Tesla Will Burn Through Cash By First Half Of 2019: Levington

credit analyst for Bloomberg Intelligence, who's been tracking this. Wow, this has been a big swoon, not entirely unexpected considering that these bonds were among the short most shorted they could possibly be. What's going on today? Well, last night Moody's downgraded then very much into the conversation that we had last week. So very props to you, yeah for

for doing this for Bloomberg. UM and uh and the bonds have lost about three three and a half points UM or about sixty six five basis points at least that's the last quote that I saw, So it looks like we're in the about the eighties six dollar range. YEP, YEP, we're still there's that means a yields maturity of about UH seven point six six percent, give or take um. Let's talk the broader picture here. Let's just sort of

paint a scene for this company. They have the controversy going on that has certainly plummeted or sort of punctured their stocks with a car crash that ended up with the death of the driver of the car. Meanwhile, this is a business model that really hinges on the company's ability to access credit markets. How much does the downgrade and subsequent plunge in bond prices affect Testla's ability to finance it's penchant for burning through cash. That's a great question, Lisa,

and it really it's two ways. At one, there are certain funds that can't buy ariple see paper uh and so now you have a triple C B minus issue, which makes it tougher in terms of financing. The second thing is with a bond at eight six and UH and yields in the upper sevens, issuing unsecured debt straight unsecured debt, like what they did with the issue is

really not an option. It's too it's too costly. So then they have to start thinking about what is the right approach because everybody knows that they do have a liquidity event in front of them. Will it be through a structured issue or will it be through UH issuing straight equity or some sort of convertible. Okay, so when we spoke last time, you said that the leveraged loan market might be most attractive for Tesla, and we did

see Uber managed to successfully upsize their loan offering. I'm wondering at this point is even the loan market off limits or is there enough of a bid coming from the collateralized loan obligations these funds that have to buy loans that it raised a lot of money that that anyone can tell anything. Well, you know, I think that I think the Uber deal is actually a pretty interesting one because I think it went in live war plus

four hundred. So you're looking at a little over six percent coupon on that UH and that is without a credit rating on it. And so if you have a public company that still has a forty plus billion dollar market cap on it, one might say that they should be able to do as well, if not better than what Uber god And and maybe that kind of puts into a framework what a unsecured deal versus a secure

deal might look like. Um, so, I guess maybe that kind of paints the picture as is, if they went down the road of issuing dead the unsecured market and not being able to handle it, a secure deal maybe in the six percent range might be a better option

if you're the treasurer. Right, let's sum out a little bit, because there are sort of this existential question with Tesla right now, which is, you know, as money gets increasingly expensive for them, as they fail to prove that they can come through on their promises, when do they run out of leeway? So when do they run out of liquidity and face some serious issue if financing markets close

up or at least become really onerously expensive. Sure, I mean without doing any new issuance, I would say sometime in the first half of they're gonna burn out of cash. Our model last week we were talking about about a two point three billion dollar cash usage this year. They have a billion two of debt maturities into the first quarter of so that's about equal to what the cash

was at at the end of the year. So they need to raise more money by the first part of next year or else they're out of business, right And I would say for all stakeholders, they're probably better off doing it sooner than later, and probably more than what they need today to get the liquidity issue away from you know, both the equity and the dead So let's

talk financing price. So if we end up with a yield of say seven point seven and that is the going yield for Tesla to borrow money, is that sustainable for them? No? So okay, But this is this is a really important point in other words, because if you're seeing a seven point seven percent yield, which is effectively what is being implied this is the bond that comes due in less than ten years, that's not a viable

financing costs for them. No. I mean, when you're burning through cash to create more liabilities that are have a high coup a cash coupon on, it does only makes the issue worse, which means that a best case scenario would be that you issue a block of equity or maybe equity with a secured debt package behind it to reduce the cash costs as opposed to the coupon. Would you say the time's running out here? I would say

that they need to do something. Uh, and again I would if I was in the Treasury seed at TESLA, I would be doing it sooner than later to get this issue off the table, at least for as kicking the can down the road, or as long as I could. You would also be investing in some kind of anti sweat measure because it seems like a pretty hot seat to be on right now. Joel Levington, thank you so much for being with us. And you did nail it. Last time we spoke. You said that this is going

