>> this is "best of bloomberg technology." oure we bring you all of top interviews from this week in tech. coming up, we just became a real car company. those are the words of tesla's ceo after reaching his goal of building my thousand

three. but questions swirl surrounding quality. plus, dell is going public, offering a cash stock deal worth billions, entering a new stage of a multiyear turnaround plan. and more institutional investors are dying into crypto's and coinbase is customers. how one of the world's biggest exchanges plans to sign billions by the end of the year. but first to our top story. tesla engineered a late reduction burst, but delivered fewer sedans in the second quarter than expected. however, it has thousands more of the cars in transit. the first time, they exceeded their target of building 5000 model three in a single week. yet on tuesday, their claims were tested that the cars were of the same quality of those made inside the plant and the stock tumbled. with an -- spoke

investment officer on monday along with bloomberg businessweek's max chapman. down because of auto trade issues more than it is up because of tesla meeting the milestone, but it is up in the morning. and the fact they have now produced 5000 model threes is a very positive. >> the big question is is this sustainable? all nighters, tents outside the factory. announcement, but is this a company that can routinely make 5000 a week? >> i believe they can. the factory has more than enough capacity. they are in a facility that once produced over 1,300,000 cars when it was a gm factory in the 70. so more than enough capacity. today, they have one of the most

advanced auto assembly line, so i think they will sustain production level and takes tesla to the next level from a niche car producer to a mainstream manufacturer. >> max, you have covered tesla four years. elon musk tweeted on his birthday that he had spent the night in the factory. they cannot take a break, right? can they keep it going, is this the turnaround? >> you have to hope the way that elon musk has been living where it seems like he is up all night, sleeping in the factory. you have to hope he will take a day or two and just rest. all of these tesla employees, as ,ndicated that we published have been basically working nonstop. i think what they are doing now is unsustainable. on,hope is, as time goes

they will be able to improve their robotic manufacturing and that will get them up to 5000 cars. the idea is to get the same production number without looking and feeling like you have been punched in the face every day, which is kind of what is happening. elon tweeted, or he emailed employees, we have just become a real car company. is ironic considering their market cap exceeds many traditional car companies like gm and ford. why did he write fast -- that? >> well, because this is a transformational car. it takes them from a niche car producer, initially selling 20,000 a year, to get into 100. months from now, if they maintain this production rate, which makes them a real company

and are able to fill strong demand. and then they will allow production of the truck next, so they are evolving. but i think they view themselves more as a technology company, rather than a car company. because they sell solar panels and battery wells. customer are a tesla who has had an order for a while, does it concern you that, perhaps, your automobile was made in a tent outside the factory? cut any corners on the quality of these automobiles? time will tell, but the overall quality is very high. the customer satisfaction level is high, enthusiasm is high. strength in the car is its simplicity and its power, the design, the technology.

have had very few mechanical or technological issues and they fix a lots. and fix aor the cars lot of the software issues by pushing down software updates from satellite. so they are always adjusting and improving the cars. max, you lawns twitter feed has been a joyful circus show over the past few weeks. i don't know, does the company have to grow up? or will we continue to be entertained? >> i have to say, i think the real car company thing, he was joking. he has felt for years that they are a real car company, and that is a dig at skeptics. one thing that is noteworthy about this big push to hit 5000 is this is the first time i can hask of where elon musk paid attention to what outsiders

are saying. outsiders said you have to hit this milestone and he said "ok. we are going to, as he said, fly production lines in cargo planes, build this tent, do everything we can. i think that is interesting. it strikes me as a concession he has made to wall street and the toside world where he has start acting more like a conventional publicly traded company. >> you mentioned some of the upcoming milestones. the new benchmark they will have to meet. are they going to have to go back to the capital markets and raise more money to do things like a truck? >> absolutely, and they should. however, the meeting of this milestone will make it a whole lot easier. become profitable by the end of the year, or are on track to do so by the end of the third quarter, it will make it easier.

