♪ >> i am emily chang in san francisco. this is "bloomberg technology." tesla letting go of thousands of employees. can the competition take advantage? plus, trade hope? china makes an offer it helps the u.s. can't refuse, a plan to shrink the trade deficit to zero. talks are set to resume. over itsder pressure facial recognition software.

why shareholders are now joining the debate. but first, shares of tesla tumbled after elon musk announced a 3000 job cuts. heres plunged 13% after posted the email he sent to employees notifying them about the layoffs. this is the biggest drop since september 28, with shares at their lowest level since january 3, following tesla with a profit last quarter. i want to get to our next guest is standing by. rating on tesla. it is sad when anybody loses their job, that is it encouraging or discouraging in terms of the business? >> that is a difficult question. tesla today are at a turning point. they have been selling 60,000 every quarter at a price of $55,000. in terms of market share, it is

60% of the u.s. market of the premium segment. deliveriess level of in the u.s. at that price point is not sustainable. we know it has been supported by strong subsidies. gets get into 2019, tesla cuts, has to lower prices, start shipping cars come and then -- cars, and then has to bring in lower-priced skews to make the 35,000 or model three. they need to adjust their costs face. that is the meaning of the cost cut today. if you think about the numbers, this will reduce its operating costs by $100 million, which is

what tesla is losing in price cuts to consumers with the price price cuts announced earlier. tesla'schart shows pre-cash flow turning positive in the last quarter. need tok is saying they make job cuts to get the cost of the car down to $35,000 to reach a mass-market, but will they have enough people to meet production numbers and reach that market with these layoffs? the best way to answer the question is looking back at last spring, when elon musk announced in a similar fashion that he was laying off 10% of the workforce of tesla, that wasn't the end of spring. tesla succeeded in producing the model three, broke strongnd generated a

forecast. i think we have a similar situation today. has growne the summer a lot, but is taking a step back, implementing new efficiencies, taking people out, and from that will be able to grow. what i expect guided by elon musk's comments this morning is tesla to start the year just profitable and to be able to improve ability during the year as it keeps growing production and deliveries of the model three. emily: i have another chart showing that because of the stock plunged today and these layoffs, tesla has lost the market cap crown for automakers. tesla is the white line there. you can see gm slightly surpassing tesla.

we know tesla is the market ev's.leader in there are competitors coming to market this year. sales will be slow initially, but could take off next year. is there an opening now for the competition? >> there is an opening for the competition. tesla is showing this market is very strong. capturing 60% of the addressable market in the u.s. in the first two quarters for the model three? tesla has the first mover advantage. it has been designing, manufacturing, improving electric cars for more than a decade, and when i look at cars announced by competitors coming into the market this year and next, i see from a technological standpoint that they are behind what tesla can

do today. ,rom the competitive standpoint these cars are still expensive in the higher end of the market, and none of what you can see announced by competitors today can compete with the model three. emily: elon musk has broken ground on a factory in shanghai, giving some advantage over automakers who make their cars outside of china. this will enable tesla to avoid tariffs on its cars inside the country, but the chinese economy is slowing and we don't know what the health of the chinese consumer will be. you about the are factory in china giving tesla a significant advantage? >> the factory is not built yet. it is still to be built, ramped. it takes a long time. the plan is to be able to start assembling cars in shanghai at the end of this year.

by then we will have a much better perspective on the global howell consumer demand -- how consumer demand is evolving in china, and at that point tesla can adjust its investment plans to serve as precisely as possible the demand. emily: tesla has always been a divisive stock. you have a big camp of passionate true believers, and the big camp of skeptics. which of those do you think this you will be proven right? will bee the optimists proved right. as you can imagine, the reason is the year looks like a strong ramp. we will fall off that cliff in the u.s. of strong demand going

away, subsidies being cut by 50%, then down to zero in the summer, and as that happens, tesla will ramp its production outside the u.s. market,e, it is a large tesla will introduce leasing to encourage demand, and most importantly, tesla will introduce lower price points. i will insist on the last one. and -- the market 5x difference. as tesla takes its prices down, it should meet increasing demand

