WEBVTT - Alan Baum on Tesla's Huge Need to Raise Money for Capex (Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg even to Washington, d C,

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<v Speaker 1>Bloomberg to Boston, BLUEMBERG twelve to San Francisco, Bloomberg nine

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<v Speaker 1>to the countries Channel one nine and around the globe

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<v Speaker 1>the Bloomberg radios and Bloomberg got gone. This is taking stock.

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<v Speaker 1>Coming up on taking stock, will take stock of Navistar International.

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<v Speaker 1>The shares of Navistar International are up more than forty

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<v Speaker 1>two percent after Volkswagen says that it's taken and nearly

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<v Speaker 1>seventeen percent steak in the builder of commercial trucks and vehicles.

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<v Speaker 1>Will find out what the w wants from this and

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<v Speaker 1>will also take a look at the truck industry and

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<v Speaker 1>they're going to be facing more reduced emissions regulations in

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<v Speaker 1>the near future. Right now, let's go to Charlie Pellett

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<v Speaker 1>in the Bloomberg news room for Bloomberg Business Flat and

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<v Speaker 1>I thank you pim Fox, the DAL, the SMP NZ

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<v Speaker 1>deak all into the higher equities trading near records as

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<v Speaker 1>traders pair bets on a September fed hike. To service

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<v Speaker 1>industry has expanded in the US in August at the

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<v Speaker 1>weakest pace in six years. That is raising questions about

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<v Speaker 1>the strength of the U S economy, and it adds

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<v Speaker 1>to the case for the Federal Reserve to hold off

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<v Speaker 1>on raising interest rates this month at a time when

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<v Speaker 1>central banks in other developed economies are ready to boost stimulus.

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<v Speaker 1>You and Cameron Watt, his portfolio manager at black Rock International.

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<v Speaker 1>He was interviewed this morning on Bloomberg Television. I mean,

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<v Speaker 1>I think what we learned is the monetary policy, or

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<v Speaker 1>the expectation of monetary policy still matters. I mean, we've

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<v Speaker 1>done with a lunger of crises in the last couple

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<v Speaker 1>of months against a backdrop of expectations of the CV

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<v Speaker 1>extending Bank of Japan extending the Bay coming to the party. Uh,

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<v Speaker 1>and the volatility has been exceptionally over the summer period.

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<v Speaker 1>Federal Mogul Holdings has agreed to be acquired by billionaire

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<v Speaker 1>investor Carl Icon's investment company for nine a share in cash.

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<v Speaker 1>The maker of Champions spark plugs will be closely held

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<v Speaker 1>by Icon Enterprises, which already held almost eighty two percent

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<v Speaker 1>of the company. Volkswagen buying that steak in Navistar International

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<v Speaker 1>to gain of foothold in the US heavy truck market.

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<v Speaker 1>Navastar surging on the news. It is up now by

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<v Speaker 1>forty one point nine percent. SMP five hundred, index up

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<v Speaker 1>three three, a gain of two tenths of one percent.

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<v Speaker 1>Down dust reels up twenty nine, a gain also of

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<v Speaker 1>two tents of one percent. NAA stack up three tenths

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<v Speaker 1>of one percent, Gold up two percent. Rallying he beyounced

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<v Speaker 1>thirteen fifty West Texas intermediac crewed up one percent, forty

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<v Speaker 1>eight seven of Barrow. And now let's look at the

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<v Speaker 1>other stories making news. Thank you, Charlie from the Bloomberg Newsroom.

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<v Speaker 1>I'm Scarlett Foo. Hillary Clinton is once again calling on

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<v Speaker 1>Donald Trump to release his tax returns. Clinton is holding

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<v Speaker 1>a rally in Tampa, Florida at this hour to discuss

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<v Speaker 1>national security. Trump campaigns in Virginia and North Carolina today.

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<v Speaker 1>In the wake of another missile launch, President Obama is

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<v Speaker 1>vowing to push for tighter sanctions for North Korea. However,

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<v Speaker 1>the President said the US is still open to talks

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<v Speaker 1>if it is willing to recognize its international obligations and

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<v Speaker 1>the importance of the nuclearization in the Korean peninsula. Uh

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<v Speaker 1>the opportunities for US to dialogue with them are there.

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<v Speaker 1>Mr Obama made the comments after meeting with South Korea's

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<v Speaker 1>president at the Summit of Southeast Asian Leaders in Laos today.

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<v Speaker 1>It's shaping up to be a busy hurricane season. Hurricane

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<v Speaker 1>Newton made landfall as a Category one storm in Mexico's

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<v Speaker 1>Baja Peninsula. Johnkangelosi with the National Hurricane Center says activity

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<v Speaker 1>is slightly above normal for this time of year. The

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<v Speaker 1>Pacific normally is busier, so we've had fifteen nine storms

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<v Speaker 1>in the Pacific, and we've had eight nine storms in

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<v Speaker 1>the Atlantic. Newton knockdown parallines and stranded tourists in their hotels.

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<v Speaker 1>Former Fox News Channel anchor Gretchen Carlson has settled her

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<v Speaker 1>sexual harassment lawsuit against Roger else. It's a case that

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<v Speaker 1>led to the downfall of Fox's chief executive. According to

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<v Speaker 1>someone familiar with the sealment details, Carlson received twenty million dollars.

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<v Speaker 1>Newark schools are back in session today, but students still

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<v Speaker 1>can't drink from the water fountains. Officials say the lead

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<v Speaker 1>levels are still too high, but should be deemed safe

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<v Speaker 1>by next month. For now, bottled water is being distributed

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<v Speaker 1>Global News twenty four hours a day, powered by more

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<v Speaker 1>than twenty journalists and analysts and more than one countries.

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<v Speaker 1>I'm Scarlet Food. This is Bloomberg, Charlie, and we thank you.

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<v Speaker 1>And again recapping the doal the SMP and NEZ stack

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<v Speaker 1>called Advancing SMP five. How did it index up three three?

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<v Speaker 1>Again there of two tenths of one percent. I'm Charlie Pelton.

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<v Speaker 1>That's a Bloomberg business splash. Shelie pell thank you so

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<v Speaker 1>very much. Shifting gears to gain traction in the US

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<v Speaker 1>heavy truck market, Elon Musk sending a letter to Tesla

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<v Speaker 1>workers to say, hey, let's get more efficient and save

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<v Speaker 1>some money reduced cost in case someone wants to UH

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<v Speaker 1>invest in us, We're gonna put all these questions before

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<v Speaker 1>Alan Baum. Now he's principal at Baum and Associates, joining

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<v Speaker 1>us from otto Land West, Bloomfield, Michigan. Alan, welcome, good afternoon.

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<v Speaker 1>So let's start with Volkswagen. It's gonna buy a sixteen

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<v Speaker 1>point six percent stake in Navistar International two or fifty

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<v Speaker 1>six million dollars, part of a strategic alliance to UH

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<v Speaker 1>get the struggling US truck maker to enter the North

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<v Speaker 1>American market. What do you think it's getting a good deal?

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<v Speaker 1>Because as you say, it's struggling. And the other thing

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<v Speaker 1>is that the Craft eight market, the largest trucks UH

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<v Speaker 1>is starting to turn downward. So for the next couple

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<v Speaker 1>of three years, I think we're gonna see, just like

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<v Speaker 1>in the heavy duty truck excuse me, in the middle

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<v Speaker 1>of the main automotive market, a slight downturn. I expect

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<v Speaker 1>a little bit of a sharper downturn because the ups

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<v Speaker 1>and downs are a little a little stronger in that market.

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<v Speaker 1>So what it does that picks up international UM. It

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<v Speaker 1>complements what it has in Europe, which is mon and

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<v Speaker 1>pan Scania. And the other thing that International is that

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<v Speaker 1>although they have a relatively small part of the market

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<v Speaker 1>in the US and Class eight UH, they have two

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<v Speaker 1>other things going on. One is they sell their engines

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<v Speaker 1>to other truck manufacturers in Class eight and they're they're

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<v Speaker 1>stronger in the medium and the medium market the class

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<v Speaker 1>four through seventh. Is there any possibility that v W

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<v Speaker 1>will eventually make a bid for all of Navistar UM,

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<v Speaker 1>It's certainly possible. UM. I don't know if they need

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<v Speaker 1>to UM. You know, as long as they can cooperate

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<v Speaker 1>spread technology UH on in both directions. UH they're going

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<v Speaker 1>to get what they need. They've had some trouble getting

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<v Speaker 1>Monanskanya to really uh be part of the b W empire,

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<v Speaker 1>if you will. Uh, So I think they might be

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<v Speaker 1>a little hesitant to go all in on on international. Well,

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<v Speaker 1>it does seem like a big thing to take on.

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<v Speaker 1>But we know again that they VW truck and bus

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<v Speaker 1>division hasn't been especially affected by the diesel emission scandal.

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<v Speaker 1>And obviously I would think despite any downturns I had,

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<v Speaker 1>they're investing for the long term. They see a market

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<v Speaker 1>where they can get a foothold. And let's face, I mean, VW,

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<v Speaker 1>despite the scandal, is a large, well known, powerful brand.

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<v Speaker 1>And and the ironic thing is, I say, international Navastar

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<v Speaker 1>what we're talking about the same thing of course. Uh.

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<v Speaker 1>Nowa star has been behind the lead ball for their

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<v Speaker 1>own problems with diesel emissions. Uh. They took a route

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<v Speaker 1>independent of SCR, the the newer technology, which paciently failed.

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<v Speaker 1>Uh they said, okay, we're sorry when they put their

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<v Speaker 1>tail between their legs. And now they're they're massively moving

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<v Speaker 1>to the industry standard, which is as CR, which of

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<v Speaker 1>course is what the W needs to be doing. Yesterday,

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<v Speaker 1>with respect to its UH, it's mainstream automotive work. Can

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<v Speaker 1>we turn you attention now to Tesla, I mean Tesla.

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<v Speaker 1>The shares are hired by about two and a quarter

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<v Speaker 1>percent today, down nearly sixteen percent so far this year

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<v Speaker 1>raising money. Is Tesla going to be able to continue

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<v Speaker 1>to raise money from the public markets? Well, obviously they

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<v Speaker 1>need to, and so it's pretty clear that Ellen is saying,

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<v Speaker 1>let's give ourselves the best opportunity to raise money at

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<v Speaker 1>the least cost. And obviously the share price is important,

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<v Speaker 1>and it's also if they go to the debt market,

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<v Speaker 1>it's also important with respect to the interest rates. So

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<v Speaker 1>what they're saying is UH, and this is no huge surprise.

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<v Speaker 1>As we move forward to the late this year and

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<v Speaker 1>certainly into next year, between the Giga factory and the

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<v Speaker 1>development of production capacity and investment for the Model three,

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<v Speaker 1>they're going to be spending capex in in huge buckets

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<v Speaker 1>and so obviously they're gonna be losing money UH in

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<v Speaker 1>law itch buckets as well. And so they're simply saying

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<v Speaker 1>you and saying, let's see if we can squeeze a

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<v Speaker 1>third quarter that looks good in non gap, that'll make

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<v Speaker 1>it a little better for us as we raise all

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<v Speaker 1>this money, uh, and then we'll move forward from there.

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<v Speaker 1>So Allen, but could you could you imagine could you

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<v Speaker 1>just imagine what again if they're gonna spend all this

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<v Speaker 1>money in R and d Uh they've again obviously they

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<v Speaker 1>have had this huge cash burn and the people love

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<v Speaker 1>them still love them. Where will they cut? Well, you know,

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<v Speaker 1>they go to fly around and see clients lest I

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<v Speaker 1>mean you would imagine where's the where's the where's the

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<v Speaker 1>fat they can cut? Do you think, well, there's s

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<v Speaker 1>g n A for them? Uh. Sales in general administrative

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<v Speaker 1>is a huge issue because of the distribution costs that

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<v Speaker 1>they have, uh, their incentives. They need to keep the

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<v Speaker 1>money the numbers flowing, I should say, in terms of

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<v Speaker 1>sales and so it's it's kind of difficult to cut

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<v Speaker 1>off when you're trying to and are obviously huge expensive

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<v Speaker 1>when you're trying to reach a production and sales numbers

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<v Speaker 1>that are are very significant because of the fact that

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<v Speaker 1>the second half needs to be much stronger than the

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<v Speaker 1>first half. I don't think that the small stuff is

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<v Speaker 1>not what you're gonna cut. Uh, it's the Uh. It's

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<v Speaker 1>some of the issues like for example, supercharger development may

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<v Speaker 1>be pushed back a little bit. Uh. They obviously need

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<v Speaker 1>to have more superchargers when the Model three is out,

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<v Speaker 1>but maybe they have the next year instead of this year.

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<v Speaker 1>The same with stores. They need to UH dramatically increase

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<v Speaker 1>their account again, they may not do that uh this

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<v Speaker 1>quarter or perhaps even next and holding off into next year,

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<v Speaker 1>thank you very much. Alan Baum is the principal at

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<v Speaker 1>Bauman Associates, joining us from West Bloomfield, Michigan. Shares of

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<v Speaker 1>Tesla higher by four dollars to share a two d

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<v Speaker 1>and two dollars. This is Bloomberg. Another big deal coming

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<v Speaker 1>up on taking stock on Bloomberg Radio and Bridge agreeing

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<v Speaker 1>to purchase a fellow pipeline owner, Spectra Energy Corps for

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<v Speaker 1>twenty eight billion dollars in stock. While the deal work,

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<v Speaker 1>we'll find out