Latest / Bloomberg Intelligence / Tesla Will Go Bankrupt Without A Near-Term Cash Raise: Schultze

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Tesla Will Go Bankrupt Without A Near-Term Cash Raise: Schultze · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. When
• 0:33
  Speaker 1: I hear about distressed debt investors today, I think there's
• 0:37
  Speaker 1: got to be such a dearth of investing opportunities. Our
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  Speaker 1: next guest, though, not only focuses on distressed debt, but
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  Speaker 1: also distressed equities. George schultzy Joins is now chief executive
• 0:46
  Speaker 1: officer of Salty Asset Management, which oversees about two hundred
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  Speaker 1: million dollars. It is based in Purchase, New York. He's
• 0:52
  Speaker 1: in the studios today. Um, George, when we sat down,
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  Speaker 1: you said to me, you know, there really aren't that
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  Speaker 1: many opportunities on the debt side. Nothing is cheap on
• 1:01
  Speaker 1: the debt side. But in the equity world, you're seeing
• 1:04
  Speaker 1: some potential opportunities. Just before we get into the specific
• 1:08
  Speaker 1: names that you're looking at, why is that, Well, it
• 1:12
  Speaker 1: starts at a high level it's a good question. Um,
• 1:15
  Speaker 1: you know, the bond market and treasury market has been
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  Speaker 1: on fire for decades, but that's finally starting to reverse.
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  Speaker 1: You have monetary policy that's been extremely accommodated for years,
• 1:26
  Speaker 1: and the Fed is starting to tighten. Now the ten
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  Speaker 1: year treasury is at about three UM. Policy remains accommodative,
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  Speaker 1: but the Fed has raised rates six times since two
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  Speaker 1: thousand and fifteen, and we're you know, most people are
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  Speaker 1: expecting more rate increases going forward. There's also, of course,
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  Speaker 1: the unwinding of the FED balance sheet, otherwise known as
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  Speaker 1: quantitative So there's been there's been a gradual move up
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  Speaker 1: in yields. And you said that basically at this point,
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  Speaker 1: bonds are priced perfection. You're seeing sort of more of
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  Speaker 1: the sort of que induced froth in the bond world.
• 1:55
  Speaker 1: Why aren't we seeing in the equities? Well, what's interesting
• 1:58
  Speaker 1: in what happens after come needs restructure. Um, if they
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  Speaker 1: do it right, they eliminate sometimes billions of dollars in
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  Speaker 1: debt and what comes out on the other end, all
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  Speaker 1: of the things equal. As a company with a restructured,
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  Speaker 1: de leveraged balance sheet, that really isn't that dependent on
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  Speaker 1: the fixed income market anymore. And what we look for
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  Speaker 1: there is really an arbitrage between where the former lenders
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  Speaker 1: who received the new post distress common stock and in
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  Speaker 1: a restructuring versus and where they'll hold it and what
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  Speaker 1: they how they value that versus where the equity market
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  Speaker 1: will eventually value that very same company. You know, I
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  Speaker 1: want to ask you about Tesla and whether you can
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  Speaker 1: use Tesla as an example of a company that exists
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  Speaker 1: because of low interest rates. Uh, well, yes, it is.
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  Speaker 1: What we do in our strategy is we invest long
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  Speaker 1: and short, up and down the capital structure for companies
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  Speaker 1: that are either headed into potential bankruptcy in bankruptcy or
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  Speaker 1: previously and after they've come out of bank or see
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  Speaker 1: Tesla actually fits a template for a company that has
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  Speaker 1: bankruptcy risk. And what's interesting there, Hold on a second.
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  Speaker 1: That was the most sanguine way of saying, Tesla looks
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  Speaker 1: like it's heading for bankruptcy. That's what you mean, right? Uh?
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  Speaker 1: It is? That is what I mean. Now, it might
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  Speaker 1: not happen imminently. The company certainly has a large equity capitalization,
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  Speaker 1: but it's clearly overleveraged. The company has about twelve and
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  Speaker 1: a half billion in debt including non nonrecourse liabilities, it
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  Speaker 1: has twenty one billion if you include other balance sheet liabilities.
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  Speaker 1: And it also has this arcane liability on his balance sheet,
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  Speaker 1: which most other carmakers don't. That's one point four billion
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  Speaker 1: of resale value guarantees. But hold on a second. I
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  Speaker 1: want to get a sense of how do you short
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  Speaker 1: this thing? Because everybody and their mother is short testla.
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  Speaker 1: You look at this sort of short float and it's off.
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  Speaker 1: The it's off. Is it expensive to short test? Thank you?
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  Speaker 1: It's not very expensive. But investors should know that for
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  Speaker 1: companies that go into bankruptcy, equity holders are almost always
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  Speaker 1: wiped out. So it might take a little time. You
• 4:03
  Speaker 1: might have to pay to borrow the stock. But you're
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  Speaker 1: doing that right now. We are. We are doing it
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  Speaker 1: for about six months. Has it been paidful? Oh no,
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  Speaker 1: it's actually been profitable. It's been a good trade so far.
