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Alan Baum on Tesla's Huge Need to Raise Money for Capex (Audio) · Bloomberg Intelligence

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  Speaker 1: Broadcasting live to New York, Bloomberg even to Washington, d C,
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  Speaker 1: Coming up on taking stock, will take stock of Navistar International.
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  Speaker 1: The shares of Navistar International are up more than forty
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  Speaker 1: two percent after Volkswagen says that it's taken and nearly
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  Speaker 1: seventeen percent steak in the builder of commercial trucks and vehicles.
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  Speaker 1: Will find out what the w wants from this and
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  Speaker 1: will also take a look at the truck industry and
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  Speaker 1: they're going to be facing more reduced emissions regulations in
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  Speaker 1: the near future. Right now, let's go to Charlie Pellett
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  Speaker 1: in the Bloomberg news room for Bloomberg Business Flat and
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  Speaker 1: I thank you pim Fox, the DAL, the SMP NZ
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  Speaker 1: deak all into the higher equities trading near records as
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  Speaker 1: traders pair bets on a September fed hike. To service
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  Speaker 1: industry has expanded in the US in August at the
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  Speaker 1: weakest pace in six years. That is raising questions about
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  Speaker 1: the strength of the U S economy, and it adds
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  Speaker 1: on raising interest rates this month at a time when
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  Speaker 1: central banks in other developed economies are ready to boost stimulus.
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  Speaker 1: You and Cameron Watt, his portfolio manager at black Rock International.
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  Speaker 1: He was interviewed this morning on Bloomberg Television. I mean,
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  Speaker 1: I think what we learned is the monetary policy, or
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  Speaker 1: the expectation of monetary policy still matters. I mean, we've
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  Speaker 1: done with a lunger of crises in the last couple
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  Speaker 1: of months against a backdrop of expectations of the CV
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  Speaker 1: extending Bank of Japan extending the Bay coming to the party. Uh,
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  Speaker 1: and the volatility has been exceptionally over the summer period.
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  Speaker 1: Federal Mogul Holdings has agreed to be acquired by billionaire
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  Speaker 1: investor Carl Icon's investment company for nine a share in cash.
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  Speaker 1: The maker of Champions spark plugs will be closely held
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  Speaker 1: by Icon Enterprises, which already held almost eighty two percent
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  Speaker 1: of the company. Volkswagen buying that steak in Navistar International
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  Speaker 1: to gain of foothold in the US heavy truck market.
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  Speaker 1: Navastar surging on the news. It is up now by
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  Speaker 1: forty one point nine percent. SMP five hundred, index up
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  Speaker 1: three three, a gain of two tenths of one percent.
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  Speaker 1: Down dust reels up twenty nine, a gain also of
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  Speaker 1: two tents of one percent. NAA stack up three tenths
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  Speaker 1: of one percent, Gold up two percent. Rallying he beyounced
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  Speaker 1: thirteen fifty West Texas intermediac crewed up one percent, forty
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  Speaker 1: eight seven of Barrow. And now let's look at the
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  Speaker 1: other stories making news. Thank you, Charlie from the Bloomberg Newsroom.
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  Speaker 1: I'm Scarlett Foo. Hillary Clinton is once again calling on
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  Speaker 1: a rally in Tampa, Florida at this hour to discuss
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  Speaker 1: vowing to push for tighter sanctions for North Korea. However,
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  Speaker 1: the President said the US is still open to talks
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  Speaker 1: if it is willing to recognize its international obligations and
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  Speaker 1: the importance of the nuclearization in the Korean peninsula. Uh
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  Speaker 1: the opportunities for US to dialogue with them are there.
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  Speaker 1: Mr Obama made the comments after meeting with South Korea's
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  Speaker 1: Pacific normally is busier, so we've had fifteen nine storms
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  Speaker 1: Former Fox News Channel anchor Gretchen Carlson has settled her
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  Speaker 1: sexual harassment lawsuit against Roger else. It's a case that
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  Speaker 1: led to the downfall of Fox's chief executive. According to
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  Speaker 1: someone familiar with the sealment details, Carlson received twenty million dollars.
