good morning it is 8:00 a.m. at facebook headquarters in california it's 11 a 1:00 a.m. on wall strt and "squawk alley" is live ♪ good thursday morning. i'm carl quintanilla with morgan brennan, who's back and jon

fortt here at post 9 of the new york stock exchange. market sell-off once again, down 210. a lot of earnings to get to. facebook, a steep slide for the earnings on pace for the worst day since june as it goes below key moving averages. julia boorstin has what was disappointing in the quarter >> facebook retreating from the all-time high it hit yesterday the stock down about 6.5% on concerns about slowing growth particularly in the u.s. facebook's revenue, earnings, and monthly users did beat expectations, but revenue growth has slowed to facebook's slowest rate since going public. cfo david wehner warned it will continue to decelerate as privacy regulations and other limits to ad target continue to impact the company in the u.s., the region with the highest revenue per user, facebook add 1d million active users in the quarter

anl list analysts have buyer over weight rating the reason despite the slowing growth is the still untapped opportunity around e-commerce and payments facebook announcing it has 8 million advertisers, a million more than a year ago, and 140 million businesses on the platform >> our goal here is to make sure that every individual, small business, entrepreneur out there has the same opportunity and access to the same type of sophisticated tools that historically only big companies have had access to that's what we stand for, putting power in individuals' hands. one example we've been working on is whatsapp payments. you'll be able to send money as quickly and easily as sending a photo. >> zuckerberg and sheryl sandberg saying they're still in the early days of making money from whatsapp, but they're the

fastest growing formats. >>is with us they told us it's going to get more expensive and they've been right. >> yes stepping back, they're doing exactly the right thing. there were huge concerns around the platform in terms of privacy, types of content and disinformation they are investing a lot the operating margin is still 35%. that's very healthy, but it's down from almost 50% they're doing the right thing for the long term. this is exactly what mark zuckerberg said they would do in the ipo prospectus hard for companies to do this. the market doesn't like it generally. the stock pulls back we've seen this a few times in their history as a public company, and each time it's made them stronger going forward. 6% down after hitting an all-time high. it's a tech stock. nothing. >> the fact it is down 6.5%, do you buy into the idea that the

profitability for this company has peaked >> they may have peaked before they began the investment, when they were over 50%, a ridiculous operating margin, but 35% is extremely healthy. the growth is still strong we're saying it wasn't quite near 30%, but still over 20% at this scale, that's tremendous. again, mark's talking about payments there is a lot of opportunity there. a lot of excitement around instagram, which is not fully monetized. i think there's long-term growth, but i think you'll continue to see the multiple compress this is a huge company and growth is over the long term going to slow. >> especially in the context of the other earnings that we've seen and other stocks that have run up a lot more than this, thinking of apple, for example, there's nothing fundamentally about facebook's story that's changed. it's still facebook and google if you're talking about power in digital advertising. yes, we knew they were going to have to invest costwise in all kinds of privacy-related data

integrity-related stuff, monitoring on the site they're going that and i think we know that there are these worries out there about relegatigulation that afft just facebook but also google, et cetera. the you're along the space, it's hard to argue how you can get two, as you mentioned, wrapped up and it's down 6% but still above $200 a share facebook is doing fine >> it's doing fine, exactly. and they're investing for it to continue doing fine for the long term >> companies are posting consistent 20% revenue growth and stop, that past is checkered. >> it should continue to slow. google did this for a long time, gradually slowed down. tech is a very cyclical business, it's around product cycles the main product cycle on the main facebook app, we're in the late stages of it. that was ad driven there are other opportunities there. they have instagram, which is still a gem, a lot to do there there's plenty of growth ahead i don't think you'll see the

multiple expand wildly from here it's still high. >> they disclosed 2.26 billion active users that use at least one service and core facebook numbers, but they don't do it for the other services should they? >> that could be helpful but i think we have it suddenly people are freaking out, look at the blue app, it's not doing well anymore, and people are dumping it. 250 million people in the united states are using it. i hope nobody was sitting here thinking it would going e go to 700 million until the u.s. >> there aren't that many people >> exactly only 333 million people and they have an age limit so they're close to fully penetrating can't grow much more >> some of the most interesting stuff that came out of this report was the commentary from mark zuckerberg on the call. he's dug his heels in for policy and strategy decisions that they've been under criticism for and saying, because we wanted to be liked, we didn't communicate our views clearly because we