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  Speaker 1: Um The company has about two point seven billion of
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  Speaker 1: cash on the balance sheet, but in the last twelve
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  Speaker 1: months they burned five billion in cash. And if you
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  Speaker 1: you know, look at their last several years, going back
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  Speaker 1: four years, they've burned over nine billion dollars in cash
• 4:29
  Speaker 1: over the last four years. This year, Tesla has about
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  Speaker 1: two point two billion in debt coming to and next
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  Speaker 1: year another one point nine billion. Um. Yeah, but all
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  Speaker 1: of this adding up. Elon Musk says they don't have
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  Speaker 1: to raise more money. Well, that's the thing, and I
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  Speaker 1: think that's where he's being a little bit misleading or
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  Speaker 1: maybe just not knowledgeable, because clearly at that pace the
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  Speaker 1: company doesn't have enough cash. You have the most even
• 4:52
  Speaker 1: tone while you say the most cutting things. Maybe he's
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  Speaker 1: just not that's why. That's why he's able to do it.
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  Speaker 1: He doesn't know what he's talking about, and he's wrong.
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  Speaker 1: That's the translation to carry on. Yeah. Another another indication
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  Speaker 1: is also what happened with their capex projections. They were
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  Speaker 1: expecting to spend almost three and a half billion dollars
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  Speaker 1: in capital expenditures this year. I mean, this is a
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  Speaker 1: high growth company, it's basically a startup, so they need
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  Speaker 1: to spend that money to continue growing now and they're
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  Speaker 1: in their last conference call they've reduced that amount to
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  Speaker 1: three billion, which is a big drop. Okay, So when
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  Speaker 1: do you think that they could potentially declare bankruptcy. Well,
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  Speaker 1: that's a date I think what's going to happen in
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  Speaker 1: the near term. Is they're going to admit that they
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  Speaker 1: had to raise money, and I don't think the equity
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  Speaker 1: market is going to like that because it will likely
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  Speaker 1: be dilutive. Um. If they don't, they could file for
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  Speaker 1: bankruptcy any quarter from now. All right, So let's shift
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  Speaker 1: gears a little bit. So we've already decimated Tesla. You're
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  Speaker 1: expecting that if they don't raise new money at some
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  Speaker 1: point in the next few upcoming quarters, they could file
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  Speaker 1: for bankruptcy. A very bold call. Um, what about in
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  Speaker 1: the retail sector, sort of what are the most attractive
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  Speaker 1: play that you're seeing they're given some of the distress
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  Speaker 1: we've seen. That's a tough question, Lisa, because I don't
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  Speaker 1: see anything that's attractive in the retail space unfortunately. Um,
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  Speaker 1: except for maybe Amazon, but it's probably priced for perfection. Um.
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  Speaker 1: You know, the whole sector has been decimated by this
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  Speaker 1: extreme form of new competition with Amazon, you know, just
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  Speaker 1: turning the whole business upside down from a secular perspective.
• 6:23
  Speaker 1: Just to go back to this idea of of Tesla
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  Speaker 1: for just a second, Lisa, because I want to know,
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  Speaker 1: is this emblematic of indebted companies? Because I think that.
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  Speaker 1: There was a report by PIMCO that showed that I know,
• 6:36
  Speaker 1: it's a long time ago, about a quarter of investment
• 6:39
  Speaker 1: grade debt was rated trip will B or lower. Today
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  Speaker 1: that number is near fifty percent. Yeah, we are clearly
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  Speaker 1: in something that I view as a as a debt
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  Speaker 1: bubble that's starting to reverse. And I think it is
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  Speaker 1: emblematic um for a company to go bankrupt one of
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  Speaker 1: the one of the it's a scene quand on. You
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  Speaker 1: need to have excessive debt. And there are many companies
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  Speaker 1: that have excessive debt because the fixed income market has
• 7:03
  Speaker 1: been so hospitable to new financings. Because rates have been
• 7:06
  Speaker 1: so low, people have been desperate to lend and that's
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  Speaker 1: why I startup companies like Tesla have been able to
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  Speaker 1: borrow money in the high yield market. But people have
• 7:13
  Speaker 1: been calling the debt market a bubble for years now
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  Speaker 1: and it hasn't burst. And you have seen waves of
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  Speaker 1: distress like in retail, I mean Gibson and Toys r
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  Speaker 1: US some of the recent filings for bankruptcy. Um, there's
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  Speaker 1: a lot of distress and pain baked in there. Why
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  Speaker 1: is it still not enough? I mean, what are you
• 7:31
  Speaker 1: looking for? Well? I think as interest rates continue climbing
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  Speaker 1: from here, you get a market that becomes less and
• 7:38
  Speaker 1: less hospitable, and people investors can look at reasonable alternatives
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  Speaker 1: without taking that much risk in the junk debt market
• 7:46
  Speaker 1: to get the yield that they're looking for. I think
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  Speaker 1: that will change and become more and more apparent going forward.
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  Speaker 1: And what it means for the borrowing companies that the
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  Speaker 1: riskiest ones is they won't necessarily be able to refinance
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  Speaker 1: as their debt becomes do. Okay, just a real quick
• 7:59
  Speaker 1: we've got at thirty seconds here. Aside from Tesla, what
• 8:03
  Speaker 1: is your highest conviction short position right now? Well, that's
• 8:08
  Speaker 1: a tough call, you know. Besides Tesla, we have just
• 8:10
  Speaker 1: an overall equity market short to hedge our portfolio. That's
• 8:13
  Speaker 1: probably your highest conviction shot besides Cela. What's your highest
• 8:16
  Speaker 1: conviction long. One of the names we like long is
• 8:19
  Speaker 1: Peabody Energy Taker BTU. This is post distress equity. The
• 8:23
  Speaker 1: company came out of bankruptcy early last year, eliminated seven
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  Speaker 1: billion dollars in debt and trades at about let's see,
• 8:31
  Speaker 1: at about two point nine times IBADA, which is extremely cheap.