to likely be a company that is downgraded. It was downgraded, and now the bonds are plunging. Joel Levington, Senior credit analyst for Bloomberg Intelligence. Always insightful, always interesting. Thank you for being with us. People on both sides of the aisle agree that the US has some unfair trade relationships, certainly with China, but also with the rest of the world joining us now. Robert Lawrence Professor of International Trade and Investment at the John F. Kennedy School of Government

at Harvard University. He's also a Senior Fellow at the Peterson Institute for International Economics. Also former economic advisor to President Bill Clinton. Robert Lawrence, Thank you so much for being with us, A really important time to hear from you. So, you know, since there is this sort of widely accepted unfair trade relationship that the US has certainly with China, what measure should we be looking at as a gauge

of whether things are becoming more fair? Well, ultimately, UM, I think, by the way, it's a pleasure to be with you this morning. UM. Ultimately, I think we just we have to look at what kind of access our firms have to their market, um, and what kind of access their firms have two hours, and we have to compare that. And I think there's no question that the Chinese have been using their market as a way to enforce a U S firms and other foreign firms to

transfer technology. They've also not been respecting intellectual property rights, which are part of the rules of the World Trade Organization. So, Professor Lawrence, since you advised former President Bill Clinton, I assume you line up more on that side of the aisle, although I could be wrong, and I'm wondering whether coming from that vantage point, you can view anything that President Trump has done as being positive on this on this count. Well,

I think, UM. Focusing on the question of our trade relationship with China and trying to improve some of the violations or deal with some of the violations, I think is well worth well worth doing. I think at times what the measures that they've actually taken are are pretty high handed, and um, some of them actually contravene rules that we've agreed to. So I think that's the part of it where I would take take difference with him.

What do you mean that they contravene with rules that we've agreed Well, Uh, you know, as a member of the World Trade Organization, you're not allowed to simply raise your tariffs against the products coming from other countries. Uh. What you have to do is to go to that body to prove that the other country is violating the

agreement and then get permission to take retaliatory measures. But what President Trump did the other day was to simply unilaterally announce that the United States is going to put tariffs on up to sixty billion dollars worth of Chinese exports. That clearly violates the rules of the World Trade Organization. So if we want to have the moral high ground and be persuasive in a sense that we're being wronged, it seems to me we ought to be adhering to

the rules. Who who stands to lose more, the US or China if the trade tensions do escalate, Well, I I think we both lose a lot um and and it's hard to say who loses more, but but the point is it's damaging to both of us. You've seen what the markets have done in the last two weeks, and clearly that's in response partly to these aggressive trade actions. A huge number of American firms are now integrated with

with Chinese firms. A lot of the parts we buy come from China, and those supply chains are now being threatened, and we're seeing the reflection of these threats uh in in the stock evaluations of a lot of our firms. So, yes, the Chinese will also lose by if we put tariffs against their products, but our firms are also going to lose, and I think it goes a threatened jobs of people who work for those firms in the United States. So to learn's you've been on the inside of these negotiations.

I'm sure you've dealt with China in particular, and I'm sure that this issue was apparent to you back when you are advising former President Bill Clinton. I'm wondering, is there something about China's approach, what they would like, what their priorities are with respect to trade, that is getting lost in some of the some of the big talk. Well, I think it's you know, China is has two features. First, it's a very large and important economy, and that means

we have to take it seriously. But the Chinese a s poor economy and they're only at about twenty five level of American living standards, and poor countries typically use their government to a much greater degree to enhance their economic development. So uh so, there's basically attention in China. It needs the risk of the world. It wants to sell to the rest of the world and to export, but at the same time it also wants to nurture its own domestic economy and sometimes in a way that

discriminates against foreign firms. So China has a very complicated problem. How does it engage with the world. On the one hand, that means it ought to be more open, and on the other hand, how does it develop its own economy? And that leads it to want to encourage domestic development of technology and foreign firms to bring their latest technology to China. Professor Lawrence, there's a lot of focus on which American companies stand to lose the most in a