were worried about offending people our goal is not to be liked but understood it seems to mark a shift how he's communicating >> that's a flaw of experienced leaders, they want to be liked so that's good, but i think facebook is still going to have to do some reckoning around the platform they have built, which is one of the most power of communication platforms in the world, easily and commonly used to distribute propaganda and disinformation and fool people i think that over time i bet mark's attitude toward that is going to evolve a little bit more >> all right worst day since last summer. meantime, tesla is in focus as shares spike on the earnings beat philip lebeau is going to cover that >> you have a trifecta of news from tesla yesterday and this morning that had people say things are going pretty well for tesla. maybe we should put the stock over $600, which is what happs

happened here. their estimate for delivery of vehicles in 2020, 500k, well above what analysts rr expecting. their china plant outside of shanghai is ramping up production elon musk on the conference call said they are seeing strong demand for cyber truck >> demand has been incredible. i've never seen actually such a level -- never seen anything like it, basically i think we will make about as many as we can sell for many years. so, you know, we'll sell as many as we can make it's going to be pretty nuts >> by the way, we hear that kind of commentary from elon musk about every vehicle ahead of time when he's talking about them on the conference call. go back to norv. when they rolled out the cyber truck and threw the metal balls at the windows and they cracked

and people said this is a disastrous unveiling, look at what the stock has done since then we had the numbers run up, what, 83% since the cyber truck unveiled everybody said it wasn't a successful unveil. that is supposed to go into production next year, guys, starting at just $40,000 is their expectations >> wow how do you explain this price action >> well, first of all, let's go back a year. what an amazing recovery by elon and tesla. this company really looked very stretched, liquidity in trouble on delivery, constantly overpromising, elon and his tweets and everything else now look at where we are it's incredible. you cannot say enough about what elon musk can do as an entrepreneur inspiring human being, what he's doing is tremendous to watch. >> your point then was he needed an operations guru >> exactly he seems to have found somebody. i did see the name of the cfo the other day, so there are now

some more executives starting to be named at tesla and they're doing a good job but they seem to have gotten the business under control, which is terrific and it seems good going forward. that said, stock is a whole different story. that valuation is baking in lots and lots of years and lots of growth someday it will trade at 25, 20 times earnings >> that's not what a bull argument says. it won't come back to a from a from diga traditional valuation. >> all companies do. show me one that has not it doesn't matter what they sell stocks when they get to their mature phase trade 20 times earnings tesla will too at some point we can have arguments about when that will be i would say at this price, dubai and feel good that you have a good risk/reward, you have to believe they'll be at 2 million

cars a year in relatively short order, five, seven years there's a lot of work to do love to get there 500,000 is a good number they have to sell a lot more than that to justify the current price, let alone what you need on the return. >> so much hinges on china too you have to wonder if this is a stock that's priced for perfection if those risks around china are baked in when you talk about an auto market slowdown and coronavirus. >> long term hopefully those issues will be worked out. but, again, there is competition coming this is not a super light weight app that billion ls s of people adopt. they're making cars. it's hard to say anything skeptical because of the miracle of what they have accomplished, elon in particular, not just this company but other companies, but at some point, yes, i will have a very casual friendly bet with you that at some tesla will trade at 20, 25

earnin times earnings >> are you offering a cyber truck? >> he said it's the most popular car in the united states i said i would get a preorder at that point >> they made the point last night that the lion's sale of shares last year did not come from a customer with a preorder. we sort of use these deposits as a proxy, basically meaningless, according to the company >> certainly shows the company's ability to generate excitement again, it was very funmy watching that 24 hours around the rollout where people were initially, wait a minute, it looks ridiculous, the windows break, to the announcement of the preorders. oh, maybe it's actually cool suddenly it was very cool. >> at these levels, caveat investor, right, because this is exactly the kind of stock when sentiment shifts, it might get punished for no reason other

than valuation >> i could sit here and make the same argument on valuation at half this level or below it's amusing for me because 20 years ago i was saying maybe future upside and we'll grow into the valuation, and maybe we will, but sometimes we don't and people tend to be surprised by that to your point, plenty of downside if things stumble a little bit >> is there a level at which price targets would make you nervous? a new bull case out of web bush for a thousand >> if you're buying in here, given the risk reward, which is high still, you have to believe it's going to go to a thousand there's a tiny bobble as jon said, we're back at 300. that's reasonable. it's not cheap at $300 >> finally we have microsoft rising as well today good cloud strength, earnings beat, raised their guidance.

