♪ for emilym selina and chang -- in for emily chang. this is "bloomberg technology." coming up in the next hour, tesla has been subpoenaed by the u.s. regarding elon musk's efforts to take the company private. what's next for the electric carmaker? jd.com's very bad day. it missed second-quarter financials.

the e-commerce giants losses are surging. and hacking the midterms. another report of a candidate being hacked. so just how secure are u.s. election systems? we discuss. but our top story, the first investigation into musk's tweets about taking tesla private has reached a more serious stage. bloomberg has learned the electric carmaker has received a subpoena from the sec. musk exposed himself by tweeting last week he had funding and had arranged for a buyout. all this controversy has taken the spotlight, but where does the pace of production for the tesla model 3 stand? a team of every core analysts visited a car factory and said the company is well on its way to building electric cars per five week. but production may be up to 7% too low. here to discuss all things tesla

is craig and alex. craig, i want to start out with you amid this bizarre turn of events. there has been some good news. how significant is this new data that they are reporting? craig: it would be significant if evercore is on point. obviously one of the many out of musk'save , one that may have been overlooked, is how is the company doing amid this huge distraction of maybe going private? it looks like they have been able to maintain production and they see a clear path to a level of manufacturing for the model 3 that would enable the company to hit the production targets. that's so key for the company

because they've talked about getting to positive cash flow. if musk is going to pull off this gambit, it's really unclear to this point whether he can are not, it's going to be important he is able to execute on what he says the company is going to do. selina: what about this sec subpoena? we know that these investigations can take months and sometimes lead to no action. what's the sense of the potential impacts this could have? craig: our reporters in washington had a great story about the idea that an inquiry along these lines can take up to two years. it's probably the case that even if it looks to us or other outside observers that this is not ok and there was a violation, that the sec needs to cross its t's and dot its i's.

when we have seen -- seen push back against what the sec has wanted to claim, you see the ordeal that played out with mark cuban, where they tried to allege violations and mark cuban fought it tooth and nail. it was a long battle. selina: there is a lot of scrutiny right now. what do they face? alex: they are working under this overhang on how this deal progresses. they are working. you have the initial tweet saying funding is secured, and the blog post saying it's not quite there yet. you had the tweet about goldman working with elon musk. we reported that goldman had not received a formal mandate. the next steps for goldman are going to be to figure out whether they can raise the funds, $80 billion, if all shareholders decide to take this company private.

so that is the big thing right now for goldman sachs. and you know what? musk for there for years. they've worked with him and tesla through all the additional share sales and given money to the man himself. they are willing to back him in these efforts. selina: goldman and musk have this close relationship. how much money has goldman made off of musk and how much more could they make if this private deal goes through? alex: they've made millions on fees. they helped lead of about $200 billion worth of share sales. the deals to take this private are significantly higher, $30 million-$50 million. in fees for a take private that would dwarf everything that they've made from the equity market share sale. they are obviously there for a buck but it does seem like they have had this guy's back for a while and agreed to help them out in this endeavor, as well.

selina: there was also a sanford bernstein note about the odds of a successful private deal are less than 50%. what is your take on that? craig: it's interesting. to me, it does feel like it is a difficult thing to do, to give odds. keep in mind within the last few days, a venture company has put the odds greater than 50%. it's very much a guessing game. it remains so, despite the fact that we are nine or 10 days in since this initial tweet. and to this point, he hasn't actually sent a formal proposal to his board. that's something very important to keep in mind. there was the impression with his initial post that this was just around the corner. it's been very clear that is far from the truth, we have a lot to learn about how he is going to make this happen and whether he can make this happen.

selina: and alex, there has been so much speculation about who the investors are. do we have more clarity about who is involved at this point? alex: right now, we know he has had conversations with the saudi investment fund. that did not mean a signed agreement. folks on behalf of elon musk have reached out to a bunch of shareholders. because you'll remember he doesn't want control focused on one major shareholder. so this will be a situation very different from dell where michael dell himself took the company private and had a large share of control, with silver lake, the private equity that helped him. musk seems to be avoiding that kind of situation. but he is suggesting to take this company private. he says it will be a perfect vehicle, where all the shareholders could remain. it's a question of how many will decide to tender if this option becomes viable.