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  Speaker 1: Well done, Thank you very much, Georgia Shalty joining us
• 8:39
  Speaker 1: telling us about the world of Elon Musk, Tesla and
• 8:43
  Speaker 1: Peabody Energy. Peabody Energy have four tents of a percent
• 8:47
  Speaker 1: today that shares a down four percent for the year.
• 8:50
  Speaker 1: Symbol b TU. George a Salty, Chief Executive Officer Shalty
• 8:54
  Speaker 1: Asset Management based in Purchase, New York. Companies such as
• 9:13
  Speaker 1: A T and T and no V Artists paying money
• 9:17
  Speaker 1: to Michael Cohen at least a shell company that was
• 9:19
  Speaker 1: controlled by Michael Cohen, President Donald Trump's personal attorney. Here
• 9:24
  Speaker 1: to tell us more is Larry Noble, Senior Director and
• 9:28
  Speaker 1: general counsel to the Campaign Legal Center. They're based in Washington,
• 9:32
  Speaker 1: d C. Also joining us as Bill Allison campaign finance
• 9:36
  Speaker 1: reporter for Bloomberg News, and he joins us from our
• 9:39
  Speaker 1: ninety nine one studios in Washington. Bill, maybe you could
• 9:43
  Speaker 1: just outline for people what do we know so far
• 9:45
  Speaker 1: about companies and their payments to Mr Michael Cohen. What
• 9:50
  Speaker 1: we know is is that after Donald Trump's election, Michael
• 9:55
  Speaker 1: Cohen sort of advertised himself as somebody who understood the
• 9:58
  Speaker 1: thinking of and had acces us too, um President Trump.
• 10:03
  Speaker 1: And at this point in time, you have to remember
• 10:05
  Speaker 1: that you know, you have somebody who ran as an outsider,
• 10:07
  Speaker 1: who was an outsider who didn't have the long Washington history,
• 10:11
  Speaker 1: and companies were looking for UM people who could provide
• 10:15
  Speaker 1: guidance or help them understand how the Trump administration was working.
• 10:19
  Speaker 1: And we know from statements from A T and T
• 10:22
  Speaker 1: and nov Artists, two of the companies that hired Michael
• 10:26
  Speaker 1: Cohen that that that's what they were That's what they
• 10:28
  Speaker 1: say they were looking for. They hired Michael Cohen to
• 10:30
  Speaker 1: try to give them insights into the thinking of this administration.
• 10:34
  Speaker 1: UM Novartists was worried about. You know, there's uh. President
• 10:38
  Speaker 1: Trump campaigned against high drug prices. Uh. He made comments
• 10:42
  Speaker 1: about that. You know during the transition, A T and
• 10:44
  Speaker 1: T had appending merger that it was concerned about, and
• 10:48
  Speaker 1: Michael Cohen was the guy who could tell them what
• 10:51
  Speaker 1: Donald Trump is thinking. Okay, so Larry, come on in here.
• 10:55
  Speaker 1: How common is this, uh in a campaign for companies
• 10:59
  Speaker 1: to people who have worked around them to just give
• 11:03
  Speaker 1: them advice on how to handle them. It's it's very common.
• 11:07
  Speaker 1: And one of the things we see is UM the
• 11:10
  Speaker 1: routine revolving door where people have worked for administration go
• 11:13
  Speaker 1: out and there are rules about post employment work you
• 11:16
  Speaker 1: can do. But they go out and they advise companies
• 11:18
  Speaker 1: on strategy, um and how to how to best get
• 11:22
  Speaker 1: their message across to the administration. Are also they also
• 11:25
  Speaker 1: sell contacts and access in the sense that they say
• 11:27
  Speaker 1: I can get you, I can help you meet whoever
• 11:29
  Speaker 1: you need to meet. What is very unusual about this
• 11:32
  Speaker 1: is most of the time that we see it are
• 11:34
  Speaker 1: there are people who have worked for the government or
• 11:37
  Speaker 1: people who just hold themselves as consultants. I've never seen
• 11:40
  Speaker 1: for the president's personal lawyer while he's still representing the
• 11:43
  Speaker 1: president offer that access because he's actually acting in other
• 11:47
  Speaker 1: capacities at least as agent of the of the president.
• 11:50
  Speaker 1: It's his client, and so to these companies, it looks
• 11:54
  Speaker 1: like the client, the lawyer for the president, is selling
• 11:57
  Speaker 1: access and that's I think that's very different than something
• 12:00
  Speaker 1: leaving the government and then you know, saying you can
• 12:02
  Speaker 1: depend on my knowledge and my friendship. Here it is
• 12:05
  Speaker 1: it's an active relationship he has with the president. I
• 12:07
  Speaker 1: think that's the really unusual part of this. Larry, what
• 12:10
  Speaker 1: would the role of the Campaign Legal Center be in
• 12:13
  Speaker 1: a situation like this? I mean, would you file some
• 12:17
  Speaker 1: kind of brief with the government in order to get
• 12:19
  Speaker 1: more information or what exactly would the role of your
• 12:22
  Speaker 1: organization be. Well, it was kind of context. We're research
• 12:26
  Speaker 1: and analysis organization and also watched organizations, so we are
• 12:29
  Speaker 1: watching it closely. One of the things that UM is
• 12:33
  Speaker 1: happening to the facts are developing each day. So yesterday
• 12:35
  Speaker 1: was a very active day in this and we don't
• 12:37
  Speaker 1: have all the facts. But if we think there is
• 12:39
  Speaker 1: a there is a violation of the law here, and
• 12:41
  Speaker 1: there's a potential violation of the law of the Lobbying
• 12:43
  Speaker 1: Disclosure Act UM by Michael Cone. UM. But we don't
• 12:47
  Speaker 1: have all the facts yet. UM. There's even a possible
• 12:49
  Speaker 1: violation of the Foreign Agents Registration Act depending on the facts.