jon's got that covered for us. >> all-time highs for microsoft bauds the cloud is going, margins are strong and the legacy pc visit is strong, which we saw reflected in intel and a meshgs d earnings as well. microsoft benefitted from something that hurt amd. they sold fewer boxes because that's being updated and that boosted their margins. search and surface were weak but window strength made up for those. what matters so investors azure grew 64% constant currency over last year and other cloud connected products, particularly hybrid offerings also saw healthy growth the larger intelligent cloud segment grew quite a bit on the third quarter guide at 34.5 billion, that's above the street's expectations driven by that intelligent cloud segment and a hype in margin expectations intelligent cloud includes sql server, visual studio, thing

like that. we get amazon results today, aws expected to grow 37% expect a lot of comparisons between the two. it's not apples and oranges because you have to take a combination of azure and intelligent cloud to compare it to aws, but safe to say there's an argument to be made that after these results, microsoft probably still very much in the hunt with amazon if amazoncomes in light on cloud, you know, that will be a concern given how well microsoft is doing also interesting given how much they're all spending on beefing up sales forces that microsoft's margins still remain so good >> very good and this is another wow, just happening much more quietly and slowly than tesla. the fact that microsoft has turned it around after this fallow period down after a decade and is very close to lead this next technology wave is

unusual. you rarely see the leader in one technology wave finding the way to the front of the next technology wave. huge tribute to them >> and you see the leader in a way kind of fall off a time or two and nen get back on the horse. i think it speaks to the importance of deeply understanding companies, because the narrative on microsoft was like, oh, everything's wrong over there everything was not wrong at microsoft. satya has been there a long time, been working on windows server, azure, even under steve ballmer they're doing some things right they just had to put the pieces together in the right way, in the right order. >> that's right. >> catch mobile, catch the next bus. >> they certainly have miss mobile, miss web 2.0. there's one or two buses they missed, might have gotten hit by a couple, but they still managed to get up and get going. >> thanks, henry >> the earnings parade for tech continues after the bell today

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call today. comcast business. beyond fast. health and human services secretary alex azar joined us this morning on "squawk on the street" as the coronavirus concerns continue to grow. here he talks about the steps hhs has taken especially in airports to identify potential cases. >> the threat to any individual

american is quite low at this time, but under president trump's direction, we're proactively preparing in the event of spread and taking steps to mitigate the potential for future spread. we'll take all necessary approaches that are appropriate. at the major airports where chinese flights and travelers come in we're using our surveillance and quarantine systems to make sure that individuals coming in are looked at and if they identify with any type of symptoms, as we always do for illness, we'll pull them aside and exprosecutlore that. this is important, we're j kating people as they come in to be on the lookout for presenting any symptoms it's important to remember that the five individuals that we have identified in the united states with this novel coronavirus came in not as a result of proactive screening of them but rather because they

self-identified as having symptoms and were taken into the public health system as a result >> obviously we're hoping the number stays at five said nothing's off the table in terms of precautions we'll see what the world health organization says at the emergency meeting this afternoon. >> this is science, this is big government, some might argue, at work here. i think we give the government a lot of criticism over time, but these are tax dollars at work. this is what happens arguably when things work the way they're supposed to. so, yes, put a ding on the government for not being able to do anything right, but the reason why we have this public health system that we do and this good information is because, hey, we do that too >> certainly you've heard all the numbers cited comparing this to outbreaks of the flu on a yearly basis, which just having recovered from that, i can attest to how common it is and how not fun it is. the big concern is you're still