so a lot of question marks about how much money is needed, who is willing to back this company, and whether shares will be less liquid than publicly traded tesla's shares. selina: we have been told that elon musk does not want to lose control. you had a story about the outside leverage that the saudi arabian fund has. may musk be forcing control in order to get the money he needs? craig: that's a really important question, too. the blog that elon musk put out earlier this week, that put the saudi fund in a position of having to answer to that, and potentially handed them some leverage. if the saudi's were to come out and said, we don't have the funding for you, it puts elon musk in a position of real trouble with the sec.

if they do come to him with a significant amount of money, it could mean, as alex alluded to, that they would have a huge shareholder that, as david welsh reported, that would be able to have sway over the company, and the whole reason for this deal is for him to have control, for him not have to answer to the pesky short-sellers, and be able to run the company in the way he thinks is best. selina: we'll just have to wait and see how this all unfolds. alex and craig, thanks. amazon may be about to go into the brick and mortar part of the movie industry. bloomberg has learned the world's largest internet retailer is in the running to buy landmark theaters. the company already owns a film and television studio. landmark has a chain of 50 theaters, backed by billionaire mark cuban. and coming up, jd.com takes a

major hit in the second quarter. just how big of a loss did this e-commerce company incur? that's next. if you like bloomberg news, check us out on the radio. you can listen on the bloomberg app, bloomberg.com, and on and sirius xm. this is bloomberg. ♪

♪ selina: on wednesday, tencent reported its first profit drop in at least a decade. another chinese tech giant came in at two disappointing earnings. jd.com's losses in the second

quarter surged to $319 million, that's eight times what analysts were expecting. shares at jd have now lost a third of their value as it faces competition from alibaba and amazon. and overall the tech sector in china has been under pressure. if you go to the library, you can see the valuations of chinese techs are slipping compared to u.s. counterparts. to get more insights, we spoke with sean ryan, the managing director and founder of the chinese market research group. >> i think right now, j.d.'s in trouble actually. this is because of increasing competition. we have seen the rise of companies in the last six months that are starting to take away share from jd. jds business model is kind of outmoded. a lot of technical innovation

and e-commerce in china -- people talk with their friends online and have to convince other people to buy the same products. if they do so, they gets bigger discounts. so i think the big problem facing jd are bigger competition going forward. selina: are those same competitors eating into alibaba's market share as well? or just jds? shaun: i think alibaba is a lot stronger. they've been able to adjust. which we have found is the rise of livestreaming television shows, which is really popular. i actually just interviewed a 40-year-old woman in beijing who has been shopping every day on alibaba's stream because she finds the shows are very interesting. you have individuals opening up shops, kind of like a home shopping network, and they are selling their own products. alibaba is quite strong. jd is weaker. the other thing to think about is there is a big consumer market, with the u.s.-china

trade war starting to affect consumer confidence. consumers are starting to look for cheaper items. not'll start looking and buying items on jd, because they are more expensive and target the upper middle class. selina: how are you seeing this trade standoff impact consumer confidence? are there particular companies that are getting hurt the most? shaun: let me be very clear, i think president trump is correct to criticize china. there are a lot of unfair trading practices in the country. good luck if you are an internet company trying to expand in china. facebook and twitter are banned here. the trade war is not the way to go. china is offsetting some of the tariffs from the united states, by sourcing from india or brazil, soybeans or pecans or

other types of products. you're not yet seeing the hit on the numbers in china. if i were a starbucks or apple, i would be concerned because it is likely the chinese consumer is going to start to protest or boycott iconic american brands. it's a deeply unsettling time if you're an american iconic brand. selina: have we seen that type of political risk for american brands? for instance, let's take walmart as an example. they've done this partnership with jd. is that enough to shield them from concerns? shaun: i think it's smart to do a partnership, but it doesn't shield them completely. when south korea tried to install and missile defense system, china went after south korea. they banned the number of chinese tourists visiting south korea.

