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I got an inside look at Hudson Yards on opening day. Here's what the glitzy neighborhood is like, from the $200 million climbable sculpture to the 7-story 'vertical shopping experience'

Fri, 03/15/2019 - 7:53pm

  • Hudson Yards, New York City's $25 billion megadevelopment, is officially open to the public.
  • The public can now visit the Vessel, a 150-foot tall, climbable sculpture in the center of Hudson Yards that cost $200 million to build.
  • The Shops and Restaurants at Hudson Yards, a luxury shopping center with stores like Louis Vuitton and Dior, are now open as well.
  • I got to spend the day at Hudson Yards for its grand opening. Here's what it looks like, from the $200 million climbable sculpture to the 7-story luxury shopping center.

Hudson Yards, New York City's $25 billion megadevelopment, officially opened on March 15.

The public can now visit the brand-new neighborhood on Manhattan's West Side, which includes luxurious residential towers, a luxury shopping center with stores like Louis Vuitton and Dior, and a $200 million, 150-foot tall climbable sculpture called the Vessel.

I went to the grand opening ceremony at Hudson Yards and spent the day there. Here's what it looks like.

SEE ALSO: The billionaire behind Hudson Yards, the most expensive real-estate development in US history, says it's 'not a neighborhood for the rich'

SEE ALSO: I got a tour of a $14 million penthouse in NYC's new $25 billion Hudson Yards neighborhood and found that it was perfectly designed to show off its best asset

Hudson Yards, New York City's $25 billion neighborhood, is officially open to the public. On March 15, I attended the grand opening ceremony in the central plaza.

To get there, you take the 7 train to the Hudson Yards stop, a new station that opened in 2015.

Source: Curbed



If you turn your back on the glossy new skyscrapers as you walk down the West Side Highway to Hudson Yards, you can see the remaining visible rail yards just across the street.

See the rest of the story at Business Insider

The Boeing 737 Max is now one of the most controversial airliners of all time. Here are 3 others.

Fri, 03/15/2019 - 7:41pm

  • The Boeing 737 Max airliner has been grounded by regulatory agencies and airlines worldwide.
  • The action comes after two nearly brand-new Boeing 737 Max 8 airliners crashed within a matter of months.
  • The crashes, the grounding of the fleet, and the public furor make the Boeing 737 Max one of the most controversial airliners in recent memory.
  • Other airliners that ran into trouble include the de Havilland Comet, McDonnell Douglas DC-10, and the Airbus A320.

The US Federal Aviation Administration grounded the Boeing 737 Max airliner on Wednesday. It was the last and arguably most significant regulatory body to take action against Boeing's state-of-the-art single-aisle jet.

The enforcement action against the Boeing jet comes after two 737 Max 8 airliners crashed under strikingly similar circumstances in a matter of months.

Read more: These airlines will likely take the biggest hit after the Boeing 737 Max was involved in two deadly crashes and grounded in countries around the world

At the heart of the controversy surrounding the 737 Max is the Maneuvering Characteristics Augmentation System (MCAS). To fit the Max's larger, more fuel-efficient engines, Boeing had to redesign the way it mounts engines on the 737. This change disrupted the plane's center of gravity and caused the Max to have a tendency to tip its nose upward during flight, increasing the likelihood of a stall. MCAS is designed to automatically counteract that tendency and point the nose of the plane downward.

On Wednesday, Boeing announced that a software update to correct the shortcomings of MCAS is incoming. Until then, all 371 Boeing 737 Max airliners already delivered to customers remain grounded.

As a result of the crashes, the grounding of the fleet, and the public furor, the Boeing 737 Max has become one of the most controversial airliners in recent memory.

But the Max isn't the first plane to run into trouble, and many have been able to overcome their problems to have successful careers.

Here's a closer look at some of the most controversial airliners in recent history:

SEE ALSO: Two Boeing 737 MAX airliners have crashed since October — here are the airlines that fly the plane

De Havilland Comet

The de Havilland Comet ushered in the age of jet-powered passenger flight when it entered service in 1952.