in early innings and what the transmission may look like with people coming out of china people without symptoms could be contagious cutting flights, unclear how workers get back to work in factories after the lunar new year holiday all of that remains to be seen we'll continue to monitor it meantime, speaking of this, we're following a story related to the coronavirus on a cruise liner in italy seema mody has more from the floor. >> tests are being carried out on two passengers on board an italian cruise ship owned by carnival a 54-year-old woman from macao was placed in isolation with her travel companion after displaying flu-like symptoms the cruise line is working with health officials at this hour. over 6,000 passengers are being held on board while the tests are being conducted. the ship is currently docked at a port that is north of rome in

italy. keep in mind, cruise lines have been taking proactive measures over the past two weeks to prevent the risk of coronavirus with added screenings. both carnival and royal caribbean have suspended sailings in china. no confirmed case of coronavirus, but those fears and concern around this virus of course sending shares of the cruise line operators lower. they are off the lows of the session. carnival opened lower by about 8%, currently down about 4%. jon, we'll stay on the story back to you. >> as we head to break, another stock that's doing better than it was, take a look at shares of paypal shares have fallen slightly this morning despite an earnings beat weak guidance was the issue there. that stock down just over 1% usually i go by the name soso. i am a chief... solutions engineer. the more you push yourself, the more confident you're going to get. and the more confidence you have, the more people are going to listen to you.

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and limitless opportunity. that's the tomorrow that we envision and to get there, we'll have to rewrite it today. boeing is reporting its first annual net loss since 1997 >> i believe in this airplane. i believe in the engineering of it. >> we've closed half our stores in china >> we are estimating that we'll grow 28% to 30%. >> the company's a juggernaut. iphone beats, wearables up welcome back, every. i'm sue herera here's your cnbc news update at this hour. three democratic state attorneys

general are suing a u.s. government official to force him to recognize virginia's vote this week to ratify the equal rights amendment and certify that measure as part of the constitution it comes after the national archive and records administration said that official would take no action to certify the amendment. secretary of state mike pompeo and british prime minister boris johnson meeting at 10 downing street the two discussed strengthening bilateral ties following the uk's departure from the eu including negotiating a free trade deal a. an adviser to ayatollah khomeini planned to selland. israeli security forces deploying a water cannon and firing tear gas to disperse stone-hurling palestinians in the west bank. this as protest continues against the trump mideast peace plan

that is the news update this hour back downtown to you, carl >> sue, thank you very much. when we come back, why facebook's mark zuckerberg is changing likes to understoods. we'll explain that a deeper zbooif the earnings mover of the morning as it is back to levels we really saw around january 2005 or 2006. stay with us at southern new hampshire university, we believe in education built for all people. - [woman] snhu was the best experience of my life. - [man] without snhu, i wouldn't be the leader i am today. - [woman] i graduated high school 19 years ago. i still finished. - [man] in the military, you feel that sense of accomplishment. that's what snhu is. - you will march from this arena and say to the world.. i did it. - [woman] you did it. i love you. - [graduate] i love you too.

turning back to facebook, a surge in expenses this quarter having its impact on the stock, shares now down just over 6% as facebook warns of slowing revenue growth mark joins us at post 9. was there anything in this report that should have surprised investors really or is this just a reaction maybe to the expense level? >> yeah, i think there was a bit of a surprise. over the past couple weeks, momentum from the buy side started raising up, positive number revenues they were hearing. the numbers across the board from revenues, users, expenses all hit in line with where a lot of the sell side was in this space, but it's that recent momentum that drove to stock up that raised expectations in the past couple weeks. >> we're used to facebook blowing out expectations and

this time they pretty much just said what they were going to do. >> exactly right sometimes good isn't good enough you needed to be perfect across all metrics. i think folks were looking for something better on the expense side as they were looking toward what was guided towards versus what they thought would happen and they came up a little short. >> the slowdown in revenue growth is pulling forward into the current quarter as well. you have an outperform rating on the stock. anything that would change your view >> as i look through the short-term levers they have, they guided down and that's a conservative outlook going forward through the year you see these ad targeting headwinds. you can't target as much directly as you would like to in the past so they're calling out a few of those things. we go back to the actual product and you think about instagram stories. we see about 50% upside in being able to monetize that. they're just getting started on search, marketplace ads, all these near-term levers they can use to mitigate the pressures on