possible trade war. People focus in on Boeing, for example, or Caterpillar. Perhaps we ought to be asking the flip question, which is which American companies stand to gain the most? Should trade practices between the U S and China benefit the most? Wait? Which companies will benefit the most from fairer trade? Well, well, clearly our companies that produce intellectual property. So if we took our I T firms, if you took Microsoft as an example, Uh, their products are being

copied without the royalties being paid. So I would say heavily U I T companies and and companies that that have done a lot of research and development and basically are being copied or ripped off by the Chinese. So if we can level the playing field, if we can ensure that they enforce intellectual property protection, it's those kinds

of companies that are going to benefit, not necessarily industrial companies. No. In fact, that's what's interesting because the whole focus here is of the policy has been very, very focused on um or a heavy element of it has been on intellectual property, but there could be some industrial companies, say in the steel industry, for an aluminum, who are going to get more protection and so uh those companies will gain. There are solar panel uh producing companies who are now

getting more protection. So so so it's it's a complicated mix. Yes, the steel industries are going to gain, but all of the users of steel companies like Caterpillar and others could well lose from those tariffs. Robert Lawrence, thank you so much for being with us. Robert Lawrence, Professor of International Trade and Investment at the John F. Kennedy School of Government at Harvard University, also former economic advisor to the former President Bill Clinton, and Senior Fellow at the Peterson

Institute for International Economics. Yesterday, as news emerged that Facebook chief executive Mark Zuckerberg plan to head to Washington, d C. To testify in front of Congress on April twelve, people started talking about how he tends to sweat when he's nervous. So with that image in mind, I want to bring a Max Chafkin technology reporter from Bloomberg Business Week. Clearly he's been sweating a lot over the past few weeks and today they announced some measures that boosted their stock

a quarter of a percent. What are these measures? Yeah, I I wouldn't get too excited about any of this, um, but they said that they were redesigning the sort of screen inside of the app where users can, um, you know, update their privacy setting. So the idea is to make it easier for people to say, you know, cut off some of face weeks data access. Now, this is something

that Facebook. This is kind of Facebook's go to move of sorry, I didn't I want to interrupt you, just there for one second before you get on to sort of the larger issue specifically, is this cutting off Facebook's ability to sort of see what you do on other platforms, in other words like Google or your you know, your Google searches or your all the cookies that you incur.

Is this what we're talking about here? No, no, no, no, This is just making it easier for you to sort of toggle like whether or not you know you're sharing your phone number with your Facebook friends or or things like that. This is a very much an incremental step, UM, and it kind of kind of continues what the position that Facebook has historically taken, which is if you're upset about the amount of data that's out there about you on the internet, you know it's your job to sort

of fix it. And I think that is the sort of philosophical debate that's been happening for a while in Europe, and that is starting to move here. The question is should Facebook proactively be doing more to keep users data safe? And and right now, even with this um sort of modest tweak that they've made, that's that sent the stock price up just a tiny bit. Uh, It's like I said, it's it's still saying you know, you still have to

do this. There's a difference between a lot of people seeing information that you voluntarily put out there for a pretty big network of people, right. I mean, on one hand, you could say buy or beware. You agreed to let people see it when you posted it there for everybody

to see. I mean, it's sort of tautology. There's a difference with selling the data of all of your clicks on that platform, of what links you click on, of you know, who you follow, of you know the cookies that you incur from other websites that allow advertisers to target messages to you. Have they addressed that aspect they're

starting to UM. Last week, uh, sort of amid this fear of the around Cambridge Analytica, this um, you know, British consultancy that had basically improperly acquired some user user data, Facebook sort of said they're gonna they're gonna do try to do a better job cutting these third party apps off if they're not using your data, and making it easier for you to tell which apps have access to

your data. They've also sort of said they're going to do audits of basically anyone who had access to this kind of data to make sure that a sort of Cambridge Analytica situation didn't happen someplace else. But the problem is there's just so much of this sort of washing around out there. It's it's also not clear like how the audits would work or how they would um be able to really know um from what we know of this Cambridge Analytical situation. Facebook was aware of this for