so actually's the numbers dropped 40% year on year in april 2017. we haven't yet seen that against american companies. the chinese government has been very measured. they've been sort of protesting against trump's policies, but not against american companies. when you start to get nationalism involved, and get that mixed with a weak economy, all bets are off and american companies can get into a lot of trouble, even again they sign up with deals with chinese internet and other players. selina: shifting gears a little bit, j.d. is not the only company to have had a difficult earnings season. tencent also had terrible earnings given what the government has implemented. what's going on? is this regulatory freeze because of a pure craddock shakeup? is the chinese government trying to assert its authority?

shaun: that's a good question. there's a lot of political risk in the country today, not just the trade war. i think a lot of chinese companies are starting to get more regulatory approval problems from the chinese government. xi jinping is gaining more power and trying to enforce his views, his ideological views on the country. that is starting to impact areas like gaming and pollution. tencent was hit by some of the bureaucratic issues. that said, tencent is a great company. and very close to the government. i expect there to be a good rebound over the next six months. it might be time to buy tencent on the cheap. i wouldn't buy j.d. on the cheap. they have been hit by regulatory issues, rather than just the changing competitive environment. selina: why in this case would china be willing to put one of its national champions at risk, given the broader economic

picture, which is looking a little bit shaky right now? government is looking to create five national champions in the internet space. tencent, alibaba. they are doing this because they want to control them. they're saying, if you listen to us, we'll let you have great opportunities. they'll punish them once in a while to remind them, if you don't do what we want, we will end your business. but if you do what we want, you can make tens of billions of dollars. so tencent is working with local governments to improve its official public administration system, whether that be booking a doctor's visit or paying your bills online. everything is going through tencent. if it's autonomous driving, it's going through baidu. selina: that was our conversation with shaun of the

china market group. coming up, walmart has rapidly built upon its digital strategy in the last few years to compete with amazon. and it seems to be paying off. we'll discuss more. this is bloomberg. ♪

selina: walmart has amazon in its sights. the company reported earnings results and business is humming along at its stores and online. its e-commerce business is a focus point for investors. it delivered a solid 40% gain in sales. for more, we are joined by, who covers the retail industry for bloomberg. emma, they had the strongest grocery sales, the most in nine years.

what is the driver in that? emma: that's absolutely right. they've been working to incorporate fresh food in their grocery offerings. the sales are the best in nine years. a really good post for comparative sales. take a look at the bloomberg here. i've got edgy chart here. has the sales posted for over a decade. sales up over 4.5% today. analysts have hailed this as a banner quarter. they've been aggressively defending themselves against amazon after acquiring whole foods. walmart has a bigger share of the grocery aisle. amazon doesn't even make the top five in u.s. grosses just yet. they've been refreshing their food offerings, and they have been interested on online orders you can pick up in the store.

ceo doug mcmillon said they are aggressively pursuing that strategy. you can collect at walmart stores. amazon only recently announced they would be offering that service in some of their whole foods stores. selina: right, walmart has clearly been very aggressive. they have click and collect, they have curbside pickup. but how does this compare to amazon offerings? emma: we're still waiting to hear more about what amazon is going to be doing with whole foods. when amazon reported earnings earlier, whole foods was not really mentioned at all. when it comes to walmart and e-commerce, which is another area you can see a direct comparison between the two, you mentioned that they saw e-commerce growth of 40% last quarter. and that was compared to second quarter of last year, walmart saw e-commerce growth of more than 60%. but the fact they have returned to 40% on a bigger basis,

suggests a more impressive result for walmart. one other winner here is the walton family. they are the biggest shareholders and walmart, the wealthiest family in america. and they just became a lot 12 -- whole lot wealthier. today's stock move has put an additional $11.6 billion into well for the waltons. selina: what about challenges in the back half, any discussion around tariffs or changing consumer sentiment? emma: they're concerned because it creates uncertainty. but there's not a massive effect on consumer products right now. one of the things walmart is trying to do or looking at very closely is the cost of household items. transportation and labor costs are pushing up the prices of household items like. towels, diapers, things like that.

walmart isthings known for is low prices. they don't want to have to impart increased costs to their customers. because if they did, that would create another opportunity for amazon to try and beat them on price. selina: thanks to bloomberg's emma chandra. hacking any election. new reports of candidates been targets of phishing attacks. and bloomberg technology is livestreaming on twitter. check us out at technology and be sure to follow our global breaking news network @tictoc. on twitter. this is bloomberg. ♪ phones have made our lives effortless.