everywhere in the world. that is the reason why i am optimistic this year. emily: thank you for joining us. alibaba is bracing for a slowdown in china's economy. it is cutting its spending on travel and postponing hiring. jack ma warned that the trade war with the u.s. could have a much longer impact than anticipated. shares tumbleflix after fourth-quarter results. we will look at user growth and cash burn and original content next. check us out on the radio, listen on the bloomberg app am a bloomberg.com, and on sirius xm. this is bloomberg. ♪

emily: netflix reported a lackluster fourth quarter. the company shares tumbling after revenue came in below wall street estimates. attracting millions of subscribers wasn't enough to boost slow sales growth. justin patterson joins us. , i reporter who covers the entertainment industry. justin, are you underwhelmed as investors are today? >> not really.

you have to look at it from a big picture perspective. netflix had a 30% move into earnings. had expectations high in the wake of the recent price increase. had to blow numbers out across the board. you had some upside and margins were light in q1. that was mainly a function of fx , so we think this is a transitory facing issue. >> we are starting to get more information from netflix about subscribers, viewers. take a listen to what reed hastings had to say about how much share of the broader tv market they are snagging. take a listen. are one billion hours of television content being consumed a day. we are winning 10% of it. that is why disney has great content. we are excited for their launch.

maybe they grow over a couple of years to 50 million hours a day, but that is out of the one billion. emily: we have talked to a lot of analysts who are pessimistic about the future of netflix given that companies like disney and will becontent more competitive in the future. talking to creators, most are and don't think there is a problem at all. what is the unveiling view their? >> there is reason to be ,oncerned if you are netflix because disney, at&t, comcast, they are coming online in the next 12 to 18 months with rival streaming channels, and they are creating exclusivity around their own content. there are numbers coming out about how much we will see the cost of content and the investment in content learn for

the media -- balloon for the media industry. to reed hastings, he has talked about this threat. they have been preparing for that. they talked yesterday about how a vast majority of their content that is watched, like the most watch content, is their original stuff. of stuff onton there, but what people are watching his original. were talking about "bird box" and other shows, so they have been good at getting original content to keep us entertained. plethora ofa streaming entities, how will they survive? to answer your direct question about creators, they are happy to sell their stuff. let's be real.

they are happy to get their stuff sold and be seen. a filmnteresting to see which is in all its on favorite to win best picture next month. it will be an important moment for netflix if they come close to winning, because it is a watershed moment. they have never been close to that before. emily: golden globes and a favorite at the oscars. .ustin, you were nodding i have this chart in my bloomberg showing how the rise theubscribers has mirrored rise in the stock. do you think investors will be ok going forward with strong subscriber growth, even if revenue does the keep pace with expectations? >> the revenue piece solves itself. to the earlier-- point, netflix has the

viewership, nearly 140 million subscribers around the world. we think that number is 200 million by 2020. when you go back to the creator problem, netflix souls distribution, discovery -- discovery,ribution, where's disney and comcast have to build that global distribution. so from a netflix perspective, it has the audience. adding one dollar or two dollars a year in pricing is how you get to long-term free cash flow growth. word on theis the content that disney andes competitors will offer? do we know -- and these competitors will offer? do we know that it will be spectacular? that the properties we are talking about our marvel, star wars. for example, with the lucasfilm properties, netflix has that

this year, then cuts it off. i don't think it is that important for netflix. that is not how this business works. i think it is interesting. take "bird box." people talked about the fact that a lot of people saw it. saw it.on households sol but we are talking about fundamentally different businesses. people at home streaming is different to disney getting people into theaters to see "star wars." they will have potentially three more star wars movies and a whole world of star wars spinoffs they are working on. contente all the marvel they will have on their platform , and they are very focused on content that not only gets people on their streaming platforms, but that can be

monetized through the optical, products -- through theatrical, products, and other things. netflix is not interested in that. they do sell t-shirts, so i don't know. emily: justin, the last word. >> i agree with that view. netflix will be competing in a different area than disney. those films named our big budget pictures. "bird box" was not that expensive to make. that gives netflix a lot of content that can buy. emily: thank you both. lots to watch, at the very least. still ahead of a new details in the courtroom showdown between apple and qualcomm. we will discuss next. this is bloomberg. ♪