The shiny new jet was fast, sleek, and represented the pinnacle of aviation technology. And then, one by one, Comets started falling out of the sky.

Some of the early crashes were attributed to a design flaw with the wings, which was quickly fixed.

Between summer 1953 and spring 1954, three Comets broke apart in midair. The plane was grounded by the British government in 1954.

It was eventually discovered that the plane disintegrated because of metal fatigue, which was exacerbated by the square shape of its cabin windows. The Comet was redesigned with thicker skin and oval windows before it was allowed back in service.

Unfortunately for the Comet, by that time, America's Boeing 707 and Douglas DC-8 had taken over as the airline industry's jet-powered workhorses. More than 100 Comets would be built during the 1950s and early '60s. Later versions of the Comet would continue in airliner service until the early '80s.



McDonnell Douglas DC-10

The three-engine McDonnell Douglas DC-10 entered service in 1971 as a smaller rival to the Boeing 747 jumbo jet. But from the beginning, the DC-10 was plagued by problems.

In 1972, American Airlines Flight 96, a nearly brand-new DC-10, had to make an emergency landing in Detroit after losing cabin pressure because the plane's cargo door blew off mid-flight. A few passengers and crew were injured, but no one was killed.

Two years later, Turkish Airlines Flight 981, another DC-10, also suffered decompression when its cargo door blew off mid-flight. Unfortunately, this time the explosive force of the air rushing out of the plane caused the cabin floor to buckle, damaging the flight controls.

All 346 passengers and crew on board the plane were killed when it nosedived into the French countryside.

The issues that plagued the DC-10 didn't stop there.

The DC-10 was grounded in 1979 after improper maintenance procedures led an engine to fall off the wing of American Airlines Flight 191 while taking off from Chicago. All 271 people on board the plane were killed, along with two others on the ground.

But the plane went on to become a workhorse for American, United, Continental, and Northwest airlines. It finally exited scheduled passenger service in 2014 and remains popular with cargo carriers such as FedEx.



Airbus A320

The Airbus A320 helped put its creator, Airbus, on the map. Since its introduction in the mid-1980s, the single-aisle jet has become the second-best-selling airliner in history, behind only the Boeing 737.

The highlight of the A320 is its advanced fly-by-wire computer-assisted control system. At the time of its debut, there was great debate over whether the industry was ready for such high levels of automation.

The concerns about human-machine interaction were further inflamed by the crash of Air France Flight 296, a demonstration flight designed to promote the capabilities of the A320 that crashed during an air show in 1988. The crash killed three of the passengers on board.

"The A320 has new features which may have inspired some overconfidence in the mind of the Captain," investigators said in their final report.

But the plane's reputation recovered in the three decades since the incident.



See the rest of the story at Business Insider

Inside the star-studded opening of the Shops at Hudson Yards, where A-listers including Anne Hathaway and Whoopi Goldberg came to see NYC's new $25 billion neighborhood

Fri, 03/15/2019 - 5:39pm

Last night, I was surrounded by dollar signs.

On my left, the real-life version of "Gossip Girl" — millennials wearing ascot scarfs, bow ties, and an air of confidence. To my right, female influencers dressed to what I call the "Instagram nines" — red lipstick, fur coats, and stiletto boots patterned with a dollar bill print.

I was at the grand opening of The Shops & Restaurants at Hudson Yards, a shopping destination in New York City's new $25 billion Hudson Yards neighborhood that began construction about four years ago. It's the most expensive real-estate development in US history.

Tastemakers, influencers, socialites, and celebrities — basically New York's elite and then some — congregated at the invite-only party, which Sharif El Gamal of Soho Properties described as "Sim City on steroids, but real" to Real Deal reporter Rich Bockmann. Bockmann himself said the event resembled "a circus."

My first impression fell somewhere along the lines of, "This is lit."