• 12:52
  Speaker 1: If we see the facts develop that way, we can
• 12:55
  Speaker 1: very well file a complaint with the government. All right,
• 12:57
  Speaker 1: So Bill, come on back in here. Can we just
• 12:59
  Speaker 1: get a sense of where A. T and T and
• 13:02
  Speaker 1: novartists are. They did come out with statements. Some people
• 13:06
  Speaker 1: expressed some confusion over Nevartis's statement. What do you think
• 13:10
  Speaker 1: is going on inside their corporate headquarters right now? Well,
• 13:14
  Speaker 1: I'm sure that they I mean, you know, they've kind
• 13:16
  Speaker 1: of been dragged into because it was the same company
• 13:19
  Speaker 1: involved in the payments to Stormy Daniels, to Stephanie Clifford,
• 13:23
  Speaker 1: the woman that Trump company exactly right, the same shell company.
• 13:30
  Speaker 1: So there's also the talk of the payments from a
• 13:33
  Speaker 1: company that's linked to a Russian oligarch. So, uh, you know,
• 13:38
  Speaker 1: in terms of corporate reputation, this was not probably the
• 13:41
  Speaker 1: smartest thing that they've done. I mean, I don't know
• 13:43
  Speaker 1: that they necessarily knew what Essential Consultants was. I mean,
• 13:46
  Speaker 1: I'm sure they thought it was a vehicle that Michael
• 13:48
  Speaker 1: Cohen could be paid through. But um, what nev Artist
• 13:52
  Speaker 1: did is they came out and said that essentially we
• 13:54
  Speaker 1: stopped using the services uh, you know, a few months
• 13:57
  Speaker 1: after hiring uh Michael Cohen, but they had a contract
• 14:00
  Speaker 1: that they honored all the way through to the end
• 14:02
  Speaker 1: of the year, and you know, paid him a hundred
• 14:05
  Speaker 1: thousand dollars a month for you know, several months when
• 14:07
  Speaker 1: they weren't using his services. And I think that's raised
• 14:10
  Speaker 1: some confusion about you know, what actually was this relationship
• 14:13
  Speaker 1: and what were these payments for? Bill who is Elliott Broidy.
• 14:19
  Speaker 1: He is a Republican fundraiser, a guy who came onto
• 14:24
  Speaker 1: the Trump campaign was one of the top fundraisers director
• 14:28
  Speaker 1: of finance after Trump won the UH nomination or clinch
• 14:34
  Speaker 1: the nomination, and he was a member of the Republican
• 14:37
  Speaker 1: National Committee's finance committee. UH. And he's somebody who UM
• 14:44
  Speaker 1: also used the services of Michael Cohen to UH with
• 14:48
  Speaker 1: a woman that he had had an affair with who
• 14:50
  Speaker 1: UM basically paid her hush money in the same way. UH,
• 14:55
  Speaker 1: Michael Cohen arranged the same sorts of payments that he
• 14:59
  Speaker 1: did for Donald Trump. And when the UH Stephanie Clifford matter,
• 15:06
  Speaker 1: and UH. You know, so Broydi has also had his
• 15:09
  Speaker 1: emails hacked. UH. And there's all kinds of information that
• 15:13
  Speaker 1: has come out from these, you know, supposed emails showing
• 15:17
  Speaker 1: that he was somebody who right after the election was
• 15:19
  Speaker 1: going to foreign governments, to UM UH companies and so
• 15:24
  Speaker 1: on and offering his services as somebody who was close
• 15:28
  Speaker 1: to the president and could provide access to UH an
• 15:31
  Speaker 1: insight into and lobbying for I mean, he wasn't just
• 15:34
  Speaker 1: limited to I can tell you what the president is thinking.
• 15:37
  Speaker 1: He was saying that he could influence policy for his clients.
• 15:41
  Speaker 1: I want to thank both of you for joining us.
• 15:44
  Speaker 1: Really interesting and I'm sure this issue will not die
• 15:47
  Speaker 1: in the short term because there are a lot of
• 15:49
  Speaker 1: questions about the line between lobbying UH and pay to play.
• 15:54
  Speaker 1: Larry Double, Senior Director in General counsel of the Campaign
• 15:57
  Speaker 1: at Legal Center in Washington, d C. And Allison Campaign,
• 16:01
  Speaker 1: finance reporter for Bloomberg News in Washington, d C. Yesterday
• 16:05
  Speaker 1: we were talking about how A T and T in
• 16:07
  Speaker 1: particular probably has an internal investigation going on, probably as
• 16:11
  Speaker 1: does no artists as to who authorized the payments, who
• 16:13
  Speaker 1: is checking on the efficacy of the data and information
• 16:17
  Speaker 1: they were getting from the company. We will keep you posted.
