Los Angeles Times - 13.03.2020

C2 FRIDAY, MARCH 13, 2020 LATIMES.COM/BUSINESS

BUSINESS BEAT

Tesla had been hoping to
score three profitable quar-
ters in a row, for the first time
in its history. But with the
coronavirus slamming the
overall economy, analysts
are increasingly skeptical.
Wall Street analysts ex-
pect Tesla’s first-quarter
sales to come in well under
pre-virus forecasts and see
net losses near $40 million
when the company reports
in late April, according to
consensus estimates com-
piled by FactSet.
But they have little to go
on.
Tesla CEO Elon Musk
uses Twitter as Tesla’s pri-
mary communications
channel. He’s not saying
much there about how the
coronavirus might affect the
company. So far, Musk has
tweeted nothing about the
current state of Tesla’s new
Shanghai factory, nor has he
publicly issued other corpo-
rate information related to
the coronavirus.
He has said nothing
about the current level of
production in Tesla’s Shang-
hai factory, which reopened
on Feb. 10 after a 10-day gov-
ernment-ordered shut-
down. Nor about the compa-
ny’s sales prospects in
China, where the overall
auto industry suffered an
80% decline in sales in Feb-
ruary. Also, no talk about
supply chain issues.
He did, however, tweet
this on March 6: “The co-
ronavirus panic is dumb.”
The company’s stock
price has dived with the rest
of the market, plummeting
39% from a closing high of
$917.42 on Feb. 19 to $560.55 as
of Thursday’s close.
“We haven’t changed our
[estimated] numbers even
though there is more risk in
the China targets and per-
haps Europe,” said Dan Ives,
an analyst at Wedbush Secu-
rities. The new coronavirus
has “cast a dark shadow in
the first quarter across the
tech space,” he said. Ives
counts Tesla as a technology
company.
“In 20 years of covering
technology stocks, I’ve never
seen anything change as
dramatically as this in the

course of two to three

weeks,” he said.

Tesla did not respond to

inquiries from The Times.

Ives still expects Tesla to

achieve its delivery target of

500,000 cars this year, as-

suming the pandemic sig-

nificantly wanes by June. On

Thursday, Morgan Stanley

analyst Adam Jonas cut his

delivery estimate from

500,000 cars to 452,000.

Tesla’s current stock

price is still nearly double

what it traded for a year ago.

If the stock price holds

roughly above $542 a share

for over the next few weeks,

Musk stands to reap a huge

bonus.

Under a complicated pay

plan Tesla’s board offered

Musk two years ago, he gets

about $1 billion in stock op-

tions if certain revenue and

profit targets are met, and if

the company’s market value

averages $100 billion or more

over both a six-month and

30-day period. (Its market

cap is about $103 billion at to-

day’s price.) If that holds up,

Musk could grab that wad

by mid-April.

Tesla has lost money ev-

ery year since it went public

in 2010. For example, the au-

tomaker lost $775 million in

2019 under generally ac-

cepted accounting princi-

ples, or GAAP, the key profit

measure authorized by the

Financial Accounting

Standards Board. But the

pay deal measures “ad-

justed EBITDA,” or earn-

ings before interest, taxes,

depreciation and amor-

tization. By that definition,

Tesla’s profit in 2019 was

$2.98 billion.

Using EBITDA to deter-

mine executive pay “allows a

company to make adjust-

ments to their GAAP in-

come using their own judg-

ment and discretion,” said

Francine McKenna, who

runs the accounting and au-

diting online newsletter, The

Dig. Tesla is hardly the only

company to use this method

to determine compensation,

she said, but Tesla is espe-

cially aggressive.

Musk’s payday could be

indefinitely postponed de-

pending on Tesla sharehold-

ers’ reaction to the compa-

ny’s success in China and

general economic condi-

tions due to the coronavirus.

It’s unclear how many

workers are back in action at

the Shanghai factory, which

was built in record time and

began turning out vehicles in

late December. Whether

production is a trickle or a

stream, or how supply chain

disruption will affect Tesla

production in Shanghai or

its main auto plant in Fre-

mont, Calif., is also unclear.

The new factory is sailing

into a tail wind: EV sales in

China fell in February 77%,

from 49,000 vehicles in Janu-

ary to 11,000. The good news

for Tesla: it accounted for

3,958 of those cars, accord-

ing to the China Passenger

Car Assn., or a bit over a

third of all EVs sold in China.

Sales growth must burst

well beyond current levels to

support the China factory’s

annual production capacity

of 150,000 cars.

Further complicating

matters in China are com-

plaints from Tesla custom-

ers, which have drawn the

attention of government of-

ficials. Some customers dis-

covered outdated driver-as-

sist computer chips in-

stalled in new Model 3s, even

though Tesla promised buy-

ers the latest version. Tesla

advertised that the new

chips are 21 times faster than

the older chips.