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selina: this is "bloomberg technology." i'm selina wang in san francisco in for emily chang. last month,, casco, the -- claire mccaskill, the democratic senator from missouri confirm she was targeted by cyber attacks. on tuesday, democratic senator bill nelson reaffirmed his russians have infiltrated the election systems of certain counties. a democrat running in california's june primary was

the target of cyber attacks. they are being investigated why the fbi. to continue a look at just how vulnerable american election systems are ahead of the 2018 midterms, i'd like to welcome major general earl matthews -- he served three decades in the air force, where he directed cyber investigations across the globe. and at the white house, cybersecurity reporter stephen yen. general earl matthews, i want to start with you. in addition to these escalating numbers of cyber attacks we're hearing about, and 11-year-old was able to hack into a simulation of the florida state election website in under 10 minutes. what does that say about the security of our election right now? gen. matthews: well, one i would say it's wonderful we are highlighting this problem. what happened at defcon was the penetration of the website the state would have up that would

have a tally of the tolls of what was happening through the electoral process, and not a penetration into the databases that were counting the electoral votes and the -- selina: the 2016 exposed a whole host of vulnerabilities. are we any more secure than we were two years ago? and what new tactics are we seeing? >> hi, thanks for having me. in terms of security from 2016, until now, certainly there is more awareness about the problem. congress allocated $380 million to shore up their in election infrastructure. in terms of the tactics we are seeing leading up to the midterms, much of the tactics highly resemble what we saw in 2016. we see phishing attempts, using attempts like those used in 2016, as well as coordinated

campaigns that appear to be happening on facebook. facebook recently announced that they've removed dozens of accounts that appear to be engaged in this kind of activity. selina: general matthews, despite increasing warnings about these vulnerabilities, it seems like progress has been slow. we still need to have voting machines with paper trails that can be audited. why is this? maj. gen. matthews: i think what we're dealing with here is like what we are dealing with in corporate industry. voting software in most states is more than 10 years old. they definitely were not designed to withstand a cyber-type of attack. when we look at the voting machines themselves, many of them were proprietary. we lacked transparency into the device itself, we lacked

transparency into the the software independent and into the quality assurance of that. and what we have to remind our election officials is that the cyber landscape will continually change. this is not a fix it one-time and move on. selina: so general matthews, what would be the technological infrastructure that would protect us from these sorts of attacks? maj. gen. matthews: one of the innovative ones came out of west virginia. blockchain allows you to have a cryptographic voting process in which the voter identity is proven through a biometric. their vote is encrypted and you can have a public transparent ledger that can be audited to make sure no one tries to influence that particular vote. selina: and alyza, my team has been reporting on what technology companies are doing to protect themselves from this manipulation. but have they been successfully partnering with washington, d.c.

to make sure this doesn't happen again as this requires data and information sharing? alyza: so two weeks ago, intelligence teams gathered at the white house to sound the alarm on possibilities for election hacking. among those was the director of the fbi, and he emphasized the importance of public-private partnership to solve this problem. but the coming months are a test case as to whether we can effectively secure the social media landscape. selina: general matthews, i want to talk to you about what future of voting might look like. is it inevitable? maj. gen. matthews: being a former military member, i'm excited about this. i'm stationed globally throughout the world, but i am not always able to vote back home without getting my paperwork in in time.

mobile voting by 2020 will be here. it gives us transparency to vote anytime, anyplace. what we continually struggle with as we move towards convenience in any type of area is that we generally sacrificed security. this is one area in which we cannot sacrifice that, because it underpins our entire democracy on how we vote. selina: alyza, you wrote in your story about depressing voter turnout is a very successful potential tactic. have we seen this use before and do we expect to see it implemented in coming elections? alyza: in the leadup to the 2016 elections, there was concern about voter registration rules . somewhere seeing scans of voter registration systems that were altered.

