Elon Musk on big plans for China

To tap into a growing market for electric vehicles in China, Tesla is betting big on the region — and executives talked up the company’s efforts there on an earnings call this week.

Specifically CEO Elon Musk and Tesla’s retiring CFO Deepak Ahuja emphasized their aims to get the Tesla Shanghai Gigafactory up-and-running this year, and to deliver U.S-made Model 3 sedans to customers in China immediately. Musk expressed concern that trade tensions between China and the U.S. could escalate, resulting in higher import taxes or tariffs, and other problems for Tesla.

Electric vehicle sales have grown more rapidly in China than other parts of the world, and already comprise about 4 percent of the substantial market there. The growth is thanks, in part, to a shifting array of federal and local incentives for electric vehicle makers, and subsidies for people who buy these cars in China. Tesla wants to establish a stronger foothold in this massive market, before the subsidies and incentives go away.

The industry ministry of China expects annual “new energy vehicle” output to rise to 2 million in 2020, and sales of 7 million new energy vehicles in China by 2025, representing about 20 percent of the overall autos market there.

Tesla faces serious competition from domestic Chinese companies like: the Warren Buffet-backed BYD; SAIC, which makes Roewe electric cars; and Geely, the parent company of Volvo. It also faces competition from foreign automakers that produce electric cars or hybrid, and already know their way around manufacturing in China, like Ford, Hyundai and Toyota.

Here are some of Tesla’s biggest plans for China that execs outlined Wednesday’s fourth-quarter earnings call, as transcribed by FactSet:

Funding the Shanghai Gigafactory:

“The purchase of the land is a 50-year lease with the government of China. So, it’s not capex, but it’s operating lease, and that shows up as the cash flow from operations. However, the capex that we will invest is our equipment, and we fully own it. So that will show up as capex. The plan, as we have indicated in the letter, is still to get funding for majority of that capital spending from local China banks. And we expect very attractive rates based on the dialogue we’ve had and there’s a lot of interest.” — Deepak Ahuja

Yeah. I mean, as a ballpark figure, probably something in the order of $500 million in capex to get to the 3,000-vehicle rate in Shanghai, ballpark figure. And as Deepak was saying, hooking up a very competitive debt financing in China really extremely compelling interest rates and so we do not expect that to be a capital drain on the company.” — Elon Musk

Tesla’s advantages in China:

“If you’re in the automotive industry you understand how significant this is, but maybe it’s not as obvious to everyone. Tesla has the first wholly owned manufacturing facility in China of any automotive company. So, this is profound. And we’re very appreciative of the Chinese government allowing us to do this. I think it is symbolic of them wanting to open the market and apply and it farewells to everyone. I’d just say like an order of appreciation for the Chinese government in allowing us to do that. It’s a very significant thing.” – Elon Musk

On making batteries in Shanghai:

“We’ll be making the module and the pack. So, it’s really just production of cell supply. And you can essentially use any high-energy density, 2170 chemistry. We expect it to be a combination of cells produced at our Gigafactory in Nevada, cells produced in Japan and cells produced locally in China. And we feel confident of sufficient supply to hit 3,000 units a week.” — Elon Musk

Delivering a lower-priced Model 3:

“We need to bring the Shanghai factory online. I think that’s the biggest variable for getting to 500,000-plus a year. Our car is just very expensive going into China. We’ve got import duties, we’ve got transport costs, we’ve got higher costs of labor here. And we’ve never been eligible for any of the EV tax credits. A lot of people criticize Tesla for being so dependent on incentives. In fact, for a company making EVs, we have the least access to incentives. It’s pretty crazy. Because there’s so many countries that have put price caps on the EV incentive which differentially affect Tesla. And in China, which is the biggest market for EV’s, we’ve never had any subsidies or tax incentives for vehicles.