China Daily, an English

language news service arm

of the Chinese Communist

Party, paraphrased a state-

ment it said it received from

Tesla, saying that “up-

stream undersupply” was

the reason the outmoded

chips were installed, and

that customers could swap

them for the new version

when available.

China’s Ministry of In-

dustry and Information

Technology issued a state-

ment ordering Tesla to “rec-

tify immediately” the situa-

tion and “[fulfill] the corpo-

rate responsibility and en-

sure production consistency

and product quality and

safety.” The equivalent of a

class-action lawsuit on be-

half of consumers has been

filed in China against Tesla.

Tesla’s China operations

are backed in part by the na-

tional and regional govern-

ments in Shanghai. The

Shanghai government, for

example, gave Tesla $85 mil-

lion toward its new factory,

$46 million in cash and the

rest in equipment and serv-

ices.

If Tesla meets the $100-

billion market value average,

Musk can thank individual

retail investors, said Derek

Horstmeyer, a finance pro-

fessor at George Mason Uni-

versity. Based on message

board traffic at the millenni-

al-focused stock trading app

Robinhood, and class dis-

cussions with his own stu-

dents, he said it’s clear that

Tesla is buoyed in part by

stock market neophytes.

“A lot of the institutions

hate him, but he’s just the

darling of the common in-

vestor,” Horstmeyer said of

Musk.

Musk is mum about production

TESLA CEO Elon Musk has said nothing about the current level of production in Shanghai. The company has

lost money every year since it went public in 2010. Above, Musk at an event in Shanghai last year.

Xinhua/Zuma Press via TNS

As pandemic slams

the world economy,

Tesla’s CEO tweets

that “The coronavirus

panic is dumb.”

By Russ Mitchell

The Federal Reserve

took aggressive steps Thurs-

day to ease what it called

“temporary disruptions” in

Treasurys, flooding the mar-

ket with liquidity and widen-

ing its purchases of U.S. gov-

ernment securities in a mea-

sure that recalls the quanti-

tative easing it used during

the financial crisis.

The Federal Reserve

Bank of New York said in a

statement that the “changes

are being made to address

highly unusual disruptions

in Treasury financing mar-

kets associated with the co-

ronavirus outbreak” and

had been done at the direc-

tion of Fed Chairman

Jerome H. Powell in consul-

tation with the Federal

Open Market Committee.

Under the Fed’s existing

program to buy $60 billion a

month in securities, the pur-

chases will be widened to in-

clude coupon-bearing notes

across a range of maturities

to match the maturity com-

position of the Treasury

market, it said.

U.S. stocks initially pared

losses after the surprise an-

nouncement but then re-

sumed their decline, eventu-

ally finishing with their big-

gest one-day loss since 1987.

Investors were unsure the

Fed move will be sufficient to

shelter the economy from

the outbreak’s fallout — and

are still waiting for a robust

U.S. government response.

“This is a full-blown crisis

response operation, in-

tended to make it abun-

dantly clear that the Fed will

not allow liquidity to dry up,”

said Ian Shepherdson, chief

economist at Pantheon

Macroeconomics. “We ex-

pect the Fed to purchase $60

billion of securities across

the spectrum for the foresee-

able future: QE4 is here.”

In addition, the New York

Fed offered $500 billion in a

three-month repo operation

and said it would repeat the

exercise Friday, along with

another $500 billion in a one-

month operation, and con-

tinue on a weekly basis for

the rest of the monthly cal-

endar.

This adds a massive jolt

of liquidity to financial mar-

kets that will also expand

the Fed’s balance sheet for

the duration of the opera-

tions.

The Fed has been under

increasing pressure to act as

investors lost faith in the

U.S. government’s ability to

quickly produce a coherent

policy response after Presi-

dent Trump addressed the

nation Wednesday with few

details on fiscal stimulus

plans but restrictions on

travel from Europe to the

U.S. that deepened the

sense of alarm.

“President Trump set

out to calm everyone’s con-

cerns, and he added fuel to

the fire,” said Jack Ablin,

chief investment officer of

Cresset Capital Manage-

ment, a Chicago wealth

management firm. “Right

now, if you look at the techni-

cals, we had finally slipped

into what I’d call panic.”

U.S. central bankers de-

livered an emergency half-

percentage-point cut to in-

terest rates last week and

were expected to move again

when they meet Tuesday

and Wednesday in Washing-

ton, if not sooner, with some

economists predicting they

could slash rates to zero

from 1% to 1.25% at the mo-

ment.

“Fed did its part today of

helping with market func-

tioning,” said Priya Misra,

head of rates strategy at TD

Securities. “We still need the

fiscal help.”