the top line >> staples john edward with us also you called these results solid, noted the cautious tone as well. did anything in this report from mark zuckerberg shift even your near-term opinion on the stock >> yeah. i think there's a lot of products rolling out this year that are interesting for the company. there's a big shift towards forward messing and they may have something this year instagram as i heard suggested earlier has a lot of upside with stories. that's a little more comparable to snap and takes advertisers more time to get comfortable with it. shopping initiatives can be a great way to move the needle on that business as well. i think the core is the most exciting part of it, but the longer-term initiatives could move the needle down the line. >> everything we hear is the core is getting stale, but is it

so solid -- do they need to be rethinking it in any way strategically, the core of facebook. >> i think they're doing that now. the death of blue was overestimated. they're creating additional connection points in the platform, the dating product they launched, how they can create a growing business out of that there's lot more left in terms of how do you bring back engagement into that app >> we had zmark zuckerberg sayig my goal for the next decade isn't to be liked but to be understood security increasing. another election, how much of a risk this for the stock and for the performance this year? >> it's certainly a risk for the perception of the company and the narrative, but i think they have closed a lot of loopholes and weakness points in the app in the last two years. they say they have 1,000 engineers working on privacy alone.

that's more than most big tech companies have engineers in total. they've done a good job there. they're not going to get a lot of credit for it because of what's happened in the past, but i think they are protecting communication better in the platform and getting prepared for those elections. they've had a lot of testing grounds in other countries leading up to the u.s. election. >> is this going to prove to be the right strategy, this idea of -- that it's more important to be liked than understood? the way they're taking a stance on things like political advertising, misinformation, et cetera, et cetera is their strategy the right one? >> from a commercial perspective, absolutely. a lot is how do i take off being the moderator and being responsible for the content, which has a lot of real cost implications as you go forward how do i convey this is a great, safe place for your own personal data if i can convey that message, not only do i feel comfortable interacting with the advertisements but i take out a

big chunk of the cost component because i no longer have to be responsible for moderating content. >> people want them to be responsible for the content. i'm under the impression that part of that higher level of responsibility is what's leading to the expense maybe you could address that i'm also curious about your look at facebook versus alphabet because in the past 12 months i believe facebook has outperformed alphabet, which wasn't what i would have expected >> yeah. on the alphabet side, you know, everyone was focused on the u.s. deceleration in 4q and i think it's worth doing that because it is a mature business but when alphabet was around $30 billion, where the u.s. is for facebook, it was growing in the midteens every year. facebook is still within the 20% range. the maturing part of the business, that's going to create some comparisons but i think overall they're in a

really good place. >> so, mark, do you think that facebook is going to feel compelled this year, especially if you do see slowing top-line growth or expenses, at least in the near to medium term continuing to increase, feel compelled to break out more of it numbers, for example, instagram users? >> i don't think so. i think the way they're going, if you think about how advertisers spend money on the platform, they're spending less time saying do i want to spend on instagram or facebook facebook, you have the best algorithm. you decide where to best show the ad they moved the in the right direction and shift aid way from facebook blue users to platform users. i'm not expecting anything incremental in the next 12 months >> what about snap over facebook in the past year says about what facebook is doing right or wrong? >> the biggest change in snap in the last 12 months is they've shifted value proposition for advertiser, going to advertisers

and saying if you want to target gen z, here's how you do it. that's a big shift from before >> what's facebook's argument or pitch? >> their pitch is we'll get you the best roi target whoever you want and however you want to. we're the right platform brands started advertising on facebook, saw hockey stick success, and facebook has found 100% of their addressable output their algorithm is to -- so good at intent. that's what's given them favorability with advertisers. >> i don't know if that's a good or bad thing mark, john, thanks >> thank you a reminder as we head to break. can't get enough "squawk alley"? watch us live or anytime on the go on the cnbc app download it today. rick santelli, what are you watching today >> no matter which way i turn on the floor, you can see every market around the globe.

they're all infected by coronavirus. and tomorrow's brexit. but today was something special as well. 'lta autllhaafter the break.