“So, it’s difficult. Once a car is made there, it is eligible for that. That sounds like that’s going to be reducing in China in the coming years. But really, bottom line is, we need the Shanghai factory to achieve that 10,000 rate and have the cars be affordable. It’s important to appreciate, the demand for Model 3 is insanely high. The inhibitor is affordability. It’s just that people literally don’t have the money to buy the car. It’s got nothing to do with desire. They just don’t have enough money in the bank account. If the car can – if we made it more affordable, the demand is extraordinary.” — Elon Musk

On how demand in China stacks up versus Europe:

“Our relationship actually with Europe and China is how do we get the cars made and on order such that it reaches customers before end of quarter and we don’t have a massive number of cars on the order. That’s our biggest challenge. It’s not demand. It’s how do we get the cars there fast enough…I mean, we’re not even really trying, I should point out. Our factory is like right now only making cars for China and Europe. That’s all it’s doing with respect to Model 3. And our whole focus is okay, how do we get those cars made, get them on a ship as fast as possible.” — Elon Musk

On U.S.-China trade relations:

“We don’t know what’s going to happen with the trade negotiations. So it’s very important to get those cars especially to China as soon as possible. We hope the trade negotiations go well, but it’s not clear. But we need to get them there while there’s sort of de facto sort of a truce on the tariff war. And demand gen is really not one of the things we’re thinking about.” — Elon Musk

WATCH: Elon Musk says demand for Model 3 is “insanely high,” but cost is too high

Apple revokes enterprise license key from Google

Apple on Thursday appears to have revoked Google’s enterprise developer certificates in retaliation for an app that violated its policies. The move could make it impossible for Google employees to test iPhone apps and use certain internal apps. The move was first reported by The Verge.

A Google spokesperson said, “We’re working with Apple to fix a temporary disruption to some of our corporate iOS apps, which we expect will be resolved soon.” In a statement, Apple said “We are working together with Google to help them reinstate their enterprise certificates very quickly.”

Apple did the same thing to Facebook on Wednesday and, until now, it seemed that Google might have gotten away for violating the same policies as Facebook.

Apple first pulled Facebook’s enterprise certificates after a TechCrunch report revealed that the company had been secretly distributing a Facebook Research app to members of a program that allowed the firm to collect data on how they used their devices.

Google was operating a similar program called Screenwise Meter that also skirted Apple’s rules. It apologized on Wednesday evening and called its action a “mistake.” Both Facebook and Google have shut down the programs on iPhones.

Enterprise certificates let companies develop and install apps without having to publish them to the Apple App Store. But Apple’s rules require that the apps are only distributed to employees, not to outside parties.

Apple’s decision was said to have “crippled” parts of Facebook, particularly among employees who could no longer access early builds of apps, such as beta versions of Instagram and Facebook Messenger, which they were working on, according to Business Insider. It also prevented Facebookers from using employee-only apps such as Mobile Home and Ride, the latter of which helps with employee transportation.

That means Google’s employees could face a similar situation, particularly those who are working on early builds of new applications. Google has lots of popular apps on iPhone including Google Maps, Gmail, Calendar, Hangouts, Google Music and more. One employee who asked to remain anonymous said they were having difficulty accessing an internal app used for checking Google shuttle bus schedules.

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Amazon earnings q4 2018

Amazon and Blue Origin founder Jeff Bezos provides the keynote address at the Air Force Association's Annual Air, Space & Cyber Conference in Oxen Hill, MD, on September 19, 2018.

Jim Watson | AFP | Getty Images

Amazon and Blue Origin founder Jeff Bezos provides the keynote address at the Air Force Association’s Annual Air, Space & Cyber Conference in Oxen Hill, MD, on September 19, 2018.

Amazon reported its fourth-quarter earnings on Thursday after the bell.

It’s a beat across the board. Amazon stock rose as much as 3 percent after hours before settling to a slight gain.