a long time. Cambridge Analytica had said they had deleted the data UM, and then it came out through the New York Times is reporting that through whistleblower that they in fact hadn't. So, so it's this kind of thing where it's it's it's pretty hard to see how Facebook addresses this in an easy way, and that's why, you know the stock price is so depressed, uh over the

past two weeks. I'm just wondering, you know, how many band aids could Facebook really throw on this or does this problem really puncture something fundamentally about Facebook's business model. We don't know yet, and but I do think there's a chance and a non zero chance that this could seriously impact Facebook's business model. The there is this sort, like I said, there's this sort of philosophical question, do you do you have to opt out or do you have to opt in? You could imagine, uh, the FTC

is looking into Facebook once again. European regulators have been pushing in this direction. Uh. You could imagine a rule that sort of says that users have to check a box, or check a bunch of boxes, or go through a bunch of different screens to allow Facebook to use the

kind of data that they're using now in advertising. And if users have to go through a bunch of steps, that could cause many many of them to stop doing that, which could in essence break Facebook's amazing business model right now now I think, on the other hand, I think that is probably not the most likely outcome. I think the most likely outcome is Facebook makes some small fixes and and we all get outraged for a while, and people probably go back to to using this exceedingly popular app.

What about April twelve, what are you expecting to hear Zuckerberg? Has you mentioned the sweating he has, Well, that's such a visceral image. I mean, he's gotten better. Um. I think people who sweat with with Yeah, sure, with his temperature control and also with his with his poise. I think if if you watch the CNN UM interview that that that happened last week, I would say it was maybe above average for him, probably below average for you know,

your average chief executive, but definitely definitely an improvement. I think that where Facebook has struggled is that this is a company that is super cerebral, and Zuckerberg has sort of not been willing to engage on a kind of normal emotional level. He hasn't really apologized, um, and I think you know, he would do well to to just to stop with the pretense of of trying to sort of, you know, come up with like a zillion technical reasons why Facebook did nothing wrong. Uh, and just say hey,

you know, we're sorry, We're trying to fix this. UM. I think I think if we get something like that that that will probably move things in a positive direction for the company. So he has about two weeks to learn how to eat crow. Max Chaffin, thank you so much for joining me. Always love speaking with you. Max Chaffin, Technology reporter for Bloomberg Business Week. It has been a really difficult week for Max between Facebook, Uber and the like. We'll be talking more with him, I'm sure in the

upcoming weeks. We talk about alternative assets. Sometimes, I want to talk about an asset that has a happens to have an additional benefit of being able to make you feel pretty good and actually tastes good too. I'm talking about wine, and we're talking with Steven Ronically, if he has global beverage strategist at Robbo Bank International, he did not bring a bottle of wine with him. Apologies, well,

but we'll let that slide. Steven, I want to talk with you about wine in the context of what we've seen in high end art markets over the past few years. We've seen huge auctions, record prices being paid as a lot of very wealthy families and individuals seek some kind of uncorrelated asset. To what degree are you seeing the same type of activity in high end wine markets? Yeah,

it's certainly become a very interesting asset class. People looking at wine as an alternative investment, and and it does perform well overall. I think the returns it's not something that I that I kind of track on a day to day basis, but the returns that I've seen have been have been very, very attractive. It's it's it's been something that people have looked at as an alternative investment, and as you say, worst case scenario, you can drown

your sorrows if things go bad. I guess the reason why I start there is I'm trying to understand to what degree the wine market I'm talking to high end wine market is uh composed of connoisseurs, and to what degree is it does it include a lot of speculators? Uh, there's certainly a mix. I think investors are certainly getting into it looking at it as you know, kind of looking and seeing the the uh, the improvement of value that you've seen in wine as an asset class. It's

performed very well. But then there's also a whole different set of folks that that kind of get into collecting one because they're passionate about it and and try to find unique vintages and you know, building up their wine cellar and having something to entertain and so forth. How much have some end prices increased? You know, it's really interesting when when you look at wine prices, it's it's it's been um at the retail level. It's been the high end and the very low end that have been

able to take price increases. The middle kind of that kind of ten to twenty dollars or seven to twenty dollars that there's a lot of there's a lot of competition, a lot of new players coming in, new brands being introduced, a lot of there's some pricing pressure in that segment at retail. But the low end, because uh, they've been able to take price increases, supply is kind of dried up globally. And then at the high end there there seems to be appetite from uh, from from fine wine

buyers to to accept price increases. And part of it is because you have limited limited growth in places like Napa, you can't plant any more grapes. People understand that that there's more and more demand for some of these wines. Uh, and you can't and supply is constrained. Can you give us a sense of just how much some things have have increased on the high end in cost? Well, you know, we one of the things that we look at a lot is great pricing in Napa uh. And that's just

been growing astronomically lately. I think, you know, just a few years ago, it was i would say around four or five thousand dollars. Now we're up to you know, we're hitting closer to eight thousand dollars a ton. And when you look at how it's spread out, there used to be a very good chunk of wine grapes the Napa Valley Cabernet sauvignon that would sell for about ten percent of the crop would sell for under Now there's almost none of that left. All of that is getting

bit up into higher things. And when you look out, you see, you know, lots and lots of a good chunk maybe five or ten percent, selling for fifteen thousand dollars a ton, and that's that's just an astronomical price. And by global standards. When somebody who spends a couple of thousand dollars on a bottle of wine be worried about opening it and finding out it's a vinegar, I think if you're spending yeah, I mean really used, got a serious concern and maybe they're not planning to ever

open it. I don't know. I think if you're I think it is a concern. But I think if if you're spending thousands of dollars on a bottle of wine, you can you can absorb that cost. Let's talk about the method of sales. I know, certainly the way that people are buying clothes and food has changed and moved

more online. What about wine, Yeah, that's that's been the subject of a study that we've just put out looking at the growth and online in in e commerce and online wine sales, and and it's been it's been exploding through a number of different channels. You know, you have kind of the the drizzlies of the world, people buying

for for immediate delivery. You have specialty wine retailers like wine dot Com and others, and you have kind of e commerce, and then there's online grocery, and you know, the grocers have been kind of lagging behind the rest

of of retailers. The obviously, the the acquisition of of Whole Foods by Amazon is kind of lit a fire under every And you know, that's where we see enormous potential for growth, particularly for one So who is the biggest beneficiary from that try and accelerating and who is potentially the biggest loser. Well, you know, this is something that we talk about a lot. I think there there's opportunities for everyone. I think there's great opportunities for retailers

to build this up. They still have some pieces to figure out. Some of them are a bit behind in the development of their website. They have to figure out last mild deliveries, etcetera. But I think the you know, in terms of brand owners, we see big opportunities for large brand owners to continue shifting sales online. Uh. Small brand owners can look at this and say, hey, you know, there's virtually limitless shelf space online. We have a chance

to gain share. But then the other one that we kind of look at, and if you pull up some of these websites from retailers is private label. Private label has a great chance to grow share because the retailer can position them on that first page. So it's it's it's gonna be for brand owners. It's going to be who figures out how to how to really build brands online and who invests in search engine optimization and all

of those things to be successful. You want to make sure that you get that first sale because then you pop up. So who's the biggest brick and mortar wine seller. Believe it's still Costco Total Wine and more has been has been growing very aggressively. Both both do a great job and and then you have your your traditional retailers like Krogers and safe Ways that that sell a fair amount of wine as well. Do you order one online? I have? It's it's challenging, and this is something that

we talk about a lot. You know, if you want to get uh kind of a media delivery, if you want to shop online, like when you're buying groceries where I live in in Westchester, it's it's harder to get it delivered. And that's the problem. That's the challenge that that online has because you have to have somebody there to sign for it, and then it creates a logistical problem for delivery of the entire package. If you have

wine in that right. And also if you're going to somebody's dinner party and you realize that the last minute you need a bottle of wine, it doesn't work to suddenly just go and press a button and then wait for a couple of days. No, but that's what the Drizzly and many bars do really well. Right. They can do that because they're they're local if you have access to them. Steven Ronic Cleve, thank you so much for being with us. Steven Roni Cleve is global beverages strategist.

Fabulous job. By the way, I can only begin to imagine what your tours include. Oh no, no, life is hard. Oh life seems brutal for you. Steven Ronic, Global Beverages Strategists at Rabobank International. 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.