emily: when jeff williams told

the courtroom that qualcomm shut off the chips apply for iphones, it was compelling testimony in the antitrust case. the sec argues qualcomm won't sell chips of customers don't pay hefty licensing fees. any mail exchange shows the relationship may have broken down for other reasons. for all the details, ian king. you know the story better than anybody else. you have been surprised as we have, specifically apple's testimony that qualcomm cut them off from what we know that is only half of the story, right? >> qualcomm has said we will supply apple, then he says this in court. ok, that is not what we have been told. what we find out from the email exchange which he referenced in court was they were arguing

they did not want to deal with each other and there was bearish complications, but it wasn't anything to do with the licensing. emily: what does this mean? >> it depends on how the judge views this. we have had a week or more of the ftc making its case. now qualcomm has a chance to fight back and to explain itself and show why it is not guilty. >> the judge has made some interesting moves. she kicked people out of the courtroom, and wi-fi was not working, which is ironic. >> you are right. judgeno secret that the doesn't take any messing from anybody. if you mess around and don't know what is redacted or what should be redacted, she has zero time oftend docks

and orders people out and is not messing around. she is running a tight ship. emily: how much longer does this case have to run? , but threeweek or so or four more days of testimony. emily: in your view, who is winning? who has the upper hand? said, you remember they, the government goes first. they have to set out their case. try to make qualcomm look as bad as it can. qualcomm looks like it is losing now. qualcomm has a chance to say that is not what it was and to explain themselves and make a better case. emily: the ceo of qualcomm hopes they can get back to doing business together, apple and qualcomm. after this ugliness, is that possible? >> if you read the emails, there

was an attempt by both sides to forget this licensing and deal as a chip company and phone maker. even in that relationship there was this trust, so your -- this ust, so your guess is as good as mine. emily: airbnb to acquire hotel tonight. sources told the journal that talks have often cold, but could be revived as it prepares for an ipo. could make itn more attractive to investors and demonstrate growth potential. airbnb is considering building its own competitor and joining with boutique hotel chains. coming up, elon musk's hiring and firing spree. we will look at what is going on

with spacex and the boring company next. this is bloomberg. ♪

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emily: this is bloomberg technology. 10thmusk announcement the -- that tesla is cutting 3000 jobs. it has been somewhat of a hiring cuttingeek as spacex is its staff as well. do you think elon musk made a new year's resolution to get the workforce right at all of its companies?

>> you do wonder. one interesting thing about elon and this interlocking group of companies is that there are not right lines between them. musk is famously going back and forth between the spacex and tesla. aspects of tesla are looking very close to spacex. there is a shared staff. they are two different companies but the lines really blur. it feels like maybe while musk was looking at tesla's operations and we need to get this company profitable, he might have said maybe it's time to trim at at spacex. i don't think you are wrong in that assumption. >> why are we seeing the layoffs at spacex? the thing that is happening with spacex is it is transitioning from its falcon

nine rockets which are the ones that everyone knows to this new rocket, the bfr. it is a much bigger rocket that is designed to carry much heavier loads. some of the development is changing. also, the falcon nine's are reasonable. the whole point of spacex was that they were going to be able to reuse the rockets and that would bring the cost down. now, they don't need to manufacture as many rockets. that is good for elon musk's overall vision of making space more accessible to humanity. maybe not so good if you are an engineer or worker at a factory. has significant is it given the nascent status of the

project and the potential payoff? >> this look like a hobby years ago when we started hearing about it. i remember when elon musk told me about it. it sounded not thought through. as they go on, it is looking more and more like a real business. it has 80 employees and they have job openings. i don't know. it seems early. track thattration they showed off in los angeles looked kind of cool. this is whathand, elon musk has been famous for is taking these crazy ideas and turning them into businesses. >> thank you so much. we will watch to see how this pans out. now, to a story we are following. at the trade tensions between the china and the united states.

