversible down in Texas, Austin, Texas. Right. Well, I wanted to get to that because the Zvo part of it's to be all about machine learning technology. What

does Conversible add to the picture. Well, so, first and foremost, you know, as you look at each one of those partners, Conversible was doing a lot of Alexis skill work and Facebook messenger work for various partners, and what they realized were there was that these A p I s, these uh, you know connections they had with the various merchants could

be applied in a very similar way to Marketplace. So what we look to them to do is to bring some of those relationships that they had already established to Marketplace. So that's where Conversible, very similarly to Zevo and or Psionic, are tapping into those existing relationships they have. I just want to talk about the experience of it. I mean, is there only a certain limited number of stores that you can access from your dashboard? Can you talk to your dashboard? Is it going to be like uh O

strider or is it all tapping? And how do you make sure that people don't get distracted? Yeah, well so a lot of great questions in that roll up. UM So first, um the um I've been working on this platform since day one, so as we started to develop a user experience and testing all, you know through our driver workload team, there is a very limited scope to the number of partners that you would see on the

dash at any given time. Then, uh, it's really important to understand this is not about establishing a first time relationship. This is about expanding a relationship that you might have already you know, created with a mobile app. So you know, Dunkin Donuts is one of our partners. I have a dunkin Donuts account. When I link that account to my dashboard, now I'm I'm seeing stuff that's familiar to me. I'm seeing my recents, my favorites. My payment method is already

on file with Duncan. So when I go in and I open up marketplace and I want to order that cup of coffee, well, look, I'm I'm performing one of the rituals I would in the morning. I'm ordering my favorite And it really is just a few taps on the dash to get it done, about as simple as changing the radio station. Well, you know what Lisa really wants, rick as she wants someone to hand her the coffee in the car when you push the button pick up my kids, gives me groceries, want to do it all.

I think that's called an assistant. But just a question though about the payment side of this. Is that something that let's say JP Morgan Chase is involved with with payments for this. Yeah, so where we are currently is that we want the merchant to remain your merchant of record again safe, safely and securely through a token ized process. Um, you know from my dashboard through that rig partner that

I mentioned, like Zevo over to the merchant. All of the tokens are telling you that yep, you're having an interaction. We gotta we gotta press we gotta press the button because we're out of time. I want to thank you very much. Rick Ruskin, he is the senior manager Online Commerce for General Motors. Just how much will automation change

the workforce over the next fifteen years? Here to talk about that with us as Karen Harris, Managing director of Macro at Trends at Bain and Company, and she joins us by phone. Karen, thank you so much for being with us. You just released this report that you authored Labor twenty thirty, the Collision of Demographics, Automation and Inequality.

UM I want you just to start with automation, since there's been a lot of discussion about whether that will eliminate a lot of jobs and create really a two tiered society. How much will that come to fruition over the next few decades. Thanks Lisa, I'm really happy to be here. It is certainly something that we see having a very disruptive effect over the next few decades. We

see what's happening right now is the labor force. We still have to start with demographics, even talking about automation, because the question is how that impacts jobs, and how that impacts the way we live and work, what we buy. The labor force is about to experience a very steep deceleration.

Even shifting life stages working later take the little of the edge off right, living longer, healthier lives, but it doesn't compensate for the fact that the population, the working population is overall shrinking and in many markets and then some in some markets just growing much more slowly, which in the short term will push wages up. And in fact we're seeing some of that impact today in the markets as the with the increased volatility around x dictations

of rising interest rates. But that natural process of rising wages will be short circuited in our view, by automation um and that front end automation usage your point will feel buoyant in our By our estimates, we see another eight trillion dollars in investment needed to build and deploy that wave of automation, and that surge will temporarily shield

workers from the full impact. But beneath that surface and what bain is seen is that the majority of workers will feel the impact of automation as either jobs are lost or new jobs that should have been created don't show up, or wages struggle to climb past the point where automation alternatives actually become cheaper. And so that sets us up for this ebb and flow where you have a big wave of automation investments, that feeling of buoyancy

and growth. But at the end of that, the full x of automation laid bears as many as workers may become displaced, and that means incomes become skewed even further towards the top, towards those are who who are employed.