but yes, building cars is a capital intensive process. and they will have to and should raise money. every time they have come to the capital markets, they have been well received. i think they will come at the end of the year. >> max, last question to you. we started by talking about the underwhelming market reaction. has some of the glow faded from elon? are the markets looking at tesla a little differently? >> no, i do not think so. for thishe reason muted reaction was that it was a terribly cap secret. if you are reading his twitter feed, they are telegraphing this for about a week. basically, people knew they would hit it. there was just a question of how. and we still do not know how

exactly they hits this milestone , but you have to think this is a big moment for elon musk, for tesla, and for electric vehicles in general. 5000 cars is nothing to sniff at. ok, ivan and max chafkin, thanks for joining us. coming up, what is old is new again. this company is being taken back to the public. next. and if you like bloomberg news, check us out on the radio on the radio app, bloomberg.com, and on sirius xm. this is bloomberg. ♪

brad: the world's largest private sector company is going public, again. bill is promising to return to the public markets by buying their stock in a deal valued at

$22 billion. in january of this year, michael dell preached the benefits of remaining private. >> as a privately controlled company, your horizon is different. , you reimagine your business. you think about your business in years and decades. and it allows you to reconceptualize how you are investing. and what the real priorities are. brad: bloomberg technology's nico grant joins us in the york, newd in new york opinion columnist brooke sutherland. nico, let's start with you. this is not traditional, yet they are going public. listing thatdirect would be more akin to say, spotify. idea is that dell gets all of the benefits of going public

with none of the drawbacks. you are not seeing michael dell going on a roadshow and convincing investors to invest. also seeing it gives him a tremendous amount of control. it helps to simplify the corporate structure because tracking stocks is very unusual. it was meant to merit the value of a software maker that they had a controlling stake in. it gets rid of that, and they have more direct control over vm. helps get the valuation benefits, the share benefits, without traditional drawbacks. brad: brooke, you call this the path of least resistance. why? because the thinking amongst vm shareholders was they wanted this to remain a publicly listed, independent entity. they won that today at the cost of an $11 billion special dividend that will fund the

buyout offer. they pushed very hard for that, they were vocal in wanting to remain an entity they could invest in as a standalone. as i argue, waiting for that is not necessarily the best outcome. i view this as an intermediary step. it does help them simple find their structure, but does not go far enough. you still have vm, as much as shareholders want to push back, it is very much a part of dell. they have a majority shareholder that calls the shots, and most stocks with that dynamic content to trade at a discount. , we just heard michael dell selling stash singing the praises of a private company. what has changed? nico: a couple things. timing, itder the comes five months after they

said they were considering strategic options, and five years after this big turnaround when they decided to go private. if saw the hardware landscape was changing and it needed to figure out how to catch up. it felt the easiest way was with the least amount of scrutiny. i think michael dell is feeling more confident that he has in a while. we saw in the last quarter they had double-digit gains, particularly in servers and storage. it has been a good i.t. spending environment after years of middling or declining i.t. purchases. and so, he thinks it now is the time to get all of the benefits. it could even include m and a benefits, he could do a share swap in the future without having to trade cash. that is a precious resource. like broke, it does seem

,, it does seem like we have seen this before. they have belly flopped before. are you confident that it is different this time around? brooke: you know, i think the proof will be in the results. we have to see how they handle this. for me, it does not solve their problems. the reason they were looking at these transactions in the first place is because the company is heard and with a significant debt load from their 2016 purchase of emc. they have to find a way to deal with that, and a lot of the thinking was they could use of vm to shoulder the burden. that is not happening. this is not rule out the option of merging down the road, so this is more of a intermediary step. brad: what is then the next step? sell more stock to the public?

brooke: potentially, but we have to get this deal done. i will point out, they are paying a premium. and you are talking about a premium in discount, and there are some big holders of that stock. elliott is one of them, carl icahn said he is a holder. this is something we have to watch. talk aboutquestion, the competitive environment they face. does it dell fair as a public company considering the competition? in comparison to hpe, one theye closest companies, will probably, should they get this done, trade higher end with more momentum that hpe which has been challenged. part of that is because of the close integrations with the software makers.