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  Speaker 1: Newark schools are back in session today, but students still
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  Speaker 1: can't drink from the water fountains. Officials say the lead
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  Speaker 1: levels are still too high, but should be deemed safe
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  Speaker 1: I'm Scarlet Food. This is Bloomberg, Charlie, and we thank you.
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  Speaker 1: And again recapping the doal the SMP and NEZ stack
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  Speaker 1: called Advancing SMP five. How did it index up three three?
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  Speaker 1: Again there of two tenths of one percent. I'm Charlie Pelton.
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  Speaker 1: That's a Bloomberg business splash. Shelie pell thank you so
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  Speaker 1: very much. Shifting gears to gain traction in the US
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  Speaker 1: heavy truck market, Elon Musk sending a letter to Tesla
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  Speaker 1: workers to say, hey, let's get more efficient and save
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  Speaker 1: some money reduced cost in case someone wants to UH
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  Speaker 1: invest in us, We're gonna put all these questions before
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  Speaker 1: Alan Baum. Now he's principal at Baum and Associates, joining
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  Speaker 1: us from otto Land West, Bloomfield, Michigan. Alan, welcome, good afternoon.
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  Speaker 1: So let's start with Volkswagen. It's gonna buy a sixteen
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  Speaker 1: point six percent stake in Navistar International two or fifty
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  Speaker 1: six million dollars, part of a strategic alliance to UH
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  Speaker 1: get the struggling US truck maker to enter the North
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  Speaker 1: American market. What do you think it's getting a good deal?
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  Speaker 1: Because as you say, it's struggling. And the other thing
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  Speaker 1: is that the Craft eight market, the largest trucks UH
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  Speaker 1: is starting to turn downward. So for the next couple
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  Speaker 1: of three years, I think we're gonna see, just like
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  Speaker 1: in the heavy duty truck excuse me, in the middle
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  Speaker 1: of the main automotive market, a slight downturn. I expect
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  Speaker 1: a little bit of a sharper downturn because the ups
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  Speaker 1: and downs are a little a little stronger in that market.
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  Speaker 1: So what it does that picks up international UM. It
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  Speaker 1: complements what it has in Europe, which is mon and
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  Speaker 1: pan Scania. And the other thing that International is that
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  Speaker 1: although they have a relatively small part of the market
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  Speaker 1: in the US and Class eight UH, they have two
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  Speaker 1: other things going on. One is they sell their engines
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  Speaker 1: to other truck manufacturers in Class eight and they're they're
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  Speaker 1: stronger in the medium and the medium market the class
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  Speaker 1: four through seventh. Is there any possibility that v W
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  Speaker 1: will eventually make a bid for all of Navistar UM,
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  Speaker 1: It's certainly possible. UM. I don't know if they need
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  Speaker 1: to UM. You know, as long as they can cooperate
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  Speaker 1: spread technology UH on in both directions. UH they're going
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  Speaker 1: to get what they need. They've had some trouble getting
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  Speaker 1: Monanskanya to really uh be part of the b W empire,
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  Speaker 1: if you will. Uh, So I think they might be
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  Speaker 1: a little hesitant to go all in on on international. Well,
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  Speaker 1: it does seem like a big thing to take on.
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  Speaker 1: But we know again that they VW truck and bus
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  Speaker 1: division hasn't been especially affected by the diesel emission scandal.
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  Speaker 1: And obviously I would think despite any downturns I had,
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  Speaker 1: they're investing for the long term. They see a market
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  Speaker 1: where they can get a foothold. And let's face, I mean, VW,
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  Speaker 1: despite the scandal, is a large, well known, powerful brand.
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  Speaker 1: And and the ironic thing is, I say, international Navastar
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  Speaker 1: what we're talking about the same thing of course. Uh.
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  Speaker 1: Nowa star has been behind the lead ball for their
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  Speaker 1: own problems with diesel emissions. Uh. They took a route
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  Speaker 1: independent of SCR, the the newer technology, which paciently failed.