Read more: I got a tour of a $14 million penthouse in NYC's new $25 billion Hudson Yards neighborhood and found that it was perfectly designed to show off its best asset

Perhaps that's because 8,000 people were invited — but, according to Vogue, some 13,000 showed up over the course of the evening. I wasn't surprised — it felt more packed than Times Square, but with fewer tourists.

It was especially crowded in the area where I spent a lot of my time: the grand opening of queensyard, the British-inspired restaurant by luxury restaurant group D&D London, whose portfolio of restaurants has been visited by celebrities and royalty like Princess Diana and Naomi Campbell. It stayed popping until 2 a.m., well past the time the rest of the grand openings at The Shops began to shut down.

I couldn't blame the crowd — I had a hard time myself parting with the grilled cheddar cheese and truffle toasties, not to mention the Moët vending machine.

I ended up missing my red carpet moment, but Anne Hathaway didn't.

Nor did Lin-Manuel Miranda.

Whoopi Goldberg was also there.

L❤️VE this women so much!!! @whoopigoldberg at the opening of @neimansnyc @neimanmarcus #love #friendship #treasure #brilliant #newyork #newyorkcity #hudsonyards ❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️❤️

A post shared by Ken Downing (@kendowningofficial) on Mar 15, 2019 at 4:27am PDT on Mar 15, 2019 at 4:27am PDT

And Andy Cohen.

What an amazing night! Thank you @bravoandy the love was real! #hudsonyards #blessings #motivated

A post shared by Healing Wounds, Enhancing Live (@healingwoundsenhancinglives) on Mar 14, 2019 at 10:32pm PDT on Mar 14, 2019 at 10:32pm PDT

And Tom Brady.

About last night...it’s official @TomBrady kicks-off @blaujeff & #SteveRoss @related_group @relatedcos #HudsonYards one yard at a time on the Hudson. #TomBrady #JeffBlau

A post shared by Jason Binn (@jasonbinn) on Mar 15, 2019 at 7:00am PDT on Mar 15, 2019 at 7:00am PDT

 

And that's not to mention designers Diane von Furstenberg and Vera Wang.

Liza Minnelli performed as part of the grand opening of The Shops' Neiman Marcus, the city's first brick-and-mortar edition of the retailer. There was also a marching band, tap dancers, and a capella singers.

I ended up topping off my evening with a final glass of red and a stroll through an art gallery in The Shops.

Brian Underwood, director of Oprah magazine, dubbed the grand opening "the fanciest mall party I've ever been to," on Instagram.

Same, Brian, same.

SEE ALSO: Photos taken by Google over the past decade show how drastically the NYC skyline has changed in just 9 years

DON'T MISS: The CEO of an international luxury restaurant group opening a spot in Hudson Yards says diners want 3 main things — and it shows just how much fine dining has changed

Join the conversation about this story »

NOW WATCH: Take a look inside a $28.5 million NYC apartment on Billionaires' Row

Elon Musk says he aged 5 years from running Tesla in 2018 — but experts think that kind of work ethic is dangerous (TSLA)

Fri, 03/15/2019 - 4:57pm

  • Elon Musk said 2018 was such a stressful year at Tesla that it "felt like aging five years in one."
  • Musk has also said he works for 120 hours a week, which is three times the average work week in the US private sector, according to the Bureau of Labor Statistics.
  • Overwork is an incredibly dangerous habit, research suggests.

Elon Musk had a stressful year running Tesla, to put it lightly. "2018 felt like aging five years in one," he said at the unveiling of Tesla's newest car, the Model Y.

As Business Insider's Graham Rapier reported, the company went through what Musk has called "production hell" as it struggled to mass-produce cars and become profitable.

This isn't the first time Musk has alluded to burning out at work. In August 2018, Musk told The New York Times that he had taken to working 120 hours a week.

That's well over three times the national average private sector work week of 34.4 hours, according to the Bureau of Labor Statistics.

"There were times when I didn't leave the factory for three or four days — days when I didn't go outside," the Tesla and SpaceX CEO told The Times. "This has really come at the expense of seeing my kids. And seeing friends."