Here are the most important numbers:

  • EPS: $6.04 vs. $5.68 estimated, according to Refinitiv
  • Revenue: $72.4 billion vs. $71.9 billion estimated, according to Refinitiv
  • AWS: $7.43 billion vs. $7.3 billion estimated, according to Refinitiv

Net sales are expected to be between $56 billion and $60 billion in the first quarter, or to grow between 10% and 18% compared with first quarter of 2018. This guidance anticipates an unfavorable impact of approximately 210 basis points from foreign exchange rates.

Operating income is expected to be between $2.3 billion and $3.3 billion for the first quarter, compared with the year-ago period’s $1.9 billion.

Amazon CEO Jeff Bezos highlighted the success of the Alexa voice-assistant in the earnings release.

“Alexa was very busy during her holiday season. Echo Dot was the best-selling item across all products on Amazon globally, and customers purchased millions more devices from the Echo family compared to last year,” Bezos said in a statement.

The fourth-quarter is typically the largest for Amazon because it includes the holiday shopping season.

Amazon has seen a huge boost in profitability in recent years, after seeing growth in businesses like cloud, advertising and the third-party marketplace, where margins are bigger but sales are smaller. Amazon is historically known for running on thin margins because it reinvests most of its profits back into the company.

Amazon stock is up 18 percent over the past year. Its market cap, more than $840 billion as of Thursday afternoon, is the largest of any publicly traded company in the world.

Facebook removes nearly 800 ‘inauthentic’ Iranian pages, accounts

Facebook founder and CEO Mark Zuckerberg arrives to testify following a break during a Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee joint hearing about Facebook on Capitol Hill in Washington, DC.

Saul Loeb | AFP | Getty Images

Facebook founder and CEO Mark Zuckerberg arrives to testify following a break during a Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee joint hearing about Facebook on Capitol Hill in Washington, DC.

Facebook on Thursday announced it removed 783 pages, groups and accounts with ties to Iran as part of the company’s continued effort to rid misinformation from its services.

The company said the Iranian accounts and pages were used to push Iranian propaganda “on topics like Israel-Palestine relations and the conflicts in Syria and Yemen, including the role of the US, Saudi Arabia, and Russia,” Facebook said in a blog post.

At least one of the pages had about 2 million followers. Altogether, the accounts spent less than $30,000 on Facebook and Instagram ads, the company said. The accounts and pages also hosted eight events, dating back to May 2014. As many as 210 people expressed interest in attending at least one of the events, Facebook said.

WATCH: Here’s how to see which apps have access to your Facebook data — and cut them off

GE soaring on earnings. Jim Cramer two experts weigh in what’s next

General Electric surged Thursday for its best day since March 2009 after the company’s earnings beat Wall Street’s expectations. The long-embattled stock was up as much as 18 percent at the highs of the session, cracking the $10 mark for the first time since November.

Here’s what three experts have to say about the GE turnaround:

• Harbor Advisory CIO Jack De Gan said GE needs to convince investors that the bottom is in and the future is stable: “I think what Larry Culp needs to do is give investors some confidence that we’re at or near the bottom in the power business, and that he’s got a strategy to carry the business through what could be a modest secular decline, but getting the margins that he needs to bring back some earnings and some cash flow.”

• When it comes to that cash flow, CNBC’s Jim Cramer has some questions. “I think that you’re going to conclude that they need money. And where’s the money going to come from?” asked Cramer. Despite questioning GE’s cash flow and doubting that it will try to raise money by issuing more shares, Cramer thinks Culp’s approach is on the right track. “I think the healthcare decision is a wise one, I think that Culp is really on target here, but I don’t have a catalyst. I wonder if they’re using JPMorgan for some of this business.”

• Steve Grasso, director of institutional sales at Stuart Frankel and a CNBC “Fast Money” trader, believes that the tide is turning for GE and substantive improvements are on the horizon as a result of a change in philosophy brought about by CEO Larry Culp. “He’s been given the benefit of the doubt,” said Grasso of Culp, “and we haven’t really seen that ‘kitchen sink’ approach that we’ve seen so many times before. I do think that this is the first step of, hopefully, many more positive steps for GE. You can’t imagine it getting worse than it was a handful of months ago.”