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  Speaker 1: Uh they said, okay, we're sorry when they put their
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  Speaker 1: tail between their legs. And now they're they're massively moving
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  Speaker 1: to the industry standard, which is as CR, which of
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  Speaker 1: course is what the W needs to be doing. Yesterday,
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  Speaker 1: with respect to its UH, it's mainstream automotive work. Can
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  Speaker 1: we turn you attention now to Tesla, I mean Tesla.
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  Speaker 1: The shares are hired by about two and a quarter
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  Speaker 1: percent today, down nearly sixteen percent so far this year
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  Speaker 1: raising money. Is Tesla going to be able to continue
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  Speaker 1: to raise money from the public markets? Well, obviously they
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  Speaker 1: need to, and so it's pretty clear that Ellen is saying,
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  Speaker 1: let's give ourselves the best opportunity to raise money at
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  Speaker 1: the least cost. And obviously the share price is important,
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  Speaker 1: and it's also if they go to the debt market,
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  Speaker 1: it's also important with respect to the interest rates. So
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  Speaker 1: what they're saying is UH, and this is no huge surprise.
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  Speaker 1: As we move forward to the late this year and
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  Speaker 1: certainly into next year, between the Giga factory and the
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  Speaker 1: development of production capacity and investment for the Model three,
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  Speaker 1: they're going to be spending capex in in huge buckets
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  Speaker 1: and so obviously they're gonna be losing money UH in
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  Speaker 1: law itch buckets as well. And so they're simply saying
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  Speaker 1: you and saying, let's see if we can squeeze a
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  Speaker 1: third quarter that looks good in non gap, that'll make
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  Speaker 1: it a little better for us as we raise all
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  Speaker 1: this money, uh, and then we'll move forward from there.
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  Speaker 1: So Allen, but could you could you imagine could you
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  Speaker 1: just imagine what again if they're gonna spend all this
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  Speaker 1: money in R and d Uh they've again obviously they
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  Speaker 1: have had this huge cash burn and the people love
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  Speaker 1: them still love them. Where will they cut? Well, you know,
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  Speaker 1: they go to fly around and see clients lest I
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  Speaker 1: mean you would imagine where's the where's the where's the
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  Speaker 1: fat they can cut? Do you think, well, there's s
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  Speaker 1: g n A for them? Uh. Sales in general administrative
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  Speaker 1: is a huge issue because of the distribution costs that
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  Speaker 1: they have, uh, their incentives. They need to keep the
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  Speaker 1: money the numbers flowing, I should say, in terms of
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  Speaker 1: sales and so it's it's kind of difficult to cut
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  Speaker 1: off when you're trying to and are obviously huge expensive
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  Speaker 1: when you're trying to reach a production and sales numbers
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  Speaker 1: that are are very significant because of the fact that
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  Speaker 1: the second half needs to be much stronger than the
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  Speaker 1: first half. I don't think that the small stuff is
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  Speaker 1: not what you're gonna cut. Uh, it's the Uh. It's
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  Speaker 1: some of the issues like for example, supercharger development may
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  Speaker 1: be pushed back a little bit. Uh. They obviously need
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  Speaker 1: to have more superchargers when the Model three is out,
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  Speaker 1: but maybe they have the next year instead of this year.
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  Speaker 1: The same with stores. They need to UH dramatically increase
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  Speaker 1: their account again, they may not do that uh this
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  Speaker 1: quarter or perhaps even next and holding off into next year,
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  Speaker 1: thank you very much. Alan Baum is the principal at
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  Speaker 1: Bauman Associates, joining us from West Bloomfield, Michigan. Shares of
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  Speaker 1: Tesla higher by four dollars to share a two d
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  Speaker 1: and two dollars. This is Bloomberg. Another big deal coming
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  Speaker 1: up on taking stock on Bloomberg Radio and Bridge agreeing
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  Speaker 1: to purchase a fellow pipeline owner, Spectra Energy Corps for
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  Speaker 1: twenty eight billion dollars in stock. While the deal work,
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  Speaker 1: we'll find out