Silicon Valley often comes under fire for reportedly glorifying overwork, but judging from his New York Times interview, Musk has come to realize the toll it's taken on his life. He revealed that he'd spent his most recent birthday at work, and that he hasn't taken a substantial vacation since 2001. On top of that, he has trouble sleeping: "It is often a choice of no sleep or Ambien," he told The Times.

As the CEO of two major companies, Musk is known to keep an intense daily routineInc. previously reported that the CEO ignores most phone calls, abstains from getting stuck dealing with emails, and breaks his entire day into a series of five-minute slots. But apparently, he's still there for 120 hours a week.

It sounds a lot like he's overworked.

There are serious dangers that come with overwork: The Centers for Disease Control and Prevention has linked long working hours with everything from cardiovascular disease to suicide to cancer. 

The tendency to work too much isn't limited to Americans. Death by overwork is a major problem in Japan, where it's known as karoshi. In 2017, a 31-year-old Japanese woman died of congestive heart failure after pulling 150 hours of overtime work, Time reported. The epidemic has even prompted the Japanese government to take steps to protect its citizens from overwork.

Working too much isn't just an inconvenience to your family or a guilt-trip to your colleagues — it's dangerous to your health.

SEE ALSO: A look at the demanding schedule of Elon Musk, who works in 5-minute slots, skips breakfast, and largely avoids emails

DON'T MISS: Bill Gates and Elon Musk share a daily scheduling habit that helps them tackle their busy routines

SEE ALSO: Elon Musk runs two huge companies by breaking his day into 5-minute slots

Join the conversation about this story »

NOW WATCH: What's going on with Elon Musk

Unicorn startup PagerDuty files to go public

Fri, 03/15/2019 - 4:01pm

  • On Friday, the IT operations company PagerDuty filed its S-1 to go public.
  • PagerDuty previously confidentially filed for its IPO, but at the time, the government couldn't review its prospectus due to the government shutdown.

The IT operations company PagerDuty released its public paperwork for its IPO on Friday.

PagerDuty, which was founded in 2009, helps alert IT employees when there are tech incidents. For its 2018 fiscal year ending January 31, PagerDuty generated revenue of $79.6 million and had a net loss of $38.1 million. PagerDuty didn't report its previous full fiscal year, so its difficult to compare its annual growth or losses.

It did give these trailing twelve months stats: revenue of $107 million which is 48% revenue growth. It now has over 10,000 customers, too, it says.

PagerDuty also offered a comparison of its finances for part of its previous two fiscal years. For a nine month period in its fiscal 2017, it generated $56.6 million with a net loss of $29.8 million. For the same nine-month period in its fiscal 2018, it generated just about $84 million in revenue and a net loss of $34.5 million. 

PagerDuty will list its stock on the New York Stock Exchange under the symbol "PD." The company, which has been backed by firms like Andreessen Horowitz, Accel, and Bessemer Venture Partners, was last valued at $1.3 billion after raising $90 million in Series D funding.

PagerDuty had already confidentially filed for its IPO, but because of the government shutdown in January, the government couldn't review its prospectus.

In addition to PagerDuty, the firms Andreessen Horowitz, Accel, Bessemer Venture Partners, Baseline Ventures, and Harrison Metal Capital II all held shares prior to the offering. Andreessen Horowitz is the biggest shareholder outside of PagerDuty, owning 18.4%. Accel owns 12.3%, Bessemer Venture Partners owns 12.2%, Baseline Ventures owns 6.7% and Harrison Metal Capital II owns 5.3%, according to the filing.

Join the conversation about this story »

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American manufacturing is in danger of entering a recession

Fri, 03/15/2019 - 2:52pm

  • Manufacturing activity fell during the first couple months of the year.
  • As growth slows and trade tensions drag on, the sector could be headed for a recession.
  • Manufacturing accounts for about 12% of the US economy.

Manufacturing activity in the US unexpectedly fell for a second straight month in February, underscoring expectations for slower growth across major economies and raising concerns that the sector could be headed for a downturn.