Index

Dow industrials

S&P 500

Nasdaq composite

S&P 400

Russell 2000

EuroStoxx 50

Nikkei(Japan)

Hang Seng(Hong Kong)

Close

Daily

change

Daily % YTD %

21,200.62 -2,352.60 -9.99 -25.71

2,480.64 -260.74 -9.51 -23.22

7,201.80 -750.25 -9.43 -19.74

1,426.74 -157.93 -9.97 -30.84

1,122.93 -141.37 -11.18 -32.70

2,461.35 -300.03 -10.87 -27.67

18,559.63 -856.43 -4.41 -21.55

24,309.07 -922.54 -3.66 -13.77

Major stock indexes

change change

Associated Press

Fed boosts liquidity, widens

purchases of U.S. securities

bloomberg

Bitcoin plunged Thurs-
day, at one point dropping
below $6,000 for the first
time since May as a sell-off in
cryptocurrencies became a
rout amid wider market tur-
moil sparked by the co-
ronavirus pandemic.
The largest digital cur-
rency at one point tumbled
27% to $5,705.31, though the
drop eased slightly, leaving it
down 24% at $6,013 as of 4:07
p.m. in New York, according
to Bloomberg pricing. That’s
the largest single-day drop
since December 2013.
The wider Bloomberg
Galaxy Crypto Index
slumped 26%, with Ether,
XRP and Litecoin also
plunging.
The wild moves come as
stock gauges globally slide
into bear territory and credit
cracks on fears that the
spreading virus will cause a
significant economic down-
turn.
The retreat threatens to
undermine the argument
from many of its advocates
that bitcoin can be a haven
in times of turmoil.
“Investors are moving
out of any risky assets,” said
Vijay Ayyar, head of business
development at crypto ex-
change Luno in Singapore.
“Even though bitcoin is com-
pared to gold as a safe haven
asset, it’s very under-pene-
trated and is considered
more as a risky asset to hold
at this point.”

Ashish Singhal, chief exe-

cutive of CruxPay, said,

“Crypto prices are once

again riding on the same

panic wave as that of stock

markets, which are the

worst we have seen in a long

time. Amid WHO declaring

coronavirus as a pandemic,

the global oil price war, and

Trump suspending travel

from Europe to the U.S., the

world economy is taking a

huge blow, and crypto seems

to have been caught in this

whirlwind.”

Technical indicators

point to support around the

$6,000 level, though the 14-

day Relative Strength Index

broke below 22 to its lowest

level since September. As-

sets are considered oversold

if the index falls below 30.

In addition, the token

also broke through the

Trading Envelope’s lower

limit, which could portend a

relief rally to the mean as has

happened after similar oc-

currences. The indicator

smooths moving averages to

map out higher and lower

limits.

“The crypto markets are

affected right now because

BTC has been trading like

it’s positively correlated with

the equities market,” said

Jonathan Leong, co-founder

and chief executive of BTSE,

a financial technology firm.

“If you compare the tradi-

tional markets to the BTC

market cap of $140 billion, it

is difficult to consider bit-

coin as a safe haven at this

time.”

Bitcoin tumbles 24%,

its worst rout since 2013

BITCOINfell to $6,013, a retreat that threatens the

argument that it can be a haven in times of turmoil.

Omar MarquesSOPA Images

bloomberg

Two CBS News employ-

ees in New York have tested

positive for the novel co-

ronavirus, prompting the

network to ask employees to

work from home for the re-

mainder of the week.

One staff member now

infected was at the CBS

News offices on the fifth floor

of the hulking CBS Broad-

cast Center at 524 W. 57th St.

The second person was

working from the ninth floor

of an adjoining building, 555

W. 57th St. , which includes

the offices of “60 Minutes.”

CBS News said its news

programs, which include

“CBS This Morning” with

Gayle King, will continue to

be produced.

However, the newscasts

may originate from alterna-

tive locations.

The flagship “CBS Eve-

ning News” with Norah

O’Donnell moved to Wash-

ington in December.

“We have been planning

for this possibility and want

everyone to be assured that

we are taking all necessary

measures,” CBS News Presi-

dent Susan Zirinsky said in

an email to staff members

Wednesday. “We are asking

that employees in both

buildings work remotely for

the next two days while the

buildings are cleaned and

disinfected.”

The company also identi-

fied several co-workers who

may have been in direct con-

tact with the individuals

who now have the virus, and

have asked them to “self-

quarantine and work re-

motely for the next 14 days,”

Zirinsky said.

The outbreak at CBS is

the latest example of how

numerous companies in

Hollywood and beyond are

grappling with the effects of

the virus.

Several entertainment

companies, including some

talent agencies, are encour-

aging their employees to

work from home and tele-

commute.

Some high-profile mov-

ies have already halted film-

ing overseas or had their re-

lease dates postponed.

Two CBS

News

staffers in

N.Y. have

virus

By Meg James