CEO Daily: Friday, 2nd September


Elon Musk is not having a good week.


We wrote yesterday about Tesla’s cash squeeze, which has led it to file with the SEC to raise more money . Institutional investors willing to support Musk’s plan to merge cash-burning Tesla with cash-burning Solar City are drying up. Then, adding to his problems, a Space X rocket blew up yesterday morning in Cape Canaveral. Both Tesla and Solar City stock tumbled throughout the day. Musk’s personal fortune shrank by three quarters of a billion dollars in 24 hours, according to Bloomberg.


This morning, Fortune’s Shawn Tully reveals that Tesla’s cash problems are even bigger than they look, due to some unconventional accounting. The company’s pro forma numbers count the full cash values of cars in its leasing program, even though the company has made “residual value guarantees” to banks on those cars. I don’t want to get too deep into accounting here, but GAAP rules don’t allow this. You can read Tully’s full analysis here. Tesla didn’t comment for the story.


The fan boys don’t like it when we at Fortune poke holes in Musk’s unorthodox business methods, and they will undoubtedly light up Twitter with an attack on this story. So let me say again for the record: I’m a big Musk fan. He is one of the boldest, if not the boldest, business visionaries of our times. I’m even enthusiastic about the idea of merging Tesla and Solar City to create a 21st Century electricity-powered company.


But I don’t think that entitles him to play by his own set of rules.


More news below.


Top News

Helmets On – It’s Payrolls Day

It’s Payrolls day, and there’s more than usual riding on the numbers, given Janet Yellen’s comments last week that the case for an interest rate hike had strengthened. Wall Street is expecting a headline increase of 180,000 in non-farm employment, down from two above-trend reports in June and July. Wage growth is expected to edge down to 0.2% on the month and 2.5% year-on-year, from 0.3% and 2.6% respectively in July (as ever – watch for any revisions of past data). The likelihood of a September move weakened yesterday after the latest ISM survey showed manufacturing weakening in August, while auto sales fell, reinforcing the feeling that a long boom is effectively over. This week’s sharp drop in crude oil prices (of which, more below) will also take the edge off any emerging inflation pressures. Fortune

Oil Slithers As Stockpiles Build

Oil prices are set for their biggest weekly drop since January, having fallen 8.3% between Monday and Thursday. That’s despite the dollar itself being under pressure at the same time (the two more often have an inverse relationship). Having roared from $39.50 to $48.50 a barrel in two weeks in August, it’s now back under $43.50. Unexpected inventory increases in the U.S., coupled with the fading of hopes for an agreement on output restraint from OPEC and Russia this month, appear the main causes. Russia’s Vladimir Putin told Bloomberg today he would support a production freeze that exempted Iran (Russia’s biggest ally in OPEC). Saudi Arabia and other Sunni producers are unlikely to accept that, and the market has taken Putin’s comments with more than a pinch of salt, given that his own oil minister said yesterday there was no need for a freeze at current prices. Separately, and entirely predictably, Putin said he had “no idea” who was behind the DNC data hack, but was sure it wasn’t Russia. Bloomberg

Vestager’s Olive Branch…to Jack Lew

EU Commissioner Margrethe Vestager appeared to offer an olive branch to U.S. Treasury, if not to Tim Cook and Apple, over the furious tax row that exploded this week when she instructed Ireland to recover 13 billion euros in unpaid taxes from the company. Vestager said if Washington chose to tax the profits reported by Apple’s Irish operation, she would cut her demand accordingly. The U.S. could do this by forcing Apple to have its Irish units pay more in fees to its Californian HQ for the right to license Apple patents. Her chief gripe remains that Apple’s profits in Europe over the last 12 years have effectively not been taxed at all, thanks to its agreement with the Irish government. That has given it an unfair advantage against competing companies from Samsung to Spotify. Fortune

Samsung Recalls the Galaxy Note 7

Samsung bowed to the inevitable and said it would halt sales of the Galaxy Note 7, recall phones that have already been shipped and sold, and prepare replacement devices. The move follows widespread reports of faulty batteries that caused the Korean company’s latest flagship smartphone to catch fire. The company didn’t say in its statement how long it would take to complete that process. The company’s shares appear to have priced in the development with a 5% fall in the course of the week, and were fractionally higher in Asian trading. The development gifts Apple a free shot next week, as it launches its iPhone 7 in a vacuum of competition at the high end of the market. Fortune


Around the Water Cooler

Daily Mail Retracts Melania Trump Claims

The Daily Mail has retracted an article that suggested Melania Trump once worked as a call girl, after the Republican nominee’s current wife slapped it with a $150 million libel lawsuit for daring to publish it in the U.S. through its MailOnline website. The Mail said it gave no credence to the allegations it repeated in its article. “The point of the article was that these allegations could impact the U.S. presidential election even if they are untrue.”--a subtlety perhaps inadequately captured by the headline: “Naked photoshoots, and troubling questions about visas that won't go away: The VERY racy past of Donald Trump's Slovenian wife.” A storm in a teacup, maybe. For more substantial and thoroughly-lawyered news about racy pasts this weekend, readers may prefer The Wall Street Journal’sDonald Trump and the Mob”, an account of the GOP nominee’s dealings with Mafia-linked figures in his early career. Daily Mail

No Port in a Financial Storm for Hanjin

The bankruptcy of one of the world’s largest shipping companies has caused confusion and disruption all around the world, as ports turn away its vessels on the fear that they won’t be paid. Korea’s Hanjin Marine had filed for bankruptcy protection on Wednesday and had its assets subsequently frozen. That meant that its ships could neither load nor unload containers because there was no guarantee it could pay the docks handling them. As of Friday, 27 ships had been refused entry to ports of terminals including three in the U.S. and 10 in China, according to the AP. The National Retail Federation said the bankruptcy is having "a ripple effect throughout the global supply chain" that could cause significant harm to both consumers and the U.S. economy, disrupting retailers’ ability to stock up before the holiday season. USNews

HP/Autonomy: Epilogue

Hewlett Packard Enterprise (HPE) is in talks with buyout firm Thoma Bravo to sell its software division, hoping it can fetch between $8 billion and $10 billion, according to Reuters sources. The negotiations are part of HPE CEO Meg Whitman’s efforts to focus the company’s strategy on networking, storage, data centers and related technology services. HPE has hired Goldman Sachs to manage the sale, but the highest bid to date (from Thoma Bravo) appears to be around $7.5 billion, Reuters said. Other interessees included private equity firms Vista Equity Partners Management, Carlyle Group and TPG Capital, it added. The deal is an epilogue to the inglorious episode of HP’s 2011 acquisition of Autonomy, which was supposed to make it a software giant. Fortune




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