GE is up nearly 40 percent so far this year.

Facebook will move to reporting aggregate numbers for ‘Family’ of apps

Facebook told investors Wednesday it will eventually stop breaking out numbers for its namesake platform and instead report metrics for its “Family” of services.

“For the time being, we will continue to disclose both set of numbers,” Chief Financial Officer David Wehner said on a call with investors following the company’s fourth quarter 2018 earnings report. “But over time, we expect Family metrics will play the primary role in how we talk about our company and we will eventually phase out Facebook-only community metrics.”

Investors largely seemed unswayed by the news as Facebook stock soared more than 12 percent Thursday on its strong earnings beat. Analysts were overall very pleased with Facebook’s latest report, which beat Street estimates on revenue, earnings per share and average revenue per user (ARPU) while maintaining modest user growth. But some expressed concern about Facebook’s plans to aggregate its user numbers across services.

“We are not supportive of this move as these figures will be primarily driven by the lower-monetising [sic] messaging apps,” Atlantic Equities wrote in a note published Thursday morning. “But we can see the rationale, particularly given the growing importance of Instagram.” The firm issues an overweight rating with a price target of $200.

MKM Partners rated the stock a buy with a $190 price target, but noted, “Bears may highlight commentary that [management] intends to de-emphasize Facebook app metrics and focus on the family of apps, eventually removing the existing user disclosure. Bears will likely suggest that [management] is preparing to remove transparency as an engagement problem on the core service is set to worsen.”

Apple made a similar announcement in an earnings call last year when it said the company would no longer break out iPhone unit sales, which has long been a key metric for investors. Many analysts saw the disclosure as acknowledgement of weak iPhone sales, though strong services revenue this quarter seems to have convinced investors so far that Apple is strong in other parts of its business.

Both Facebook and Apple have justified the reporting shift by saying there are other, more important metrics investors should focus on in their businesses. Apple is trying to unpin its fate from iPhone sales and instead guide the conversation toward services, which offer the potential of more consistent, recurring revenue. Facebook hopes its other brands, like Instagram and WhatsApp, can buoy its business.

Facebook is also in the early planning stages of integrating the messaging platforms across those three services with default encryption, the company confirmed after The New York Times first reported the initiative. While the plans raised privacy and antitrust concerns, they also could offer the potential to better monetize those services.

Some analysts seem to agree with Facebook’s mindset shift to focus on its full suite of apps. Even before Facebook’s earnings report, Raymond James & Associates wrote in a note published prior to the earnings report Wednesday, “We believe Family [Daily Active Users] are becoming more important given growth of Instagram.”

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Watch: ‘We have a lot of hard work to do preventing harm on our platform’: Facebook COO Sheryl Sandberg

Tesla ramps production as competitors flood market with electric cars

Beyond the cost for purchasing parts, the AlixPartners study estimated “by 2023 a whopping $255 billion in R&D and capital expenditures (will be) spent globally on electric vehicles, and that some 207 electric models are set to hit the market by 2022.” The problem, a summary of the report concluded, is that “many of them destined to be unprofitable due to currently-high systems costs, low volumes and intense competition.”

“We have to reduce the amount of money everybody’s pouring in,” echoed Don Walker, the CEO of Canadian-based mega-supplier Magna International during a mid-January speech to the Automotive News World Congress in Detroit.

For EV proponents, the good news is that U.S. sales of plug-based models nearly doubled last year, from 199,818 in 2017, according to InsideEVs.com, to 361,307.

In China, where New Energy Vehicle rules are meant to foster demand for zero-emissions vehicles, sales grew even faster. In December 2018 alone, Chinese consumers purchased 181,385 plug-ins during December alone, reports the EV Sales Blog, a 70 percent jump. For all of 2018, Chinese sales came to 1,102,375.