it's unclear what the upshot of this is. if an adversary wanted to escalate tactics, moving from coordinated campaigns on social media, targeted weeks in disclosures, attacks on various candidates, the next step would be to make it more difficult for some people to vote, creating delays, lines, things like that at some polling places, while other voters could vote as normal. selina: how do you think an attacker would be looking at the landscape over the next few years? is there a possibility that they are saving their most sophisticated tactics for the upcoming presidential election, and we won't see them for the midterms? maj. gen. matthews: yes, i do believe that. we have to look at the system holistically. it's not just the voter database, but also the way the chain of custody works. the voting process is simple. one eligible voter and one vote, kept secret.

we can audit when we want. we will see attackers, especially nation-states, target swing states and counties to influence us in elections. the probability of influence in a presidential election, will be hard. but doing it at the county or state level in a congressional election would be fairly easy if we don't shore up the voting process. selina: thank you both for joining. there's a report that starboard has taken a stake in computer security company symantec's and wants to make changes. according to the wall street journal, star board has nominated five directors to the 11 person board. coming up, our next job series highlights their careers of the future life. -- why. -- lie. how one african nation is using tech to save lives in isolated areas. and later, our conversation with

cisco ceo chuck robins. and getting a bullish forecast for the quarter. this is bloomberg. ♪

selina: time for the latest installment in our next job series as we look at career futures. tech giants amazon and alphabet are causing a buzz with their drone deliveries. one company is delivering blood to remote wanton hospitals by drone since 2016. -- remote rwanda and hospitals since 2016. we tell the remarkable story. ♪ >> this is rwanda.

nestled between these plantations, village homes and meandering mountain roads is a patch of land no bigger than a football field. guy launchesis drones carrying blood of two doctors racing to save patient'' lives. >> i'm a drone operator. narrator: abdul works for a startup called zipline. abdul: this is where you attach the drones. and in front of you, this is where we launched the drums. narrator: zipline is headquartered in california. but it's west of kigali that the company has launched one of the world's first drone delivery services. abdul: it's beautiful. >> does it ever get old?

abdul: no. narrator: abdul and his coworkers are tackling a deadly problem here. rwanda is among the poorest countries in the world, and much of it is connected by dirk roads -- winding dirt roads that get washed out in the rainy season. that's made it incredibly difficult for regional hospitals to procure blood in an emergency, leaving doctors unable to perform many life-saving operations. abdul: you will have to drive for three or four hours to kigali, get blood, and then come back. it's complicated. it gives people access to the health care system. narrator: when a hospital asks for blood, the zipline team gets moving. abdul: you package, launch it.

and then you wait for the next order. narrator: guided by gps and other sensors, the drone flies itself to one of the hospitals. then it reaches its destination and drops off its payload. hospital staff retrieve the supplies and the drone gets back to base. abdul's doing pretty well for himself these days. and he'sa job he loves studying for grad school. but all of that success today comes from unimaginable tragedy. when he was three, the rwandan government stepped up its decades long assault on the tutsi minority, ordering everyone in the hutu majority to kill all tutsis.

in just 100 days, 800,000 people were slaughtered by neighbors and their friends. abdul: when they showed up, my father heard people talking. where is the rest of the family? narrator: abdul survived. his two siblings and his parents didn't. his grandma found him and took him in. >> [speaking foreign language] abdul: the first couple of years of school was really hard. >> you were dealing with the trauma.

abdul: yeah, and then also i found myself again. i said okay, if i get my education, i'm happy with my life. i feel like i got another chance to live. for helpingusing it the committee making an impact on other people's lives make -- makes sense for me. selina: an incredible story of blood being delivered by drone in rwanda. joining me on set to discuss her experience there with the zipline is our bloomberg digital editor. aki, it took you more than 30 hours to get to the country and you spent about a week there. what did you learn about how this nation has become a hub for drone delivery? >> it's interesting, it's really a strange confluence of events

what is happening in the country today. zipline founders approached a number of african governments with this idea of doing drone deliveries. and it was actually the rwandan government was the most enthusiastic and willing to change regulations to make this possible. and it was the government that suggested starting out with blood. selina: and your character, abdul, is this drone delivery operator. how big can this career become in the future? aki: i think it's really promising. zipline is not the only company trying to make this happen. amazon and google are all trying to make this happen. governments around the world need to deregulate the skies to make this possible. for example, in the united states, you need to have all drones within eyesight of the pilot. there are a couple of exceptions with some trials right now, but that would obviously need to change for nationwide delivery service to happen here.