another interesting day for bonds. let's get to rick santelli and "the santelli exchange." rick >> absolutely, carl. no matter where you look, the markets continue to get more infected by the coronavirus. we know there's a human element here and we're sensitive to that there's also a very strong market element as we continue to

see interest rates fall, 155 now on tens, and it isn't only the notion of the uncertainty. there's one mantra that now seems to be on every email, every text, all the conversations i have on the floor, it seems as though the trading community at large has this notion, and it's going to get worse before it gets better. is that true i can't tell you that's true but the important thing is that many of these folks believe it's true, and the markets are acting a bit stodgy no matter where you look, you can see the effects. let's look at some of the spreads we found so important not that many months ago, acknowledging there's a fed issue here, as well, to some extent, but there's little doubt what the cat list is three months to ten-year everybody was biting their fingernails in the summer when it was minus 50 basis points then as the fed started to ease, that spread started to change,

made it up shy of positive 40. we're lightly negative, negative interday, today maybe a negative close. tens and twos have given up a boat loud of ground. why? because the long end, the treasuries and their safety function have been pummeled in terms of yield and risen dramatically as investors globally run to them for their safety it's also obvious what's going on in foreign exchange look at the dollar versus the chinese yuan this chart is going back to may, but maybe the most important thing on this chart is to realize there was a big move as the dollar gave up ground, but now the dollar's coming back a bit. we all know the reason seems to be coronavirus dollar-yen another safe harbor if you look at it since the first week in january, definitely you can see that the yen has been strengthening finally, today marked the end, the final swan song, the curtain call for the bank of england

governor mark carney the interesting aspect is today is his last performance. andrew bailey will take the reins in mid-march, but tomorrow will be brexit how will it turn out i can't tell you but i can tell you this. when mr. bailey takes the rein, he's also going to be getting a budget uk budget, may be the first one in ten years that isn't weighed down by austerity. the marketplace is getting excited. this could have a y2k ending morgan, back to you. >> that will be a key thing to watch, rick. rick santelli in chicago it's crunch time for pg&e one year after filing for chapter 11 bankruptcy jane wells explains from los angeles. >> the clock is ticking on a multibillion-dollar decision look at this pg&e shares have skyrocketed this month on optimism that its reorganization plan will be

approved so it can exit bankruptcy five months from tomorrow that is the deadline for it to qualify for a new state wildfire fund covering future wildfire costs. now, pg and e has reached cements and gotten financing to pay billions to wildfire vict victims, insurer, bondholders, all predicated on it qualifying for that fund. there's a huge fly in the noimt, gavin newsom the governor hates the current plan and it sounds like the state will take over the utility, telling me he's been working on that plan for six months, consulting go ining gugm and turnaround specialists do you have an estimate what it would cost for the state to take over >> we do that estimate is determined on the basis of a number of factors that are not yet in evidence >> pg&e says its reorganization, by restructuring the debt, lit save billion dollars what's wrong with their plan

>> we have $40 billion, $50 billion. a billion is nice. there's also billions in fees. they have work to do on financing. what i don't want is a utility that comes out of bankruptcy limping. >> all right pg&e and the governor continue to talk. the company tells us we will be filing an updated plan to reflect the current status of our plan in the coming days. bottom line, forget the bankruptcy judge if the governor and his state utility regulators do not think the new pg&e is sound, they're not letting them in that fund. the they don't get into that fund, game over. the financing walks away, no one gets paid anything but the governor assured me that wildlife victims will still get paid if the state takes over the utility. >> wow jane, thanks the stakes huge here for almost all of northern california covered by pg&e. >> and southern california because we'll have to maybe subsidized the state owning the

northern california utility and that's a big issue >> yeah. the whole state, indeed. keeping us honest on, that jane wells, thank you still to come, tesla surges again as elon musk defies the shorts and the bears after earnings we break down the quart we are a former tesla board member and tesla bear next. >> i love the retail investors, and they have deeper and more accurate insights than maybe the big institutional investors. tastes great! high protein low sugar so good! high protein low sugar mmmm, birthday cake! and try pure protein delicious protein shakes we're committed to making college more affordable., that's why we're keeping our tuition the same through the year 2021. - [woman] i knew snhu was the place for me when i saw how affordable it was. - [narrator] find your degree at snhu.edu.