Factory output fell 0.4% last month, Federal Reserve data showed on Friday, compared with expectations for a slight increase. In January, manufacturing activity fell 0.5%.

"In other words, a broad-based softening is underway, and we're sticking to our view that the sector will be in recession through mid-year," Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said.

From machinery to electronics, manufacturing output fell across sectors in February. The decline was offset by an increase in utilities and mining, bringing overall industrial production 0.1% higher from a month earlier.

Motor-vehicle production was little changed after dropping a steep 8.8% in January.

Because the manufacturing sector accounts for just more than one-tenth of activity, Shepherdson said a short recession in the sector wouldn't bring the rest of the economy down with it. But it would be a constraint on overall growth in both gross domestic product and employment.

The American economy is expected to grow at a much slower pace in coming months. Most economists forecast first-quarter GDP growth to come in between 1% and 2%, reflecting expectations of a broader slowdown across major economies.

"The further decline in manufacturing output confirms that the global industrial slowdown is now weighing more heavily on US producers," Andrew Hunter, an economist at Capital Economics, said.

That's in part thanks to the fading effects of stimulus measures, including a $1.5 trillion tax-cut package passed in the US last year, but ongoing trade tensions haven't helped.

A spate of tariffs between Washington and Beijing have raised company costs, lowered access to foreign markets, and disrupted supply chains. Manufacturers across the US, including carmakers, said last year they could be hurt by the trade war that is in its eighth month and counting.

"From the US perspective China remains a strategic manufacturing partner, which enables US companies to substantially lower manufacturing costs," said James Ragan, director of wealth management research at D.A. Davidson.

In 2015, American manufacturing plunged into its longest recession since the financial crisis, when a collapse in oil prices and a strong dollar crimped output.

SEE ALSO: Dozens of manufacturing companies testified about how Trump's trade war with China could affect them - here's what they said

Join the conversation about this story »

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The billionaire behind Hudson Yards, the most expensive real-estate development in US history, says it's 'not a neighborhood for the rich'

Fri, 03/15/2019 - 2:36pm

Hudson Yards is the most expensive real-estate development in US history. When it's finished, the $25 billion development will include luxurious residential towers, office spaces, a school, a luxury mall with high-end boutiques and restaurants, a $200 million art installation, public gardens, a performing-arts space, and the highest outdoor observation deck in the Western Hemisphere.

Condos start at $4.3 million and can cost upwards of $32 million.

Hudson Yards, with its glossy luxury boutiques and sky-high price tags, has faced criticism from some who see it as a neighborhood made only for the ultra-wealthy and has earned nicknames including a "playground for billionaires" and "a mall for the wealthy." Justin Davidson of New York Magazine called Hudson Yards "a billionaire's fantasy city."

But the billionaire behind the massive real-estate project disagrees with that characterization.

Hudson Yards is "not a neighborhood for the rich," Stephen Ross, the chairman of The Related Companies, the real-estate firm that's the developer of Hudson Yards, said in an interview with Forbes. "It's not a separate enclave."

Ross is worth more than $10 billion, according to Bloomberg, and Forbes estimates that his Related Companies has developed $30 billion worth of properties worldwide. Ross is also the owner of the Miami Dolphins.

In the Forbes interview, Ross said Hudson Yards' mall offers affordable options for eating and shopping, such as Shake Shack, H&M, and Zara.

The mall also includes the city's only Neiman Marcus, along with restaurants like TAK Room from Thomas Keller, the chef behind the Michelin-starred Per Se.

Luxury lifestyles in Hudson Yards

Hudson Yards currently has two luxury condominium towers: 15 Hudson Yards and 35 Hudson Yards. At 15 Hudson Yards, residences start at $4.3 million and go up to $32 million.