Even so, plug-ins and pure electrics still accounted for barely 4 percent of the Chinese market, and 2 percent of the American. And a closer look could leave one still more skeptical. In the U.S., only the Tesla Model 3, of all the electrified models now on the market currently is generating more than 10,000 sales per month, noted Toyota’s North American CEO Jim Lentz. And of the 94 “electrified” vehicles currently on the market — including hybrids, as well as plug-ins and pure battery-electric vehicles — only six top 2,000 a month.

Ilhan Omar backs Alexandria Ocasio-Cortez idea for high taxes on rich

Freshman Congresswoman Ilhan Abdullahi Omar jumped into the frothy debate over taxing the rich at super high rates on Tuesday.

On Yahoo’s web series “Through Her Eyes,” Omar suggested one way to pay for programs like Medicaid or the Green New Deal is to increase tax rates on the super rich.

“We could increase the taxes that people are paying who are the extremely wealthy in our communities. So 70 percent, 80 percent, we’ve had it as high as 90 percent,” Omar says.

“The 1 percent must pay their fair share,” adds Omar.

Omar, a Democrat U.S. Representative for Minnesota who is one of the first two Muslim women to be elected to Congress, later tweeted that she supports the 70 percent marginal tax rate her fellow freshman Congresswoman Alexandria Ocasio-Cortez has proposed.

Representative Alexandria Ocasio-Cortez, a Democrat from New York and the youngest woman ever elected to Congress, suggested a 70 percent marginal tax rate on those making more than $10 million per year. (Currently, the top tax rate in the United States is 37 percent.)

“People are going to have to start paying their fair share in taxes,” Ocasio-Cortez told Anderson Cooper on CBS’ “60 Minutes” in January. “Your tax rate, you know, let’s say, from zero to $75,000 may be 10 percent or 15 percent, et cetera. But once you get to, like, the tippy tops — on your 10-millionth dollar — sometimes you see tax rates as high as 60 or 70 percent. That doesn’t mean all $10 million are taxed at an extremely high rate, but it means that as you climb up this ladder you should be contributing more.”

Amazon earnings preview q4 2018

Jeff Bezos, founder and chief executive officer of Amazon.com Inc., listens during an Economic Club of Washington discussion in Washington, D.C., U.S., on Thursday, Sept. 13, 2018. 

Andrew Harrer | Bloomberg | Getty Images

Jeff Bezos, founder and chief executive officer of Amazon.com Inc., listens during an Economic Club of Washington discussion in Washington, D.C., U.S., on Thursday, Sept. 13, 2018. 

The last two times Amazon has reported quarterly results, revenue has fallen short of expectations. Now investors are facing the prospects of slowing growth at the e-commerce giant.

Amazon is slated to announce fourth-quarter earnings after the bell on Thursday. Analysts surveyed by Refinitiv expect the company to report revenue growth of 18.8 percent from a year earlier to $71.9 billion. That would mark the slowest fourth-quarter sales growth since 2014 and would be slightly below the top end of Amazon’s guided range.

For a company of Amazon’s size, that’s still a big number. Amazon is expected to top $200 billion in full-year revenue for the first time. At $232.4 billion, analysts’ average estimate, Amazon would be the sixth-largest U.S. company based on 2018 sales.

Here’s what Wall Street is expecting, according to Refinitiv consensus estimates:

  • EPS: $5.68 vs. $2.16 per share last year
  • Revenue: $71.9 billion vs. $60.5 billion last year
  • AWS: $7.3 billion (FactSet estimate) vs. $5.1 billion last year

In addition to the law of large numbers, there are several other reasons for the growth deceleration.

Amazon has been more focused on bolstering profitability than revenue in recent years, with growth coming from businesses like cloud, advertising and the third-party marketplace, where margins are bigger but sales are smaller. This is also the first time to get a fully comparable year-over-year number on Whole Foods, a slower growing business.

Still, investors will be paying close attention to the top line. Since 2009, Amazon has only exceeded analyst expectations once in the fourth quarter.

“The most important number coming out of fourth-quarter earnings will be the pace of revenue growth deceleration that is likely implied in the [first-quarter] guidance,” wrote Anthony DiClemente, an analyst at Evercore, in a report earlier this month. DiClemente has a “buy” rating on the stock.

Analysts remain overwhelmingly bullish on Amazon, with 41 out of the 42 recommending it to investors, according to FactSet. DiClemente wrote that strong holiday sales data and the continued success of Amazon’s advertising and subscription businesses point to another strong quarter. Doug Anmuth of J.P. Morgan Chase wrote that he expects another solid quarter based on strong “fundamentals and secular trends.”

Here are some of the key topics that could get discussed on the earnings call:

  • Holiday sales: Amazon has already said it had another “record-breaking” holiday season in 2018, with over 1 billion items shipped for free in the U.S. alone. But there have been some signs of weaker retail trends in the European market and there are questions about how Amazon performed in other international markets, like India.
  • International growth: Amazon’s international business saw a huge slowdown last quarter, growing only 15 percent from the prior year. The company said it was due to Souq’s business reflecting its first full year of Amazon ownership and India’s Diwali season getting pushed to the fourth quarter. But investors will want more details, especially with upcoming rule changes in India and the new marketplace expected to launch in the Middle East.
  • Minimum wage impact: In November, Amazon raised the minimum wage for its warehouse and part-time workers to $15 per hour. John Blackledge, an analyst at Cowen, wrote in a note this week that the change is estimated to cost an additional $370 million for Amazon in the fourth quarter.
  • Profitability: The biggest story for Amazon in recent years is profit growth. The company is expected to report earnings of $2.8 billion in the fourth quarter — only the third time to pass $2.5 billion. Amazon is historically known for running on thin margins, because it reinvests most of its profits back into the company, so investors will want to know what to expect going forward.

AMD, up 155% from its low, has more room to run, technician says

There’s nothing small about Advanced Micro Devices’ moves.

An earnings beat had the chipmaker’s shares soaring nearly 20 percent on Wednesday, its 10thone-day double-digit move in a year. Its stock gained 1 percent in Thursday’s premarket. Prior to that move, AMD had plummeted 44 percent from its September highs.

Craig Johnson, chief market technician at Piper Jaffray, says its trading pattern over the last four months has made a bullish case for the stock.

“From my perspective, it looks like a great downtrend reversal in the making,” Johnson said Wednesday on CNBC’s “Trading Nation.”

Since bottoming on the day after Christmas, AMD shares have rallied 44 percent. Its 50-day and 200-day moving averages have also begun to turn upward, indicating a downtrend reversal.

“Expectations were really reset through the fourth quarter of last year,” said Johnson. “Look at the downtrend reversal, the great support that’s come into play. I think the stock has got more room to run, and I think you could see this stock move up to about $27, and that’s really where the next overhead resistance comes into play.”

A move up to $27 represents 18 percent upside from Wednesday’s close. It would still be 21 percent below September levels.

AMD should also benefit from continued revenue growth, says Mark Tepper, president of Strategic Wealth Partners.

“When you look at some of the smaller players like Xilinx, Lam Research and AMD, they’re less dependent on the overall growth of the industry because they have the ability to actually capture market share from the big boys,” Tepper said on “Trading Nation” on Wednesday. “Is there more upside? Absolutely as long as they can take market share from Intel and Nvidia.”

However, the extreme moves have Tepper hesitant to get behind AMD stock.

“This is a really volatile stock. Within the past year it’s been at $9 all the way up to [$34],” he said. “So, while this thing could be a hero over the next few months, the volatility has us on the sidelines here.”

From its 52-week low in April to its September high, AMD had moved 278 percent and is easily the best performer in the semiconductor ETF (SMH) over the past 12 months.

Disclosure: Neither Tepper nor Strategic Wealth Partners have a position in AMD.