aijing his offer to go on six-year buying spree to ramp up importers -- imports from the united states. this means they would increase imports by more than a trillion dollars over that. i have a chart that shows how big the u.s. trade deficit with china is. the last month of this being the biggest difference on record between the two countries. i want to bring in our senior trade reporter. the trade deficit has widened over the last few months not narrowed. close the trade gap by 2024? >> it depends on who you listen to. most economists would argue that trade deficits are the result of a confluence of factors. economists are the ones who drive the political messaging in washington. donald trump's campaign promise was to attack the trade deficit with china. the irony that has not been lost

on many people is that in the last two years, it has widened. donald trump needs to deliver something. he has been focused on these talks. reducing the deficit has been one of his clear goals. the chinese have been listening and they have come up with a big offer to try to lure him into a deal. >> let's say this is possible. what with the chinese by from the united states? >> you have hit the nail on the head. questionsa lot of about how possible this is. the u.s. exports $150 billion in goods per year. they are talking about ramping that up to $600 billion per year inside six years. that seems improbable. it would mean buying a lot more soybeans. to $14 billion per

year now. lng and energy. more airplanes. for manufactured goods. one of the drivers of the deficit is not just with the chinese bible what american consumers buy. how do you tackle that when we will still be buying a lot of smart phones and laptops from china for the foreseeable future? >> that's talk about how the u.s. has reacted to this. don't people here want the chinese to close that gap but in two years? >> absolutely. this all came out of negotiations a few weeks ago in beijing. these mid-level working group negotiations. reaction from the americans we are told should be said was skepticism. likemp up and say we would to see you close the deficit in

two years which gets into american political cycles in the 2020 election.

in a technology, but are they ignoring their biggest advantage? a mobile platform says store associates are the biggest

advantage that retailers have over amazon and other big-time e-commerce players. tulip is looking to put the spotlight back on peer-to-peer help when you get inside stores. theing us for retail is ceo. currently, there are 60,000 in-store associates using the platform across 3000 stores, so tell us how it works. tulip'swe are seeing at massive retailers, companies like michael kors c,hanel, they are giving their associates ipads, and they're putting apps to serve their companies -- the customers better. it is a store that has tulip on the devices and allows associates to check customers out and make payments anywhere on the floor. it allows them to communicate with customers over email. and all of those things they can do without leaving the customer's side.

to is about bringing intimacy back into retail. about thealk seamlessness of the experience, because i have had several experiences with associates, sometimes the ipad is not working. i don't know if that is because of your software or someone else's. some ways, it seems like it is still going to take more time to have some of these technologies properly integrated into the in-store experience. >> i think what you saw over the they wereears was trying to build these applications themselves. -- there was a more robust piece of software where retails could deploy it and make more reliable applications. and data ton use ai get merchandise in front of you. into a when you walk

store, the retail associates is not necessarily know anything about you. how do you combat that? >> that is the coolest thing happening at a macro level in retail. as you see the rise of e-commerce happening, and retail feeling much more in personal, a lot of these retails are reacting by going in the direction. they are trying to establish connections between the store associates you so theyh every day, and might send you a personal message. that as the internet makes things feel impersonal, retails are going the opposite direction and using technology to make it feel very intimate. >> does this require associates to get proper training, or is it more intuitive than that? >> that is the cool thing that tulip had to learn the last five years. as we were deploying the software, associates were inheriting the software all of a sudden. we had to figure out, how do we get them to use application and

learned? one of the things we have done is focus on user interface. we codesigned the application in cupertino with apple. a lot of the work we did to make the application kill native and like every other app on your like youes you feel know how to use it. >> glad you mentioned that partnership with apple to bash with apple. coming up, amazon's facial recognition software has sparked civil liberties groups.

welcome back. chineseng news out of state-owned telecom companies. the president has been very vocal about his national security concerns around these companies. we don't know yet the details of how this order would actually be written. it would give greater authority .o the commerce department we will continue to follow that story and bring you the headlines as we have them. groupsar, civil rights came after amazon's facial recognition software. now, amazon shareholders are getting involved. friday, shareholders proposed a resolution that the tech giant

stop selling software recognition to government agencies until is more determined the tech doesn't threaten civil liberties. the aclu has raised concerns. discuss, --o give us the backdrop. we have all heard about facial recognition technology. amazon's technology in particular miss identifying people. has there been progress? highlightwants to some of the positive ways this is been used. they bring up things like preventing child abduction and spotting missing children. amusement parks. applicationsftware like identifying celebrities. there is one police department we spoke to in oregon that put in perspective, their monthly bill was $12.