Read more: I toured the first residential building to open in Hudson Yards, NYC's new $25 billion neighborhood — and it was clear it's selling much more than just real estate

Its neighbor, 35 Hudson Yards, which its architect called "a city within Hudson Yards," will include a 60,000-square-foot Equinox fitness center, the world's first Equinox hotel, retail spaces, and at least one restaurant. Condos start at $5 million and go up to at least $28.5 million — and that's not including the penthouses, which are not yet priced. Ross himself will be moving into one of the penthouses, he told Forbes.

At One Hudson Yards, Related Companies' 33-story rental building that opened in 2017, available units range from $8,805 to $17,000 per month. At the nearby Abington House, the cheapest available apartment is a studio for $3,410.

Of the 4,000 apartments that are planned for Hudson Yards, about 10% will be rented at below-market rates as part of the city's affordable-housing program. These apartments, which will be open to those who make between about $31,000 and $62,000 per year, will rent for $858 a month for a studio and up to $1,350 a month for a two-bedroom, according to Curbed.

Hudson Yards opens to the public on Friday, but it's only about half-finished, according to Crain's. It's expected to be completed by 2025.

SEE ALSO: I toured a new 92-story luxury tower in NYC's Hudson Yards, where condos start at $5 million — and it was clearly designed to be so much more than just a residential building

DON'T MISS: Firefighters are warning that lives could be at risk in New York's $25 billion megadevelopment

Join the conversation about this story »

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The first exchange to go live with bitcoin futures has stopped listing new contracts as Wall Street interest in crypto wanes

Fri, 03/15/2019 - 2:28pm

  • Cboe Global Markets announced late Thursday that it will stop listing new contracts of bitcoin futures.
  • The Chicago-based exchange group, which was the first to launch a derivative for the cryptocurrency, said it is "assessing its approach" to how it handles cryptocurrency derivatives in a notice.

Cboe Global Markets, the first exchange group to launch bitcoin futures when it went live in December 2017, announced it was putting a hold on listing new bitcoin contracts.

In a notice published late Thursday, the Chicago-based exchange group said it would not be adding more bitcoin futures contracts on its Cboe Futures Exchange to give it a chance to reevaluate how it handles cryptocurrency derivatives. 

"CFE is assessing its approach with respect to how it plans to continue to offer digital asset derivatives for trading," the exchange said in the notice.  

Contracts that are currently listed on the exchange will remain available for trading until their expiration dates in April, May or June. 

A Cboe spokesperson declined to comment beyond the notice. 

Cboe's launch of bitcoin futures, which was followed shortly thereafter by rival CME, was lauded by some in the industry as a way for Wall Street firms to wade into the cryptocurrency space. The contracts went live at the peak of the cryptocurrency bubble when the currency was valued just shy of $20,000. On Friday afternoon, bitcoin was valued at roughly $3,900. 

However, Cboe's contract failed to pick up significant market share. Open interest in the contracts in early 2019 had actually decreased from the previous year.

Attracting Wall Street money into the crypto markets has been a tough nut to crack. Cboe CEO Ed Tilly pointed to the lack of an exchange-traded note, such as a bitcoin ETF, as a major hindrance to the growth of the futures market. 

Join the conversation about this story »

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Wall Street is worried that Tesla's going broke yet again (TSLA)

Fri, 03/15/2019 - 2:24pm

  • After two profitable quarters in a row, Tesla is once again in financial trouble.
  • The company has guided down first quarter expectations, and analysts are worried about margins on the new Model 3.
  • Plus, the company has taken on more debt and has a $566 million bill to pay in November.

Just over a month after Tesla CEO Elon Musk told investors that the company would be profitable going forward, its finances are once again the subject of Wall Street's most intense scrutiny. Tesla skeptics see blood in the water, while the company's supporters (still optimistic for the long term) have resigned themselves to yet another nail-biter of a year.

Of course, Wall Street being what it is, all this inevitably meant there would be a gentleman's wager (for charity, of course). And so there was.

"If Tesla reports even one profitable quarter in 2019 (defined as 'Net income (loss) attributable to common stockholders' from the 10Q/10K above zero), I will make a donation in the amount of your wager to a charity of your choice," investor Whitney Tilson wrote in an email to clients and friends. (If you took this bet, feel free to reach out to this correspondent at llopez@businessinsider.com.)