• 16:36
  Speaker 1: The shares of companies that make solar panels are surging today.
• 16:40
  Speaker 1: Sun Run one of the biggest such company. It shares
• 16:43
  Speaker 1: are up nearly eight percent. Why. California just passed a
• 16:47
  Speaker 1: new rule saying that all new homes built in the
• 16:51
  Speaker 1: state need to have solar panels on their roofs. Here
• 16:53
  Speaker 1: to talk about this is Hugh Bromley. He is a
• 16:56
  Speaker 1: solar market analyst for Bloomberg New Energy Finance in New
• 16:59
  Speaker 1: York City. Joins and eleven three of studios. Thank you
• 17:02
  Speaker 1: so much for being here. Can you first just lay
• 17:04
  Speaker 1: out what California did and how long this has been
• 17:08
  Speaker 1: in the making. Sure, so you're you're exactly right. They've
• 17:11
  Speaker 1: introduced these these new building standards, one of which requires
• 17:14
  Speaker 1: that solar panels being stalled on all new build homes
• 17:17
  Speaker 1: at homes only, not businesses. From it follows seven other
• 17:21
  Speaker 1: U s c US cities, six in California, one in Florida,
• 17:24
  Speaker 1: and several countries internationally that that pented similar mandates on
• 17:28
  Speaker 1: new homes, in some cases those mandates of extending into
• 17:30
  Speaker 1: commercial properties as well. So it's by no means unprecedented,
• 17:33
  Speaker 1: but it is the first U. S state to move
• 17:35
  Speaker 1: as move as a whole. I just want to know,
• 17:38
  Speaker 1: does this make any economic sense? I mean, because there
• 17:41
  Speaker 1: are other ways to generate solar powered electricity, such as
• 17:45
  Speaker 1: solar farms, you know, run by utilities. By some estimates,
• 17:49
  Speaker 1: this is going to cost at least twice as much
• 17:52
  Speaker 1: if not more, by putting them on the roof of
• 17:56
  Speaker 1: residential structures, then by adding them to more utility style operations. Yeah,
• 18:04
  Speaker 1: that's right. So there's obviously lots of places you can
• 18:05
  Speaker 1: put solar panels. Whether it's gonna be a big field
• 18:07
  Speaker 1: for the utility off takes or whether it's on your
• 18:09
  Speaker 1: rooftop two tops that your energy need. And in the US,
• 18:12
  Speaker 1: when you put it on your routop, it cost about
• 18:14
  Speaker 1: three times as much in fact as if you were
• 18:16
  Speaker 1: to build a large solar farm out out in a field.
• 18:19
  Speaker 1: That's kind of unusual. In fact, when you look at internationally,
• 18:22
  Speaker 1: you see the cost of routop is only about one
• 18:24
  Speaker 1: and a half times the cost of your of your
• 18:26
  Speaker 1: of ground mount utility scale projects. So the US does
• 18:29
  Speaker 1: have a bit of a cost challenge there to get
• 18:31
  Speaker 1: through to probe why are we doing this? Why does
• 18:33
  Speaker 1: this make any sense? If this is the goal to
• 18:35
  Speaker 1: try to make an efficient renewable energy source. Some estimates.
• 18:39
  Speaker 1: I was looking at something called the National Renewable Energy Laboratory.
• 18:43
  Speaker 1: They had a report last year that's said residential solar
• 18:46
  Speaker 1: systems cost between thirteen and sixteen cents per killer what hour.
• 18:52
  Speaker 1: If you look at utility scale solar systems, they're like
• 18:56
  Speaker 1: four to six and a half cents for this same
• 19:00
  Speaker 1: a killer white hour. Why would California do this then?
• 19:04
  Speaker 1: But the reason is that the solar energy is sitting
• 19:06
  Speaker 1: out in a field by itself is of no use
• 19:08
  Speaker 1: to anybody. It needs to get to the where the
• 19:10
  Speaker 1: demand is, and that demand is in the suburbs in
• 19:12
  Speaker 1: the city, so it needs to arrive in there. So
• 19:15
  Speaker 1: there's no point comparing the energy costs to be out
• 19:17
  Speaker 1: in the in the rural areas, in a field compared
• 19:19
  Speaker 1: to being on your rooftop. You're you're also avoiding the
• 19:22
  Speaker 1: need for all the copper infrastructure, the networks, the distribution
• 19:25
  Speaker 1: system to move that power to you. And in that
• 19:28
  Speaker 1: way rooftop solar can make sense. You're offsetting more than
• 19:31
  Speaker 1: just the value of energy generation, but also network costs.
• 19:35
  Speaker 1: So I'm looking just going back to the shares of
• 19:39
  Speaker 1: sun Run in particular, since I believe it's the leader,
• 19:42
  Speaker 1: rising more than seven and a half percent. I'm just
• 19:45
  Speaker 1: wondering how big of a deal is this for them.