to use this service. they would use recognition to very quickly and efficiently cross reference either photos of suspects or surveillance video footage and cross-reference that against a database of 300,000 jail booking photos. it is a very easy tool for them to identify criminal suspects. how does the pushback from the aclu and before the blowback? >> the aclu was one of the activist groups that complained about this last year. there was another one as well. what we have is it is spilling into the boardroom. we have a shareholder proposal. it is not a huge threat. amazon shareholders tend to vote in lockstep with with the board recommends. debate and some keeps it in the boardroom room

for more discussion. board toasking the check out the technology. only sell it if you can guarantee it will not be misused to violate civil liberties. >> what is next? >> you will have a boat of shareholders. there is the ongoing tension and debate about the use of the technology. there has been talk about potentially regulating its use. that is where amazon has said they are working with government agencies and law enforcement on educating them on how to use it and how to dial up the accuracy levels. it is not the single determinant of one criminal investigation. the next thing we will see is tension between the two sides on whether the it will -- whether it is ready to be deployed or not. >> thank you for joining us to

talk about amazon's facial recognition technology. the trump administration is preparing an executive order that could significantly restrict chinese state-owned telecom companies from operating in the united states. given national security concerns. this order would not specifically name companies like huawei and cte. one of the key questions to ask about this is is it going to let the commerce department band sales of telecom equipment in the u.s. or to countries that unworthy orms to be dangerous like a ron? huawei is in trouble for operating with iran and lying to banks about moving money around related to that. perspective, i

think they have written off the u.s. already but they are huge in africa and they were huge across europe. they are huge across asia. if this order goes out and says you cannot work with iran and other countries, that would be an -- another blow for a while. huawei has pledged to take global leadership of 5g. meantime you have other countries pushing back on while way over national security issues. you have their cfo, the daughter of the founder under house arrest in canada. warhe middle of a trade between the u.s. and china. i am wondering where as most of the pressure coming from? is the administration aligned with the doj?

>> on the doj side, within the recent months, we have messages from people inside the doj who basically said it is a major concern. i don't think it is just politics. we are talking about issues that had dated back to the obama administration. >> it is important to say it there has not been any solid evidence of anything happening. the doj sources told us a month or so ago to step back and think if while way and cte have 5g networks in 10 years time, it would be very easy to collect information about what is going back and forth between those networks. >> is this a helpful lever to be and putin trade talks the chinese under more pressure to make a deal? >> this morning, there was news

that chinahis idea has pledged to buy a trillion dollars of extra goods. i am not sure what those goods would be. it shows that maybe they are giving way. maybe donald trump's strategy was aggressive. as we arethis coming going into tech earning season. we are looking at chipmakers and suppliers to smartphones. the iphone. while weight is a smartphone maker as well. what sort of arrangements are we expecting across the board given the broader political uncertainty? >> good government business in the u.s. delayed a quarter because of the government shutdown. those are probably delayed a quarter. in general, the cloud is still good and growing.

enterprise hardware stuff is not quite so good. smartphones in the doldrums. pcs in the doldrums. cloud providers and maybe digital advertising is still churning away. >> we are hearing from sources that both sides might be eager to make a deal because both are concerned about their economies. both are concerned about the pressure that we have seen some of these companies facing. donald trump has other priorities. we just got a headline that he is going to make a major announcement on saturday with regard to the border area we are in the midst of a government shutdown. that this issense more of a priority than a trade war which could lead him to acquiesce perhaps there but not here? if you're going to order them

timewise, i think the shutdown is the highest priority. then the next one is the trade war. at the economy really slows down in the stock market doesn't do well, that is not great for president trump. i think china has a lot more to lose. markets -- i think the chinese communist government has a lot more to lose. >> thank you so much. thisll continue conversation next week. that does it for this edition of bloomberg technology. join us next week for full coverage of ibm and intel earnings. you can check us out at technology. this is bloomberg. ♪

david: you were nominated to be a chairman of the fed by president trump. is being chair all that it is cracked up to be? [laughter] david: people thought two rate increases were part of your plan for 2019. jay: there is no plan. we can be patient and flexible. david: maybe the president will have a meeting with you. have you received the invitation? jay: no invitation. david: you would be happy to accept it? jay: i am not aware of anybody not accepting it. david: ok. [laughter]