Tesla's 2019 was not supposed to look like this.

In 2018, it achieved a somewhat steady (though below promised) production of the Model 3, its lower-priced sedan that was supposed to bring electric vehicles to the everyman. The company had two consecutive quarters of profitability for the first time in its history (third quarter and fourth quarter). And in March, it defied its critics and paid off a $920 million loan.

The good times did not last. 

At the end of February, Musk shocked the Street when he announced that, to sell the standard Model 3 at about $35,000, it would have to close many of its stores and sell cars mainly online. To analysts all over Wall Street, that was a distress signal.

And looking forward through 2019, it's unclear who or what could come to Tesla's rescue.

Questionable margins, questionable demand

"International deliveries have begun and are not progressing without some delays; when combined with our expectation that Model S/Model X deliveries disappoint (we lower our 1Q19 delivery forecast), we now expect a meaningful working capital headwind in 1Q19 — and for quarter-ending cash to come closer to the $2bn mark," the Goldman Sachs analyst David Tamberrino wrote in a note to clients on Wednesday.

It sounds like a lot, but Tesla has some hefty bills to pay and plans to execute. The company needs about $1 billion to $1.5 billion to just run itself, according to analysts. That means having cash come in as soon as possible is paramount.

The company's recent moves have some worried. For even the most optimistic analysts, Tesla's rush to the standard Model 3 and move to online sales was a sign that demand for higher-priced, higher-margin versions of the car was all but spent. Over at the investment bank Cowen, the analyst Jeff Osborne called the move a '"Hail Mary" and said he also saw it as a sign that Tesla was unsuccessful at reducing Model 3 production costs.

It's unclear what kind of margins (or loss) Tesla is making by speeding up the release of the standard Model 3. Musk was adamant about not answering questions about that in a call with reporters earlier this month. More optimistic analysts, such as Emmanuel Rosner at Deutsche Bank, say that Tesla's cost-cutting effort will still result in a 25% margin by the end of the year.

"We believe Tesla management has a reasonably good handle on its cost trajectory, so whether Tesla can indeed achieve its 25% gross margin target before the end of this year may largely depend on the trim mix of Model 3 demand," Rosner told Business Insider in an email. 

In other words, if people trick out their standard Model 3s with extras, Tesla might be able to make its margins. If not, who knows?

In the meantime, we know there isn't a lot of cash coming in at the moment. Musk went back on his promise to continue the company's profitability and told shareholders that the first quarter would not be profitable. Musk said this was a result of one-time charges and challenges of getting cars delivered to China and Europe. 

It's all in the timing

So maybe 2019 is a soft year for Tesla— so what? It's just one year. Plus, auto sales around the world are declining, so everyone is in trouble. US sales saw their worst February since 2015, and even sales in China are contracting. Every carmaker is going to feel the burn — this is why GM keep tens of billions in cash on their balance sheet. Cars are a cyclical business. 

In contrast, Tesla is entering this downturn without much of a cushion to speak of. 

According to government filings, Tesla just raised about $520 million from a syndicate of Chinese state banks in order to build a third Gigafactory in Shanghai. The funds can be used only to build the Shanghai factory, and the loan will mature on March 4, 2020. That means Tesla has a short time to turn this factory, and this money, around.

In the same filing, Tesla told investors that it added another $500 million to an asset-backed revolving credit facility it has with Deutsche Bank. It extended the maturity date for that now $2.42 billion loan to July 1, 2023.

So just as Tesla paid its $920 million loan on March 1, it added another $1 billion in debt to its balance sheet.

In November, Tesla has another big bill to pay, too — $566 million worth of convertible debt related to the company's takeover of SolarCity in 2014. The price at which this debt converts into stock is $759.36 — a price the stock has no hope of touching where it sits now at about $275. So Tesla will have to pay this bill in cash.