• 19:48
  Speaker 1: So all the national vendors, sun Run, Vivent Solar, TSLA
• 19:52
  Speaker 1: to a lesser extent there, they specialize in installation. They
• 19:55
  Speaker 1: don't manufacture much equipment themselves at all, and they've all
• 19:58
  Speaker 1: been struggling with kind of the climbing sales of the
• 20:00
  Speaker 1: last eighteen months to year period and and high and
• 20:04
  Speaker 1: increasing costs, particularly customer acquisition costs. So a mandate on
• 20:08
  Speaker 1: on on solar on new homes removes a lot of
• 20:11
  Speaker 1: that customer acquisition. The customer needs solar is just about
• 20:13
  Speaker 1: who they who they get it from um if you
• 20:16
  Speaker 1: look just last night's sun run reported its lowest level
• 20:18
  Speaker 1: of quarterly installations since Q two and its highest costs
• 20:22
  Speaker 1: since Q two. So this is one way of breaking
• 20:25
  Speaker 1: through that and finding additional demand. That's that's agnostic enterprice.
• 20:28
  Speaker 1: One of the question that I have about this is
• 20:31
  Speaker 1: do houses have to generate a certain proportion of their
• 20:35
  Speaker 1: electricity using these solar panels on their roofs? You know,
• 20:37
  Speaker 1: I mean basically, not only are you building them, but
• 20:42
  Speaker 1: you know, essensibly you'll have less demand for energy from
• 20:46
  Speaker 1: other utilities exactly right. So, like the California Energy Commission
• 20:50
  Speaker 1: WUL actually like these homes to be essentially energy energy
• 20:52
  Speaker 1: neutral net zero, so produce enough power during the day
• 20:56
  Speaker 1: feeded into the grid such that they essentially use that
• 20:58
  Speaker 1: energy back at nighttime. That does cause problems in the grid.
• 21:01
  Speaker 1: If everyone were to do the same thing and feed
• 21:03
  Speaker 1: power into the grid, someone needs to be there to
• 21:05
  Speaker 1: use it during the day daytime hours, So that that
• 21:08
  Speaker 1: opens up questions about how do we find a mechanism
• 21:11
  Speaker 1: that encourages these these households to store the energy themselves
• 21:14
  Speaker 1: to use it later on at night if they are
• 21:16
  Speaker 1: to supply their nighttime needs as well. And this is estimate.
• 21:20
  Speaker 1: It the cost word at least ten thousand dollars more. Yeah,
• 21:24
  Speaker 1: on on today's levels. That's that's quite a conservative estimate.
• 21:26
  Speaker 1: I think, you know, average system costs in California today
• 21:29
  Speaker 1: are close to the fifteen thousand. So the California and
• 21:31
  Speaker 1: Commission is probably betting on some price reductions in the future,
• 21:35
  Speaker 1: that that may or may not come to fruition based
• 21:38
  Speaker 1: on the past couple of years of experience. And doesn't
• 21:40
  Speaker 1: this mean that it ends up being subsidized by repairers
• 21:43
  Speaker 1: who don't have solar power. Ultimately, not the cost of
• 21:47
  Speaker 1: building solo we rolled into the cost of the home
• 21:49
  Speaker 1: and likely into the into the householders mortgage. Where there
• 21:52
  Speaker 1: could be some cross subsidization is if if the extra
• 21:55
  Speaker 1: sola being fed into the grid means that the grid
• 21:59
  Speaker 1: needs an upgrade and other customers are left to pay
• 22:01
  Speaker 1: for their storage capacity or storage capacity. But that's actually
• 22:05
  Speaker 1: what I was going to ask, how is this going
• 22:06
  Speaker 1: to affect other utilities in California that currently exist. So
• 22:10
  Speaker 1: the utilities you know are already seen in many cases
• 22:13
  Speaker 1: seeing declining sales as a result of roof top solo
• 22:16
  Speaker 1: as a result of efficiency, as a result of many
• 22:18
  Speaker 1: factors and communities moving away from the from the utility
• 22:21
  Speaker 1: through through a kind of unusual model we see in California.
• 22:25
  Speaker 1: But what what it does mean for them is that
• 22:27
  Speaker 1: they may need to spend more investing in the grid,
• 22:29
  Speaker 1: investing in energy storage, investing in network upgrades. And that's
• 22:32
  Speaker 1: actually how they make money. They make money by spending
• 22:34
  Speaker 1: money and rate basing those investments. Would it be better
• 22:38
  Speaker 1: if they just went to a larger scale project, But
• 22:42
  Speaker 1: the California market, the wholesale market at the moment, is saying,
• 22:45
  Speaker 1: don't build any more solo. We've got more than we need,
• 22:47
  Speaker 1: So we don't need solo. Whether it's on rooftop or
• 22:49
  Speaker 1: whether it's it's in a field. The only reason to
• 22:52
  Speaker 1: build it is for is for environmental reasons and and
• 22:55
  Speaker 1: potentially for some industry industry industrial policy. So what we're
• 22:59
  Speaker 1: seeing here is actually a policy makers forcing in more
• 23:03
  Speaker 1: solo when the market says we don't need it. Uh
• 23:06
  Speaker 1: and uh, And it's just another way to bring in
• 23:09
  Speaker 1: new capacity when the economics are saying no more. Thanks
• 23:12
  Speaker 1: very much for being with us and educating us and
• 23:15
  Speaker 1: educating me. Hugh Bromley, solar market analyst for Bloomberg New
• 23:19
  Speaker 1: Energy Finance, on California requiring solar panels in new homes.