selina: it's pretty impressive that they can do this. are they ahead of the game compared to what google is trying to do, amazon? aki: i would say so when it comes to running the day-to-day service. zipline has already made 8000 flights, caring about 15,000 units of blood. that kind of real-world day-to-day experience, plus the data they are collecting, it's hard to beat that. selina: abdul has such a moving story in your piece. what's next for him and the company he's working for? aki: he's an incredibly talented guy and very ambitious. he's heading for grad school and potentially going into robotics. for zipline, i'd say the next thing is they are waiting to hear back from the rwanda civil aviation authority to start a new distribution center that would allow them to deliver to a lot more hospitals. and they have some agreements

with other african governments as well. selina: thank you for bringing us that fascinating story. try capital new vc form has been , a formed by partners that have quit social capital. it's starting its investment with cryptocurrency. a $22.7 billion round of funding for cryptocurrency trading platform. but it's not alone. social capital is also leading the round. one of the founders of tribe capital has already invested in xbox and he was at social. he will take place on the board. coming up, cisco posted higher-than-expected quarterly profits. and reported sales rising for the third straight corner. the ceoersation with chuck robbins, next. this is bloomberg. ♪

selina: cisco appears confident an overhaul of its computer networking products will boost corporate demand. the company gave bullish

forecast for the quarter that beat estimates. it also posted higher-than-expected quarterly profit and sales that rose for the third straight quarter. bloomberg spoke to cisco ceo chuck robbins following that report. chuck: we had a good quarter. the strategy is clearly working. the innovation we are bringing to customers as we navigate the world, it's being well received. we saw growth very balanced across all of our technology. this transition we talked about, the business model work we have been doing continues to take hold, with our software subscription business continuing to grow. we have a lot of things happening around us right now. for sure. so if you look at our performance, we have clearly driven a significant amount of innovation in our portfolio. our teams have done an amazing job. and at the same time, we have had a strong global macro-economic environment to operate in.

right now we obviously have dynamics with the rising dollar, we have some uncertainty in some of the emerging countries, trade dynamics. those are things we don't necessarily control so we will have to deal with things as they evolve. but right now, things feel pretty good. >> check we are going to talk about the transition. you bring up the u.s. dollar. is this something you have hedged, or do you let it rip and worry about it another time? chuck: we've gone through this at various times over the years. our teams know how to manage it. we actually have had a set of processes teams deploy when this begins to occur. then we typically come out the other side. it's something we've dealt with

over time and we'll do it again. our teams know how to handle it. jonathan: more broadly speaking, i want to understand the pickup we are seeing. is this related to rising business confidence, or something else? is this due to the monetization of legacy elements? which one is it, chuck? chuck: i think it's both. there's clearly a lot of business confidence and economic tailwinds right now. at the same time, the launch we did last year in our intent-based networking portfolio, the work our teams have done in our collaboration portfolio, security portfolio, those things have resonated with our customers. when you look at the 9000 we have launched, the fastest-growing product in the history of the company, there is some deep innovation there and that's obviously being bolstered by great economic conditions. it's a little of both but we'll

take them where we can get them. jonathan: give me some insight on what your customers are investing into more generally and more specifically, what are the areas of global priority for them at the moment? chuck: if you look at what's happening with our customers, they are undergoing a fundamental shift in that historically, they have run their applications in private data centers. now they're consuming other applications, services with public cloud providers. their networks and how their traffic is flowing is changing, and how they need to deploy security is fundamentally changed. they're having to rethink their entire infrastructure and security. we're at the heart of how they think about that. selina: that was the cisco ceo with bloomberg's jon ferro.

finally celebrities that push products online face a u.k. investigation into whether they are failing to declare they are getting paid for posts that can sway millions of shoppers. an investigation is being conducted into a range of celebrities that promote consumer brands. consumer protection law requires influencers to state clearly when they paid to promote a product. and that does it for this edition of "bloomberg technology." from san francisco, this is bloomberg. ♪

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