we have to remember, leads the market in so many categories when we think about hardware. and they are leveraging the end as much as possible, which has a lock of credibility amongst companies that once a modern infrastructure when we think about i.t.. ,hen it comes to public clouds dell will not see their explosive growth. and should we see the i.t. spending environment cut back a little bit for the hardware vendors, dell's stock will take a beating. that was a bloomberg's nico grant and brooke sutherland. up, this e-cigarette maker is seeking more than a billion dollars. we discuss how they are expanding while traditional tobacco fades. this is bloomberg. ♪

brad: electronic cigarette isrter -- start up juul raising billions. the funding would value the company at 15 billion, making them more valuable than some of silicon valley's biggest names. a huge jump for a company less than three years old. bloomberg technology reporter olivia joins us now. a lot of people probably haven't heard of them tell us what it is. they were created as a replacement to the regular target cigarette. the people who created it came out of stanford and thought they will create this product that will be better for you. it doesn't have the tar, it uses a vapor that you inhale the nicotine. they thought they were doing something great for the world.

the problem is, teenagers love juul. it has become extremely popular in schools and become a controversial product. so there are a lot of investors who are unwilling to invest, but we are seeing a lot are because they are raising 1.2 elliott dollars -- dollars. that is extraordinary, and one number that jumped out was they have captured 68% of the market. that is with companies like phillip morris trying to get in here. what did they do right? remarkable, they launched in 2015 and arnie have 68% of the market -- already have 60% of the market. we have seen phillip morris go down 28%, japan tobacco down 15%. what we are seeing is e-cigarettes are growing. ,nd cigarettes are growing down

they went down about four percentage points a year. quitting smoking, they are replacing it with bathing -- vaping. brad: the fda is looking into this. they are asking how juul markets to teenagers. what are the challenges? in april, the fda knocked on their door and said we need to know more about this product. what are your health concerns, provide us with your research. you also need to provide us with your marketing materials. what are you talking about in meetings, are you trying to target children? that is audacious. they, of course, said they are not targeting children. brad: even though they had candy colored flavors. olivia: they have actually tapered that down. there is another company called

kandi depends, it is interesting they have targeted juul because there are other companies with more kid friendly flavors and colors. brad: what other questions are they likely to get? they can say this is a healthy alternative, still, not good for you. some experts say it is not bad and much better than smoking a cigarette. others are saying it causes this problem called "popcorn lung." brad: but not good. olivia: doesn't sound good. but it is relatively unknown. it is a new product, but we know it is extremely popular. and one to watch, this company is on rocket ship. brad: what are they planning to do? olivia: they are planning to expand outside of the u.s.. they want to go to asia and south america. brad: thanks to bloomberg's

olivia here in san francisco. maker --or phone smartphone maker xiaomi raised billions. they are priced at $54 billion, roughly half the initial target. still, it remains the largest ipo in the region. suba,spoke with jim managing director at citigroup, about the ipo and how it fits into the global tech landscape. >> the smartphone industry is highly competitive, super competitive. in fact, apple has clearly said they are not only interested in market share, they want profitable market share. so some of the statistics, whether it be a phone made by xiaomi or others, a lot of these rants we may not see in america are growing fast globally. the question is profitable share.

that is what apple is focused on. we expect the world to be competitive, you cannot leave your phone without it. emily: do you expect xiaomi to stand out? >> i think it will draw a line media and investor attention. share istheir market strong, and in the u.s., you do not see them frequent. this, we think, will bring attention to it. we want to note that we believe apple has always seen this on their radar. years ago, there were other companies that were meant to deep throat apple, and we firmly believe apple is a stock you want to buy. there will always be competition, whether we talk uawei, other, h brands. there is competition out there. emily: despite the market

saturating, despite apple's own sales are potentially plateauing, you are still optimistic. why? >> we are. their services are growing. when you buy a new phone, people are doing in app purchases on games, on purchasing. brad: but it will never outpace hardware revenue. >> you are correct interns of total. but in terms of units, we think they will grow single units. thesurprise will be on trailing model, the iphone 7. in india and on china, not so much the iphone x. brad: that was emily chang speaking with jim suba of citigroup. coming up, back to tesla's newly released reduction figures. why hitting this milestone could be a double-edged sword. and bloomberg technology is

livestreaming on twitter. andk us out at technology be sure to follow our breaking news network on twitter. this is bloomberg. ♪

"the best of bloomberg technology." musk hit his long-delayed target goal of producing 5000 model three sedans in a week. hitent to great length to his mark, including a giant tent housing and assembly-line. now, the ceo has the challenge of winning over doubters who say this is not sustainable and needs to address the accusation that the model three's made on a tent covered production line when not of the same quality as those made at the plant. we caught up with bloomberg opinions liam denning.

the company hits their 5000 a week targets like they said they would. and i think a lot of a bulls will take comfort from that, but i think it misses the bigger picture. which is, you know, to be a profitable carmaker, which they have yet to prove they can be, they need to have sustained, high-quality production. and hitting that target in one week at the end of the quarter, kind of in a repeat of what they did first quarter, it does not prove that. it hits a moment in time, one target, but is not prove they are sustainable. brad: you noted in your column that the week at the end of the quarter seems to set a new baseline four teslas weekly production. are you confident they can do that now? >> it is tough to say.

what i observed, just going on the last three quarters, what they have done is hit these burst weeks at the end of the quarter and that sets the average for the next quarter. based on that, you might think they can keep going. in fact, in today's release, they talk about getting to 6000. the issue is can they do it profitably? when you think about the tent you highlighted, this second assembly-line they put up, it looks like they made about 1000 cars on that give or take. and if they are working 24/7, which they seem to be doing, that equates one car every 10 minutes. and that is nowhere near what you need to be getting for a profitable mass-market carmaker. tesla was so focused on this 5000 cars per week goal, it really came to define what observers were looking for.

the next milestone people will be looking for to grade their performance at tesla? >> two things will be interesting. one is the results that come out in a month. we will see what the cost of the burst has been. obviously, the other big one coming up is the company insists they will get profitability and some form of positive cash flow, it is not clear what. that is key to this company. it needs to show it can actually turn a profit, produce a mass-market car, and, you know, become self funding. self funding is key. brad: profitability and self funding. liam denning, thanks for joining us. coming up, one of the world's largest crypto exchanges is going live. details on coinbase's new customers next. this is bloomberg.

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brad: just last week, coinbase custody accepted its first deposit and is now open for business. the cryptocurrency currency exchange says 10 hedge funds and family offices have begun using the service. to safeguard digital tokens and a manner similar to traditional security. coinbase aims to have 100 large institutional customers by the end of the year with as much as $5 billion under management. joining us now with more detail is adam white from coinbase. also with us in new york is bloomberg's executive editor .oin -- joe

adam, let's define our terms. not everyone is familiar, it's a about what you guys have made. terms, ithe simplest is a way for institutions to store their currency in a safe and compliant manner. when people look at the space, there has been a history of security incident, and we have made security our number one goal. we move into the institutionalization of the space, hedge funds and brokerages say they cannot trade until we have a safe way to store it. we announced at the end of last year we would begin building, and we launched today and are already serving 10 hedge funds. brad: crypto has had a rough ride this year, characterized by vulnerability for a number of years. have investors stayed out because of the absence of the service and will this rectify the rough waters that bitcoin

and other assets are in? adam: it is the opposite. with this recovery, we saw the $20,000,bitcoin touch the market cap of all digital currencies reach 800 billion. that has recovered, and we found institutions are more eager than ever. one thought is maybe this is a trade we missed. get have an opportunity to in and are watching them do it thoughtfully through services like coinbase. brad: joe, do you agree with that? big institution, have you lost your appetite for cryptocurrencies considering the depreciation in value? -- answerd adams in to be interesting. there is no doubt that the second half of 2017, particularly the last few months, there wasn't so much interest in that institutional

money. this wall of money that was supposed to come in. and it doesn't seem like platforms like coinbase is what everyone said is missing. there is custody, legal clarity, money would come in. and i have been fascinated to a building of the institutional infrastructure, not only coinbase and others, totally coinciding with this relentless selling. news whatsoever has boosted the price of any cryptocurrency for any length of time. so really, the exact opposite of the second half of 2017, where it is clear the infrastructure is being built in the capacity has expanded but it has not boosted the prices. brad: adam, is demand from institutions the same as it was when you announced that last year? adam: absolutely, it is greater than ever.

institutions do not move fast, they are thoughtful and deliberate. lot of time with our institutional coverage group in new york meeting with institutions day in day out. educating them on who we are, the processes we use. they really dig into things like cold storage. things like an make sure theo numbers we use to decipher these keys was military grade, best in class. these are the questions we spent a lot of time on. brad: what questions you have from traditional custodians? focus ontend to not competition, more on our customers. certainly, there is an opportunity for coinbase to work with others. when you look at institutions, they do not want just one custodian, they want to store across a few best in class custodians.

so we are in conversations with others in the space. joe, pretend out of is not here and tell me what you think of their competitive situation amongst the traditional custodians. think it is fascinating the way you seem to have two different clusters of companies reaching towards the center. obviously, you have upstarts like coinbase and like others who, all the time, seemed to be making inroads to resemble banking institutions. so you also have entities like circle, square. havee other hand, you these legacy organizations which, for a long time, were skeptical about the space. it does feel like a bigger battle is coming and it is unclear which side will win. something i am curious about is there is a debate about how this space will involve.

whether it will be bitcoin centric or whether there is room for lots of different coins and protocols. i am curious whether the institutions that are signing up early on for the new coinbase service, how interested they are in holding a multitude of different coins. adam: great question, and it is spot on. what we are hearing if they want us to expand to more countries and add more assets. right now, we are supporting for assets -- 4 assets. with plans to add more. colleague at bloomberg announced today with the introduction of this, we are starting with four assets but with plans to expand to asia, we will offer many new assets. brad: i will give you the last question. the price of bitcoin has been on a steady decline all year. is this the kind of thing that

is needed for a restoration of trust in crypto? adam: you notice better than anyone, markets are not always rational. to work into space, you have to have a 20-30 year vision. we have been working in the many years, we and seen the market reacts, every time, he gives us an opportunity to stay focused on the mission. and to continue to invest the resources to bring this mainstream. for us, we tend to look at other metrics, like the number of developers, new teams launching, the number of daily transactions. all of those numbers continue to move up and to the right, so we are optimistic. was adam white, vice president and general manager of coinbase institutional and bloomberg's joe weisenthal. coming up, ai versus civil liberties. is this technology infringing on your rights?

we asked the aclu. this is bloomberg. ♪

brad: we are continuing our look in the biases of artificial intelligence and the pitfalls that can come from this new forefront. facial recognition is not only gaining notoriety for misidentifying based on gender and race, it is also being used as a tool by law enforcement to track people. maryland authorities recently said they used facial to identifysoftware the gunman who killed five people at an annapolis newspaper.

but there is also a growing voice speaking out against its use as a surveillance. the aclu calls amazon's recognition software, that it claims can find 100 people from a single photo, powerful and dangerous. that software is being used by the orlando police department --.l the they have since stopped using the software. our next guest covered the software. technology and civil liberties attorney for the aclu and spoke with emily chang. >> people should be able to walk down the street without being watched by the government. this technology allows us -- the government to watch us. and again and again, when we see governments deploying this technology, they are doing it without rules. emily: what about the argument

this could be a powerful rule for catching criminals or terrorists? matt: there are a lot of unanswered questions about whether this works reliably. studies have shown this is biased against people of color , a women, and just this week prominent ceo of a facial recognition technology said the government should not be using it, it is not ready. so right now, it is important that there be an informed debate about this technology before we rush forward with something that can be turned against immigrant communities, protesters, and activist. let's say, hypothetically, if they can work out these issues, is this something that could be a valuable tool for law enforcement, or is it still dangerous? matt: that is not a question we should answer. what we are hearing from communities across the country, thousands asking them to drop this tool, is that this technology is rushing forward

without public debate, without rules to protect of use, in a political climate where protesters are being built eyes, immigrants targeted, and that is not the time to roll out a dangerous and untested technology. they: is it possible for government to use this in a way, at all, that is safe? matt: we have seen with surveillance technology, when it is rushed out with public debate , and initial uses to quote quicklysolve crime slides into uses that are targeted at muslim americans, immigrants, and people of color. it is important that there is an informed public debate about how this could be used and abused in communities. emily: that said, take a listen. we had a guest earlier talking about the government's potential role in ai. a public-private partnership and how we use ai. it is in the early days, but

having said that, issues like transparency and explain ability of these algorithms, we need to be a lot clearer about how these companies are using them. and how they respect the core values of society. emily: our guest from general catalyst. what are the values we should be talking about? how can we find some resolution on this debate that, in your view, would not violate civil liberties. now, we are seeing that technology companies and secret algorithms and secret conversations of these tools are driving how they are used. and we have no idea how these systems look when we open the hood. i think they were exactly right, we need to have a conversation about the values of transparency, equality, and antivirus -- anti-bias. these are being built by companies who may not know what it means to equip officers with

dangerous technology that can make split-second decisions about public safety. before we hand our officers technology that can harm public safety, we should have a conversation about what is happening under the. -- could -- hood. emily: the problem is there are still no standards for law enforcement in place. this is happening in real time. that said, this is the future. this is where technology is going. apple uses this technology to unlock iphones. how do we avoid this, it is happening? right now is the time to have a debate about the limits on this technology. communities deserve answers before dangerous tools are rolled out on the street and secret algorithms are relying on. have athe time to debate, elected representatives should have a debate, and people care, they should join the

150,000 consumers who asked amazon to take this seriously. california governor jerry brown signed a sweeping the data privacy law which allows consumers to opt out of the sale of their personal information. they can have the data deleted and have a right to know what is being collected. big tex is not happy, but i assume you think this is a step in the right direction. matt: we think it is the first step but this bill does not go far enough. in the wake of the scandal, it is essential consumers have a robust set of laws that protect them and help them stop teacher abuses and help them address the abuse. not think it goes far enough to protect those rampant abuses of information, and not far enough to provide consumers with the right tools to address those harms. that is an adult shared across the injury -- industry. brad: that was emily chang

speaking with a representative of the aclu. the king of the smart speaker market is the amazon echo. 47ording to the marketer, americans would use one once a month, putting amazon's market share at 67%. but that is expected to drop to 61% by 2020, but still almost double its biggest rival, google. and more and more of that user base is using smart speakers as a teaching tool. that is something our next guest is making happen. ian formerly worked at amazon where he led the teams that worked on kindle, echo, and alexa. he is now working at bamboo learning, teaching kids all about music using amazons alexa. bamboo learning is a brand-new startup i cofounded.

createet up to applications that are fun and interactive to teach kids as young as six all the way through adults, different things they might like to learn casually in five minutes or less. music theory and learning music, as i recall from my brief attempts as a kid, is very visual, right? you are reading music, hunting for the keys on a keyboard. so why is a voice activated speaker the right forum for learning music? ian: that is a great question. a few things. one, it is supplemental to taking music lessons. and one of the interesting learned isofounder music teachers often will not teach younger children how to

play an instrument until they can read. and she and i both believe that children as young as six should be able to learn about music. so we have some examples, actually, of a six-year-old learning with bamboo music. after interacting with better music and doing the questions we have that she would like to take a lesson. ukulele,w learning the and she is not yet a strong reader, but she is already learning how to play music based on starting on bamboo music. bamboo music now joins thousands, or tens of thousands, alexa skills. who are not part of the audience a bloomberg technology, how do they find it? i am asking this is a former amazon executive. how does amazon solve the with the echo,

considering this explosion of new apps available for the device? ian: great question. we at bamboo learning have to do our own job at getting the word out about bamboo music. that is part of it. but amazon has created this new feature so that when you talk to try echo and would like to out, for example, bamboo music. all you have to do is say to alexa "enable bamboo music." and it will start. we have to do our job, and amazon is increasingly finding ways to make the skills more available to customers. you can also just go to the amazon store and search bamboo music and find it that way. have a lot oft time left, but i want to ask you about your personal journey. you went from being an inventor of the echo to a developer.

why leave amazon to do this? ian: great question. i had an incredible time at amazon, worked there for over 12 years. and i learned quite a bit across the board from is this, technology, etc.. i just felt it was time to try something new. i want to get back to doing coding, which i haven't done in decades. and it just started as a fun project. and with my cofounder, who is an absolute expert in k-12 education and music, we thought it would be fun to educate through the bamboo music skill. that wasn't bamboo learning ceo and cofounder ian freed. it for this edition of "best of bloomberg technology." we bring you the latest in tech. coming up, we have full coverage of xiaomi's public listing.

this is bloomberg. ♪

♪ nejra: coming up, we talk about why most u.s. banks managed to pass the fed stress test and how healthy the banking sector is. and, how the union rules achieve their goals and whether trading landscape looks like. and, we talk the banking union and chances are more integration. welcome to "bloomberg markets: rules & returns." i am nejra cehic, in london. "rules and returns" is a show where we delve into the regulatory challenges and opportunities for financial markets around the globe. first, a roundup of the news. here's sebastian salek.