• 23:40
  Speaker 1: Israel has said it has dealt a blow to Iran
• 23:43
  Speaker 1: in Syria after I failed Iranian rocket barrage against Israeli
• 23:47
  Speaker 1: military posts in the Galan Heights. Toby Harshaw is an
• 23:52
  Speaker 1: editor for a Bloomberg opinion and you can follow Toby
• 23:56
  Speaker 1: on Tobin at Tobin Harshaw on Twitter and he joins
• 24:00
  Speaker 1: us now from our eleven from our one studios in Washington,
• 24:05
  Speaker 1: d C. A, Toby, what can you tell us about
• 24:09
  Speaker 1: the reaction of let's say, non Middle East nations to
• 24:15
  Speaker 1: this increase in the conflict in the region. US allies
• 24:19
  Speaker 1: in Russia, for example. Um, First, let me say it's
• 24:24
  Speaker 1: been a pretty exciting forty eight hours for US national
• 24:27
  Speaker 1: security geeks, so we can talk about North Korea anything
• 24:30
  Speaker 1: you guys want to on on the immediate reaction between
• 24:36
  Speaker 1: between Iran and it's um, it's Syrian proxies and Israel.
• 24:41
  Speaker 1: Is that I think this was a nautvitable uh, no
• 24:44
  Speaker 1: matter what Trump had decided on the nuclear deal. Um,
• 24:47
  Speaker 1: and it's going to get a lot worse. Okay, So
• 24:50
  Speaker 1: you're talking about the situation in the Golan Heights in
• 24:54
  Speaker 1: Israel and UH Iranian troops in Syria. Correct, correct that
• 24:58
  Speaker 1: You're you're seeing that get a lot worse. Yeah, there's
• 25:01
  Speaker 1: already you know, the phrase great Northern War is already
• 25:04
  Speaker 1: being thrown around Israel, and it has been for a while.
• 25:07
  Speaker 1: I think they've resigned themselves to the fact that as
• 25:10
  Speaker 1: soon as uh as Iranian troops and HAS Bullet troops
• 25:14
  Speaker 1: had had dug themselves in on the Syrian border across
• 25:18
  Speaker 1: the goal on UH, that this is that this is
• 25:21
  Speaker 1: going to be a major conflict. Can we just zoom
• 25:24
  Speaker 1: out a little bit or talk about the implications of this,
• 25:27
  Speaker 1: because just recently a headline crossing the Bloomberg terminal the
• 25:31
  Speaker 1: US is condemning Iran for the attacks on northern Israel,
• 25:35
  Speaker 1: so clearly lining up behind Israel in this escalating conflict.
• 25:40
  Speaker 1: How big could it get? I mean, who who gets
• 25:42
  Speaker 1: drawn in here? Um? How how big could it get?
• 25:47
  Speaker 1: As you know, nobody knows? Unfortunately, UM, I don't think
• 25:52
  Speaker 1: that you'll see Israel UM. You know, I don't think
• 25:56
  Speaker 1: this will be like Lebanon in the eighties. I don't
• 25:59
  Speaker 1: think we see Israel moving in and taking large chunks
• 26:02
  Speaker 1: of the country to to create a protective border. UM.
• 26:06
  Speaker 1: If they do send darn ground troops across the border,
• 26:09
  Speaker 1: I think it would be just to clear out the
• 26:12
  Speaker 1: rocket sites. UM. As to that, who else could get
• 26:16
  Speaker 1: drawn in? UM? You know, you've got a lot there
• 26:20
  Speaker 1: with Hesbelah. I don't think that the Russians would probably
• 26:23
  Speaker 1: want their troops UH and and their support for the
• 26:27
  Speaker 1: Assad government to get involved in any sort of tangle
• 26:30
  Speaker 1: with Israel. But you've got a lot of different factions
• 26:33
  Speaker 1: on the ground there. A lot of things can go wrong,
• 26:36
  Speaker 1: especially if the UH, if the US starts actually doing
• 26:39
  Speaker 1: something actively to support the the Israeli effort. Toby the
• 26:44
  Speaker 1: Russian Foreign Minister Sergei Lavrov. He was speaking at a
• 26:48
  Speaker 1: news conference with his German counterpart Hiko muss in Moscow,
• 26:55
  Speaker 1: saying that the Israeli Wroung conflict is very worrying, but
• 26:58
  Speaker 1: also that Germany is skiing Russia to help keep Iran
• 27:02
  Speaker 1: in the nuclear deal. I wonder if you could expand
• 27:06
  Speaker 1: on that, why would they be doing that well? Um, Actually,
• 27:10
  Speaker 1: both sides seemed to be seemed to be at least
• 27:13
  Speaker 1: paying lip service to this. As soon as Trump announced
• 27:16
  Speaker 1: his decision, UM, the UH, the rest of the P
• 27:21
  Speaker 1: five plus so one members and Iran itself talked about
• 27:25
  Speaker 1: trying to to salvage the deal UM with the US
• 27:29
  Speaker 1: not being a part of it. UM. I personally don't
• 27:32
  Speaker 1: see how that's practicable. Um, if the US is actually
• 27:35
  Speaker 1: going to enforce sanctions on you know, any firms that
• 27:39
  Speaker 1: do business with Iran, and we're gonna punish them, you know,
• 27:42
  Speaker 1: in the banking as well, because you know, let's face it,
• 27:46
  Speaker 1: every every transaction goes through US financial markets in some
• 27:49
  Speaker 1: way or another. I don't see how they could continue
• 27:53
  Speaker 1: to have their trade arrangement unless the US gave the
• 27:57
  Speaker 1: Europeans some sort of wave around that and trying to
• 28:00
  Speaker 1: figure out how quickly this could escalate. So you have also, UM,
• 28:05
  Speaker 1: Saudi Arabia coming out and saying, look, if Iran pursues
• 28:08
  Speaker 1: nuclear weapons, we will too. Uh. You have the U
• 28:12
  Speaker 1: s weighing in on this whole Israeli conflict. I do
• 28:15
  Speaker 1: wonder when you talk ground troops whether the US would
• 28:18
  Speaker 1: send anyone to the region. This is the reason why
• 28:21
  Speaker 1: I ask, you know, how big could the conflict get?
• 28:24
  Speaker 1: Are we seeing the beginnings of a sort of more
• 28:26
  Speaker 1: protracted and involved, complicated, UM military altercation here? Well, I
• 28:32
  Speaker 1: think the Israelities would say, it's been going on for
• 28:34
  Speaker 1: a while. Um. And now the Iranians are overtly helping
• 28:37
  Speaker 1: Haus below with actual troops on the ground. Uh. And
• 28:40
  Speaker 1: these you know, the Israelis have been hitting targets in
• 28:43
  Speaker 1: serious since last year. UM. To go back to the
• 28:47
  Speaker 1: Saudi Arabia thing, I wouldn't give that a lot of
• 28:50
  Speaker 1: credence right now. UM, we don't know what the Trump
• 28:53
  Speaker 1: administration would do. Would be a great idea to make
• 28:57
  Speaker 1: an explicit promise that they are under our nuclear umbrella,
• 29:02
  Speaker 1: that it basically the equivalent of Article five which we
• 29:06
  Speaker 1: have with Europe, that an attack on one is an
• 29:08
  Speaker 1: attack on all, which is actually an arrangement we have
• 29:10
  Speaker 1: with you know, countries like Thailand, which not many people now.
• 29:13
  Speaker 1: I think we could bring the Gulf Arab states under that, Toby,
• 29:18
  Speaker 1: does the US pull out from the Iran nuclear accord? Uh?
• 29:24
  Speaker 1: Does that also punish Iran not only economically but because
• 29:29
  Speaker 1: of its continued shipments, let's say, of weapons into Syria
• 29:35
  Speaker 1: or support for Hezbollah. Well. Um, actually, the the US
• 29:41
  Speaker 1: was able to um, you know, interdict those shipments and
• 29:46
  Speaker 1: to sanction around Iranian airlines, etcetera that have been you know,
• 29:51
  Speaker 1: helping to set up this this passage. Um. Even if
• 29:55
  Speaker 1: the deal had been in place, there's a United Nations
• 29:58
  Speaker 1: resolution that um that Iran cannot export any arms. Um.
• 30:04
  Speaker 1: It's shocking to me how little the US and the
• 30:08
  Speaker 1: Gulf allies have done, uh to actually and addict the
• 30:11
  Speaker 1: ones going to the Hootie rebels in Yemen by water.
• 30:15
  Speaker 1: It's a little trickier obviously to take care of the
• 30:18
  Speaker 1: stuff going by air to Syria. To be just in
• 30:21
  Speaker 1: the aftermath of the US announcement with respect to Iran,
• 30:25
  Speaker 1: I'm wondering, do you expect any kind of regime change
• 30:27
  Speaker 1: within that nation? I mean, I not regime change in
• 30:33
  Speaker 1: the Saddam Hussein's No, I'm not looking for like a
• 30:37
  Speaker 1: sculpture being. I think there could be, Um. Yeah, I
• 30:40
  Speaker 1: mean I think that everyone hopes, even you know a
• 30:43
  Speaker 1: lot of Iranians hope possibly even you know a majority
• 30:46
  Speaker 1: of of the Iranian people that there will be a
• 30:50
  Speaker 1: very slow regime change, not not technically a regime change
• 30:53
  Speaker 1: at all, um, but a change in their political system
• 30:57
  Speaker 1: that would, you know, disempower or lessen the power of
• 31:01
  Speaker 1: the of the religious authorities and allow them to have
• 31:05
  Speaker 1: free elections, which they have not had at all. Um.
• 31:08
  Speaker 1: Despite all the talk that you get you'll hear from,
• 31:11
  Speaker 1: say proponents of the of the nuclear deal about the
• 31:14
  Speaker 1: HNI administration, calling them moderates is simply foolish. Look at
• 31:18
  Speaker 1: look at all the people they've imprisoned and cracked down.
• 31:21
  Speaker 1: But I think that's gonna be a lengthy process, um.
• 31:23
  Speaker 1: And I think even if you had that, uh, the
• 31:26
  Speaker 1: Iranians are going to pursue nuclear weapons, even if they
• 31:29
  Speaker 1: had a US friendly government in place. Thank you so
• 31:32
  Speaker 1: much for being with us. Choby Harshaw, Bloomberg opinion columnist
• 31:35
  Speaker 1: talking about the situation with e Iron. Thanks for listening
• 31:43
  Speaker 1: to the Bloomberg p m L podcast. You can subscribe
• 31:46
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 31:49
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
• 31:53
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
• 31:57
  Speaker 1: one before the podcast. You can always catch US world
• 32:00
  Speaker 1: wide on Bloomberg radioh