That lack of demands as people are unemployed, that pervasive economic insecurity, that impact on growth is what leads to that boom and bus cycle that we're concerned about, Karen, Before we get to labor and wondering, if you could just describe what you believe the world will look like, or indeed your world, our world will look like in five to seven years, what will the environment be like, and maybe give us some thoughts about what kinds of

jobs and what kinds of situations are people most likely to face. Sure, pim, thank you. It's uh. It's an interesting it's a tough question because part of the challenge we had at Bain in putting this work together is that there are each of these forces push and pull

on each other. Um it creates a dynamic. And so what we see playing out right in the short term, we've already I've already spoken about how wages are gonna rise over the next short period of time as the workforce shrinks, but that adjustment gets cut off through automation. Then we see a rise in new sorts of jobs.

Somebody has to program computers to understand AI right. Artificial intelligence requires exposure to larger and larger volumes of information, for example, and so we could see somebody has to retrofit. Let's take the service sector, which is where we think the ripest opportunities are for automation. Take a restaurant where

you could have an automated prep chef. Just as an example, we're all familiar with, right something that does all the chopping so that the chef can do the more advanced preparation. We'll see have two robots chopping onions and celery. They don't necessarily need to work side by side. You could stack them on top of each other, which means you fit out the kitchen, and in fact it mains view.

A big chunk of the investments in service sector automation will come from not just the actual robotics and tools themselves, but also from the infrastructure changes that come around that, and that will insulate workers from jobs. So put him

to your question. By the early to mid part of the next decade, we could see a very buoyant economy, workers employed in those in the capacity of deploying many of the tools that will then eliminate the job opportunities later on rising interest rates as we see this capital investment boom. So I think the major point and the biggest watch out that had been we want businesses to think about is the much much greater volatility of this next cycle than what we've seen really for the past

few decades, even including that global financial crisis. Karen, what's the most irreplaceable type of worker going forward? Even with the boom and automa Asian? In other words, how can you guarantee a paycheck going forward no matter what the automation? Sure, I think there are there are many sectors, um I think some of the most important sectors become ones that are around asking the right we call them the sort

of the normative questions, understanding what people need. Some of these, ironically, I think some of the more protected sectors, ironic, based on the conversations we have today, are not necessarily advanced in engineering and coding. In fact, a lot of coding will be automated over the next over the next couple of decades, but in fact the ability to for businesses, for leaders, for um, for workers to understand and delight their customers, understand those customer needs and really develop the

kinds of products that suit them. Either at the high end, right we see more and more customization and and niche products, but also where people as incomes are constrained, how do we create a better quality of life at a lower cost, and that is those are the kinds of businesses that frankly, companies like higher Um out of China and Huawei have done an excellent job doing what are the good enough

features that really suit markets where income is more constrained. Karen, does increased automation mean that the governments around the world will have to change the way they tax their citizens as work becomes more automated and robots perhaps don't necessarily pay taxes. It's a great it's a it's a really critical issue. Right what we see it, Bean is certainly the state is governments are going to likely play a more active and and uh involved role in thinking about

the markets. Is the answer taxation. I'm not a policy expert. Certainly there are examples of government and prevention that have created a lot of positive economic impact for the outside of their specific programs. The Space race, so the works projects during the depression, um the universal basic education examples where big government investments have paid positive dividends over time.

But there's I mean, the reality is, with a shrinking pool of workers in changing taxation may not be the answer. Thanks very much. We got to leave it there. Karen Harris is managing director macro Trends Group of Bane and Company. Check out the report Labor the Collision of Demographics, Automation and inequality. 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 Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio