tv Bloomberg Technology Bloomberg July 2, 2019 11:00pm-12:00am EDT
♪ taylor: i'm taylor riggs, in for emily chang. this is "bloomberg technology." our, tesla setting a new record for vehicle deliveries. the company stock soaring. we speak with billionaire investor mike nova grath. as the bit coin price swings, he tells us his approach. j.p. morgan chase is expanding its use of artificial
intelligence. the asset arm is planning to invest in machine learning hedge funds. tesla shares are climbing in after hours trading. looking at the largest gain this year after they set a new record for quarterly deliveries. tesla handed over about 95,000 vehicles to customers in the second quarter, beating the average analyst estimate of 88,000 units. this is all due to accelerated shipments to europe and china, and u.s. consumers rushing to buy sedans. ceo elon musk had told employees in an internal memo last week that the company was close to setting an all-time record, urging them to go all out in the last few days of june. joining me to discuss is bloomberg's max chafkin in san francisco.
onset, craig trudell. from my perspective, it seems like across the board. are we finally in the all clear? max: on the model three side, this quarter was a blowout quarter and i think exceeds everyone's expectations. he sort of had this up and down quarter where we had a trough of everyone getting concerned about demand for the model three. toward the end of the quarter, you started to see the analyst commentary pickup. on the model s and model x front, they still have a problem. 95,200 was the total for deliveries. about 17,650 of those were model s and model x. those are the higher-margin, higher price vehicles. what remains to be seen here is
how much this jump in deliveries was at the expense of profitability. taylor: you have heard craig say it is good news but you wonder about the profitability. is this a clear win for elon musk or do we face headwinds on the horizon? max: any time you blow the estimates out of the water these days, you have to look at it like a win. you had two concerns, one was demand the other piece was kind , of logistics. could tesla get the cars to people in a timely and cost-effective manner? on the logistics piece, they are performing well despite some acknowledged difficulties. the real question, what happens in the long run? you have consumers in the u.s. rushing to get these model 3's, trying to take advantage of these tax incentives that will shrink.
we just don't know how this will shake out. tesla is still a relatively new brand. it will be interesting to see what happens if and when they refresh these luxury lines. taylor: that tax credit, as it shrinks in half, how much of a tailwind was that this quarter and, going forward, with that tailwind removed, how much do car sales slow? craig: that will be the big question on the conference call for earnings in a few weeks. what we saw at the end of 2018,
the fourth quarter was the previous record for deliveries and a lot of that ended up being in hindsight, a lot of consumers going out to buy the model three and s and x. i think people underappreciated how much that was demanding into the fourth quarter of that last year. that is the big question for the third quarter, can they sustain that momentum even with the smaller amount of support from the federal government? taylor: i should bring in david winston, morningstar analyst joining me from chicago. we've been having a discussion where it seems to be in the all clear. from your fundamental analysis,
fold in the demand and profitability mix of the s and x, which are key given that they are higher profit cars. david: for all this controversy around the demand problem, the model s and x seem to be getting old for consumers, so to speak. they do have an upgraded range. it is also about profit and cash flow. the next year-over-year, despite these numbers, the s and x year-over-year was still down about 20%. taylor: what does urinalysis say analysis sayyour about the path to profitability for tesla? when do we get there? david: they have done it for a couple of quarters last year. it is not impossible.
it's hard to say exactly what is the tipping point because they are still growing internationally. you have the china factory coming online. you have the european factory. the trick is, how do they balance profitable growth? it is very hard for any startup business to do, and they are a pretty big startup now, so to speak. taylor: is the chinese demand where it needs to be? craig: the demand we don't really know at this point, in part because they aren't set up with this factory just going up near shanghai. once they do that, they will avoid those import tariffs that will avoid any car built outside of china. we don't have a true sense of demands for tesla in china. there is sort of a buzz in china of this brand and this aura
around elon musk that we see around the world. we don't really know yet how much sort of untapped potential there is for china. as david was saying, that isn't something that is going to come for free. they are doing a lot of borrowing with local banks. there's a possibility. that is something that will be more of a 2020 story. taylor: as we look forward to the end of 2019 and 2020, what do you see as the biggest left side tail risk downside? is it elon musk's tweets, profitability, the fact that they have to raise more cash, demand headwinds? what do you see as the biggest left side tail risk event? david: one is probably general economic risk that applies to any company. we are late cycle for auto
sales. at the same time, that is a new product. the other point would be a bigger longer-term happening of what happened in late may and early june when the sentiment in fear started to come into this name. this has always traded on option value, what it will look like in 2025 and 2030. it has always been that elon is awesome and everything. but when people start to think, they have a lot of debt. once the street looks at the downside reasons to fear tesla rather than being optimistic, the stock will get pounded pretty hard. taylor: wonderful roundtable dissecting all things tesla. thank you to david, max, and craig for joining me. bitcoin resumed its fall today before stabilizing around $10,000.
taylor: bitcoin stabilized at around the $10,000 level after a selloff erased much of the monster gain from last week. meanwhile, a battle over bitcoin has erupted on twitter. bloomberg's rishaad salamat caught up with both in taipei. >> it has been around for 10 years. what are the killer apps in this space? there are none. crypto, casino games.
rishaad: he was questioning your finances and you got rather fragrant with him, didn't you? >> he's a hater. he's a no-coiner. someone who doesn't have any bitcoin and watched the price rocket in their face. rishaad: a bit harsh, isn't it? >> it is true. taylor: they will face off in a head-to-head debate on wednesday. for more, mike novogratz from galaxy investment partners, who joined me now over the phone. great to have you. first, to kick things off, give me your take on the recent price action. a lot of volatility. what do you make of it? mike: we had a spectacular rally. around $4000 for bitcoin to months ago, we traded up as high as 13,800.
people got excited for real reasons. because of facebook, uber, mastercard, saying everyone participate in the cryptocurrency world. all of these things went from guys like him saying these are all tulips. the biggest companies in the world say they will participate on top of yale, harvard, stanford. the question around stabilization has been answered. now it is a question of taking the time to build out the systems. people are rushing into front run institutional accounts. things are getting a little carried away. i think we are at 10.8 right now. i think we will see the market consolidate between $10,000 in $14,000 for a while before it takes off for the next leg higher.
the new institutions, the state of x, the state of wisconsin or the texas teachers union. then you will see bitcoin go toward the old high of $20,000 or higher. taylor: when you say parabolic move, our ears take up. talk to me about when you sold. you said you wish you had sold more. what is your next pricing which you would be another seller? mike: by the time i was on tv, the market had fallen 20% so of course i wish i had sold more. i do think we are going to consolidate. i trade a portion of my corporate coin position all the time. i don't think i am selling the next time up to $14,000. i think it is probably closer to
20,000. i don't expect that in the next few weeks. i probably don't expect it towards the middle to the end of the fourth quarter. we will see kind of a period of consolidation. what is interesting is, he lost the debate. i was with him in las vegas. i got it when it was 6000. microsoft is building identity solutions. these are big companies. taylor: talk to me more about critics like dr. roubini who came out at the summit and said he doesn't believe in it because there are massive amounts of price manipulation. mike: it is a new technology.
there's lots of hype around it. there has been price manipulation. it is getting weeded out. you are getting more players in the game. more ways for people to participate. you can buy bitcoin on your td ameritrade account. that is a big, big deal. the general population hasn't signed up and got a coinbase or circle wallet yet. we are going to see over the next three months, six months, 12 months, 18 months, there are more ways you can buy this stuff. i would bet you, in two years, mastercard and visa except bitcoin with their credit cards. visa has 50 million merchants worldwide. the fact that they are part of this libra, facebook coin, is huge. taylor: does it give bitcoin and other crypto's legitimacy? mike: it does. it doesn't really compete
against bitcoin directly. facebook is working to develop a stable coin used for payments. currencies need to be relatively stable because otherwise, why would i spend a currency if i thought it would be worth a whole lot more in three months? it coin, i think, is legitimized by being a real hard asset. it has a fixed supply. it is very difficult to change the rules around bitcoin. people don't own enough of it yet. i see the price going significantly higher over the next couple of years. taylor: you say the price would go higher. do you have a call?
mike: like i said, i think if we can get to the old high by the end of this year, every bitcoiner will be happy. once you get to $20,000, it opens up $40,000 next. it has probably about a $150 billion market cap right now. gold has a $8.5 trillion market cap. bitcoin has a long way to go before it replaces gold. it has very similar features. gold has a limited supply. you can take all the gold that has ever been mind in the history of the world and fill three olympic swimming pools. we could build a cube of gold in central park and it would be worth $8.5 trillion. hard to get your mind around. most of it sits in vaults. bitcoin is a digital gold. taylor: who do you see as the next big companies entering the
market? we've talked about facebook, mastercard, paypal. who are some of the next big companies you see really starting to make an investment? mike: i think you will see in time the investment banks need to move into the space. we are trying to carve out our niche before they'll show up. at one point, the foreign-exchange desks are going to trade dollar-yen, the euro, the great british pound, libra coin, bitcoin, ethereum. they will be parts of the financial infrastructure of the world. i do think the investment banks will enter the space sooner than later. taylor: talk about the divergence and price action we have seen with bitcoin having a very big move year to date.
some of the other big currencies like a theory him and ripple, not so much. mike: bitcoin has carved out a really interesting lane, which is digital gold. it doesn't need to change to fulfill its mission. gold has a big market cap. ethereum is fighting to be what i would call web 3.0, a supercomputer that can process a bunch of transactions. it is not finished yet. there's a lot of technical work. it has to scale properly for it to be usable on a wide range of things in a very fast way. it is also competing against lots of other project. the markets got more rational. they are saying, we still like ethereum a lot, a lot of his competitors. but they are all fighting for a
different piece of the pie then bitcoin is. while it is a big pie over the long haul, we are 2-3 years away from really seeing traction of real growth in that lane. taylor: cryptocurrency regulation, do we need more? mike: we need smarter regulation. there's a wake-up call. we talked to institutional people. visa and mastercard will say, what are you talking about, this is important? regulators will take a much different look than they did two years ago. i think around the world, facebook shocked regulators. there will be a market for money and that gets investors nervous. i think we need smarter regulation.
the u.s. is falling behind. they know they are falling behind. europe quite frankly is ahead of the u.s.. there are places like singapore and bermuda. this amazing insurance industry. they are now setting up the rules and regulations for a crypto digital industry. i think it is time for the u.s. to pick up the pace a little bit. my sense is that we will not see changes at the sec until carney moves on. that is a gut sense. i hope it happens faster. taylor: wonderful comments on all things bitcoin and regulation. that was michael novogratz. thank you for joining me. more on "bloomberg technology" next. this is bloomberg. ♪
taylor: at&t is considering whether to sell its regional sports network as part of a plan to reduce debt. bloomberg has learned that the four networks could fetch up to a billion dollars. sales would include tv rights to teams such as the nhl's penguins and nba's houston rockets. facebook is the latest company to come under eu antitrust scrutiny. the european commission has reportedly sent questionnaires to facebook customers and competitors about a range of
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taylor: welcome back to "bloomberg technology." i'm taylor riggs in for emily chang. now to how u.s. chipmakers press the white house to ease the ban on huawei. bloomberg news has learned that president trump's decision to allow u.s. companies to continue selling to huawei followed an extensive lobbying campaign by the semiconductor industry. the main argument -- the blanket ban the trump administration imposed could hurt america's economic security. multiple high-level meetings and a letter to the commerce department, u.s. chipmakers argued for targeted action against huawei instead of an
overly broad restriction. for more, i want to bring in ian king in san francisco. i kept hearing that huawei was a national security threat. how are these chipmakers now making the case that it is not? ian: yeah, very good question. they are not outright saying, look, we need to give huawei a pass on this. what they are saying is the action, or the nature of the action taken by the u.s. is actually being counterproductive. by basically hurting semiconductor makers will create a situation where u.s. security is threatened because this country needs a very strong chip industry. china is their largest market. taylor: what has been the reaction from the trump administration? it seems like a little bit of an about-face. ian: as we have all heard, there
have been various things said. the message has been refined. it is safe to say everybody is still sort of scrambling, trying to find out how this is going to work out once we get to the actually policy space. at least from the initial pronouncements, tweets, it seems like the administration has accepted a certain percentage of the lobbying that was presented to them. taylor: you talk about targeted action versus an overly broad restriction. how targeted? what are the targeted issues? ian: what the chip industry has said is, look, something like a computer memory chip -- cutting off orders to micron, which is based in idaho, is really only helping korea because you can get the same products from samsung. what they have argued is don't do that. look at more specific things. for example, there are elements where just providing a chip to
huawei is only part of the equation. engineering support, software is arguably just as important. but really, just holding back the engineering expertise is arguably more important. taylor: we talk about the massive lobbying effort that is underway by these chipmakers. what chipmakers were most involved? ian: we have to be a little bit careful about our sources here. you saw some of the companies that were mentioned in passing. the semiconductor industry has been the frontman for this whole effort, but that is an industry that represents companies like intel and micron. taylor: if you come into my terminal here, i'm taking a look at the outperformance of the stock relative to the s&p 500, which arguably is a gauge on sentiment about how the trade war is going.
may, massive underperformance in red. june goes up and now july, we are sort of struggling to hold in there. how would you say the chipmakers now feel about this? can they call this a win even though the market is not quite as sure? ian: a number of factors at play here and you have made a good way of outlining them. year-to-date, the money has come into the sector. that is clearly a bet on all of this blowing over and things returning to normal. if you talk to lobbyists, they are saying nothing is ever going to be the same. china has had a lesson on what it is like to be cut off from u.s. technology. they are already finding ways to live without the u.s., so this
is already causing fundamental problems. if you look at some of the outlooks, it has not been good and it has been down to this trade, the huawei issue. you have the element of the stock market perhaps being overly optimistic about a resolution. taylor: thank you. these days, it is all about trade. that was ian king. now, i want to switch over to another story and that is the battle among uber eats and door dash for a share of the rapidly expanding u.s. market for online restaurant delivery. it is likely to intensify in 2019 and 2020. food sales and third-party delivery marketplaces may reach $38.5 billion in 2019. around 40% of order volume still off-line, leaving a lot of room for growth. uber eats recently announced it partnered with leading digital food ordering platform olo. a 14-year-old company that powers online ordering for more than 60,000 restaurants across 300 different restaurant brands. to discuss the food delivery landscape, tom white, who currently has a neutral rating on uber.
let's talk about this deal with olo. how does that fold into your analysis of what sort of a game changer this is for uber and uber eats? tom: thanks for having me. i don't know if i would characterize it as a game changer per se. in some ways, you might argue that uber is a little bit late to inking this partnership. this company has been around for a long time. it has had a lot of success penetrating, deeply penetrating the day-to-day operations of over 60,000 restaurants. these restaurants rely on the olo platform to power online ordering for the websites of brands like applebee's, and five guys, a personal favorite of mine. also, the mobile app. but this is going to do for uber
-- it is going to expand the reach of restaurants a little bit in the u.s. more importantly, it will improve the outcome for consumers who make orders on uber eats. olo will ensure the uber driver arrives at the restaurant's location just as the food is ready. so, you will have less likelihood if you are a diner who uses uber eats that the food will arrive cold. a lot of competitors in the space have already signed up with olo, so i think this is certainly a positive for uber but probably not a game changer. taylor: so, not a game changer. how does uber eats fold into the core business in terms of how much uber needs uber eats for future growth? tom: uber eats is the fastest-growing part of uber. i think i would fold into the business is that uber sit alone amongst these online food companies that they do offer a multiproduct offering on their platform. they offer ridesharing obviously, uber eats. potentially could bring over time is a more liquid
marketplace and advantages other food deliveries do not have. you have a lot more riders sort of on the network. that should reduce wait times. just more liquid workplace overall for both uber eats and ridesharing. taylor: the path to profitability is ever elusive for companies like uber. how does uber eats help uber get profitable? tom: right now, it is not helping at all. it is probably the biggest drag on profitability at uber. only time will tell. the problem with uber eats is uber is fighting a lot of different battles and a lot of different markets, some of which are equally if not more competitive than domestic market here where you already have well-established players like grubhub and door dash. for the near term, we don't think uber eats is going to be a helper. it is going to be a drag.
if this company is going to make any strides towards profitability, it will be in ridesharing and the outlook is pretty cloudy. taylor: when we talk about uber eats and ridesharing, we always bring in elasticity, stickiness. how do they slowly start to wean customers off of subsidies in both sections? tom: it's going to be tricky, to be honest, because they are trying to promote things like subscription offerings, loyalty programs to really sort of increased stickiness and loyalty to the platform. but at the same time, there is potential they may actually also have to raise prices over time. it is something the company, the ceo has signaled they are not looking to do, but you look at some of the developments on driver come location issue -- what is happening in california now where there is a bill working its way through the
state legislature that drivers have to be classified as employees. that will raise costs. it's going to make it difficult for uber to get to profitability without having to raise prices. so, certainly, something to watch. taylor: is uber eats the single, or most single factor that differentiates uber from lyft? tom: product mix-wise, yes, certainly. geographic mix, sort of on the north american market. the other big differentiator is what is happening in autonomous vehicles. uber is making much heavier investment in autonomous. you can argue that is a good thing, it puts uber and better control of its own destiny when it comes to autonomous driving systems where lyft would have to be reliant on other partnerships to power that. those are the three main differentiators. taylor: with a neutral rating, what is the biggest headwind? tom: i think right now,
investors are struggling with visibility. this is a company that really has not given much in the way of forward guidance. over the next 12 months. they have given long-term targets on their ipo roadshow, which i don't think many investors are giving them much benefit of the doubt for at the moment. but, with all the competitive battles it is fighting on many different fronts in many different parts of its business, it is tough to get comfortable with near-term trends. lyft by contrast, it is a little bit of a simpler story so we feel better about the visibility. taylor: when we have more time, we have to battle it out between in and out, my personal favorite, and five guys. that was tom white. thank you for joining me. coming up, washington is coming after big tech, but how will smaller startups be affected by
taylor: between data privacy scandals and escalating tensions with china, tech's repetition is -- reputation is taking a big hit in washington. more and more u.s. regulators are calling for increased oversight of tech companies. while huawei and facebook may dominate headlines, it is not just the tech giants that are being affected. washington's crackdown could trickle down to startups, investors and early-stage companies. joining me now is trinity
ventures principal allison baum, with regulators at the vc's conference to discuss the consequences of tech regulation. i first have to ask you what was the key theme or your key takeaway from those meetings? allison: the meetings were very tense. i had two takeaways. one is that big tech is the new wall street. nobody in washington quite understands what they do, but they all agree they need to be regulated. the second is that the trade wars are escalating and so national security is a priority. regulators are really using whatever tools are at their disposal to make sure they are demonstrating to constituents they are taking action to protect american interests. taylor: in what areas within your space is trade hitting you
the hardest? we know we talk a lot about the chipmakers, for example, who are affected by huawei. what areas or companies that you work with are being hit the hardest? allison: the two key areas that are being affected most that matter i think for the ecosystem -- one is immigration. the second is foreign investment in u.s. startups. the number one conversation we were having in washington was around this previously obscure government agency, which is the committee for foreign investment in the u.s. previously, the purview was very limited to large technology transactions where foreign companies were buying controlling stakes or merging with u.s. companies. but since the trade wars have been heating up, the purview has expanded. now, basically, every single startup in the tech ecosystem risks being caught underneath the regulatory purview. taylor: i wonder how do these
small companies price in this new risk, especially when it comes -- it's a hard to measure risk but one that needs to be done. how are these companies factoring that into their price and future growth expectations? allison: yeah, i think your question really highlights a key point which is that most of regulators are not thinking of how this affects very small companies. so, where prices are very opaque, most of the regulators when they think about technology, they are thinking about very large companies like facebook or google that have prices that can be measured and impact that can be measured in dollars. but, what's happening now is because the scope has been expanded to include not just controlling stakes but minority investments, it affects any company that has taken even a small amount of money from a foreign investor. these regulators, they don't know what the impact of their changes are because they are not meeting these small companies. i am talking about 10, 15-person startups that are based out here, hustling day and night to make ends meet.
they don't have the time or resources to go to d.c. and if you cannot take money from a foreign investor or need to file for approval 45 days before you accept any capital, it is a matter of life or death. it is not just a pricing issue. taylor: it was very interesting in my conversations with some big tech leaders, one of the points they made when they were perhaps being probed or looked at being broken up was the domino effect on these small companies who traditionally, they're buyout options. they look to get bought out by google or a facebook. with some of the big tech antitrust regulation, these small companies are worried they no longer have an exit strategy. do they have an exit strategy if google or facebook can no longer buy them out? allison: i think certainly your point is -- whoever you were talking to -- their point is absolutely true. there is a limitation to exit opportunities when you are
changing antitrust laws or changing the ability for foreign entities to buy u.s. companies. what i am really concerned about is actually much, much earlier in the lifecycle of a company, which is that before a company could actually exit, you have to go through multiple rounds of funding. you have to hire talented people and a lot of that is being stifled now. it is not a matter of exit opportunities. it is a matter of new companies being started. taylor: sorry, go ahead. allison: no, the irony of all of this regulation is that the intent is to protect the u.s. economy and the u.s. companies and u.s. interests abroad. but what i don't think a lot of people realize is that our superpower is our innovation ecosystem and our ability to launch and scale new companies that can actually change the world.
when we are actually preventing them from starting in the first place, we are really handicapping ourselves when it comes to competing on the global stage. taylor: broadening it out and ignoring some of the tech and regulation conversations we have been having. as you work within the venture capital space, how has the funding environment been? are there specific tech companies doing better? is it all about a.i. and cloud? what types of tech companies are having the easiest time raising capital? allison: yeah, i think there is a lot of capital in the ecosystem right now, so it is less of a concern about certain types of companies having challenges, but more about the scope of this kind of regulation having an impact on new companies being started. artificial intelligence is certainly something a lot of people are talking about. but, the days of unfettered growth in these areas have certainly come to an end. it is definitely a concerning trend. taylor: trinity ventures principal allison baum, thank you for joining me. still ahead, why jp morgan is
taylor: jp morgan is pushing its use of artificial intelligence beyond investment banking. the asset management arm is planning a strategy to invest in machine learning hedge fund. this is according to persons familiar with the matter. it will operate within jp morgan's $15 billion fund of hedge fund business. we are joined by bloomberg's hema parmar. what is the purpose? walk me through this. hema: machine learning is what they are focusing on. jp morgan calling it a fund of hedge funds. it will invest in hedge funds, specifically machine learning funds. unclear how sophisticated a machine learning they are seeking, but they can be more emerging to more established. it is really the next push for
jp morgan alongside morgan stanley which have been investing a lot in these kinds of technologies using a.i., machine learning. they have been hiring up quantitative talent as well. really interesting to be investing in a fund of machine learning hedge funds. taylor: i remember in 2008 and in the past decade, it is all about qualms. how is machine learning different from a qualm fund? hema: machine learning is a subset of artificial intelligence. it uses algorithms that are programmed to adapt and improve upon themselves. sometimes they try to mimic the way the brain uses neurons to create layers of learning. quantitative funds use great swaths of big data. mathematical models to dig through data. they don't necessarily learn from themselves. taylor: the purpose of a hedge
fund to fund is arguably diversification. you can get diversification against a wide variety of different hedge funds. within the machine learning space, i wonder what is the size and scope, because it is arguably a pretty small industry, right? hema: what is interesting is fund to funds as a whole is not doing too well because there is a second layer that happens inside a fund. with machine learning funds, you are seeing more funds being pushed to the strategy. if you are looking for an edge in opportunity, you may say let's gather the best machine learning funds into one pool. then, if we pick the best ones, maybe that will be fruitful down the road. taylor: all we care about is performance. how has performance been? hema: so far this year, they lost a bit of money. but over the longer term, say over the past five years, a.i. machine learning funds have
outperformed some of the other computers, up about 7%. meanwhile, managed futures is about one third of that. the average hedge fund is 3.6%. taylor: quickly, you mentioned that jp morgan is getting in after morgan stanley. who are the other big players we know of in the machine learning hedge fund to fund space? hema: it is a smaller space. we don't see too many at this point. we do see greater interest from allocators in machine learning strategies because it is so hard to find an edge nowadays if you are a hedge fund. everyone's trying to push into new territory, get new data and figure out new ways to clean it up. taylor: always about the new landscape. thank you. that was bloomberg's hema parmar. that does it for this edition of "bloomberg technology." "bloomberg technology" is livestreaming on twitter. check us out @technology. and be sure to follow our global breaking news network, tictoc,
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