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i think a lot of the retail investors actually have a deeper and more accurate insight than maybe the of the big institutional investors, and better insights than many of the analysts. >> welcome back to "squawk alley. shares of tesla surging this morning post earnings as its market cap has now passed gm, ford, and fiat chrysler combined former tesla board member steve wesley joins us, along with david winston of morning star who thinks the stock is severely overvalued steven, the sound byte we just played from musk from the conference call, i want to get your reaction. >> well, there are smart people everywhere some retail investors are very

astute, and some are just following a trend. it really just depends how much work you want to do and how much interest you have. i would caution there is a difference between -- i think right now a lot of people feel very, very smart that they invested, you know, say under $200 a share and whatnot that's great that they have made a lot of money but being an analyst is not in love with the company or the ceo, too there is a big cult-like following around tesla and around elon. >> to that point, your fair value on tesla is 326. obviously it is trading at 644, 645 a share right now. how do you get to that number? why do you see such big risks to the price right now? >> well, i wouldn't say there is -- i don't want to get too negative here because i did say in my note last night that this is the most optimistic i have felt about the company in my over five years in coverage. in terms of vehicle volumes i

have been generous with them to get to my 326 number it is certainly possible their number could go up a bit because they have some more capacity coming on line i think you have got to think about the whole picture here you have got to think about -- risk, balance sheet risks although they have convertible debt they could pay out without issuing cash i have just never seen anything like this. they are still a very small company yet they are the second largest market cap in the world, small in terms of volume yes, it is a exciting story but stocks don't go up forever, especially for little reason. >> to that point, steve, i want to get your thoughts on the move we have seen in shares the fact that it has tripled in less than nine months, how much more room is there to go when you look at the valuation at these sky high levels, is it priced to perfection >> he wiwell we are about to fi

out. if tesla had cylinders you would have to say they are hitting on all of them. 50% growth in vehicles sold. record revenue, $7.4 billion, with ahead of the $7 billion analysts predicted beating profitability expectations they are moving rapidly internationally. rapidly in terms of bringing more things to market. i think the big picture here is something that the head of volkswagen said which is tesla is the first auto company that's being valued like a technology company. they have done something very different than everybody else. it is truly the first connected car. and the question is, will your car be your next smart device? if that's true, i think there could be a lot of room to grow there is certainly international growth and certainly growth as they bring new models to market. say what you want about elon musk and tesla, they have proved the nay sayers wrong. >> david, tell me, what would it take in your analysis for tesla

to be worth what it is trading at right now, in terms of vehicle volumes, in terms of efficiency how long would it take to get this. >> well, i think i would have to -- my mid-cycle operating margin, it is a ten-year forecast, that's way out in time but i believe it is 9% which if you believe more of the tech story that's way too low. i don't disagree with what steve just said about a smart phone on wheels there has been talk about this being sort of like apple for a long time. yes, it is a very tech heavy car. but it is still a car. massively expensive to do. there is a lot of competition. i think tesla will probably always remain the best ev maker out there. eventually, the differential that it now enjoys above audi or the mercedes, maybe that get

narrows a bit and the germans and the japanese and the detroit three, they are going to be able to produce procedure evs than cess la has shown typically. that's why tesla needs to get the new factories on line. the tech -- it is correct that -- has been concerned about tesla for a while. but i don't think other automakers are going to get to that tech hill no matter what they do. gm has done a lot of awesome stuff with crews, but they are a leading player and nobody cares. >> steve i want to get your thoughts, especially as a former board member we have seen quite a number of changes and departures over at tesla in the last couple of years. the team he has around him, the fact that the narrative has shifted, is this the right team? does he need the bring more people, for example, maybe a coo on board still >> the new chairman on the board, that's a good move. there has been new turnover that i think many of us would like to

see. but the simple fact remains they are moving faster than other auto companies they put the entire chinese facility up and running within 11 months. unheard of they are about to do the same thing in europe. they brought battery production in-house they are buying strategically key battery companies. i think they are going to be a leader in taking the cost of batteries down they have got a powerful brand the my mind, they are doing a lot of the same smart things that apple did 15 years ago when they completely surprised nokia. and people said it was completely overvalued for a phone company. in fact, steve jobs proved to the world a phone could be something much more. >> yeah. >> elon musk is doing that now there will be competition from general motors, from volkswagen, audi, from the chinese but tesla haas a very strong brand and nobody is moving faster internationally. >> gentlemen, thank you for joining us dow is down 59 points. it is parrinloesg ss coming off the earlier lows of the session.

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