A Tesla spokesperson said the company does not "expect any changes in our ability to service debt obligations." Moody's, on the other hand, published a recent note that described Tesla's credit profile as "strained" because of "ongoing operational missed steps and strategy reversals over a short time period."

The proof of Moody's point is in the numbers. From year to year, the company's expenses have ballooned beyond what it has been projecting. This is important to note as it plans to begin manufacturing Model 3s in China before the year is out and Model Ys in the US in 2020.

Here's how Tesla's projections have played out over the 2 years:

  • Tesla's 2017 annual report projected contractual obligations of $5.6 billion in 2019.
  • Tesla's 2018 annual report, however, projected contractual obligations of $8.1 billion in 2019.

The majority of that $8.1 billion comes from purchase obligations, here's how those projections fared:

  • In 2017, the company projected that 2019's purchase obligations would come to about $2.7 billion.
  • In 2018, that number exploded to $4.8 billion.

This is an indication that the Model 3 has been more expensive to build than Tesla thought. In its filings, Tesla said that purchase obligations include "any additional amounts we may have to pay vendors if we do not meet certain minimum purchase obligations."

On Thursday, Tesla rolled out the Model Y, a crossover SUV built from the Model 3 platform. Tesla said the two cars share 70% of parts (something the company tried and failed to achieve with the Model S and Model X, which share less than a third of their parts). Tesla reportedly also has yet to figure out exactly where it's going to build the Model Y, which is scheduled for production in 2020.

Gene Munster of venture-capital firm Loup Ventures said reservations for the Model Y won't impress, coming in much lower than the Model 3's 325,000 reservations in a week. He estimates there will be about 175,000 Model Y reservations two weeks after its unveiling. This is considering the fact that Model Y production is a year and a half away and lots of die-hard Tesla fans got a Model 3. 

In fact, cannibalization is on more than a few people's minds.

"In our view, the recent announcement by Tesla of its upcoming Model Y unveiling event was perceived negatively by the market, partly due to concerns that Model Y could cannibalize current Model 3 sales given the general industry shift from sedans to trucks/SUVs," Rosner told Business Insider before the unveiling. "Therefore, any announcement by Tesla that addresses these concerns could be positive for the stock."

But they were not addressed at Thursday's unveiling, and on Friday, when the market opened, Tesla's stock was down almost 4%.

Have any experience working for Tesla or with Tesla as a supplier? Contact me at llopez@businessinsider.com.

SEE ALSO: 2019 was supposed to be easy for Tesla, now it's a circus

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From Betsy DeVos to Rupert Murdoch, to the Walton family, here are the investors that lost hundreds of millions investing in Theranos

Fri, 03/15/2019 - 2:07pm

  • Going into summer 2018, the blood-testing startup Theranos was running low on cash.
  • In March, the SEC charged Theranos and its founder Elizabeth Holmes with fraud, alleging they had made false statements and misled investors while raising $700 million. In June, the Department of Justice charged Holmes and former Theranos president Sunny Balwani with wire fraud.
  • By September 2018, Theranos — which at one point had a $9 billion valuation — officially shut down
  • Theranos investors, which include Education Secretary Betsy DeVos, Rupert Murdoch, and billionaire families, lost hundreds on the blood-testing company. 

A number of the big names who invested in Theranos — from Education Secretary Betsy DeVos to Walmart heirs —  lost hundreds of millions from their investments in the blood-testing company.

Theranos, which was once valued at $9 billion, before shutting down, is the focus of "The Inventor: Out for Blood in Silicon Valley," a new documentary debuting Monday at 9 p.m. ET on HBO.

Theranos had been under fire since October 2015, when The Wall Street Journal published an investigation that called into question the accuracy of its blood test. By the end of 2017, Theranos was in ne eed of new cash to keep it running.

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In December 2017, Theranos said in a letter to investors that it had raised $100 million in secured debt financing from investment firm Fortress Investment Group, with the hope that it would help the company survive through 2018. But in March 2018, the SEC charged Theranos and its founder Elizabeth Holmes with fraud, alleging they had made false statements and misled investors while raising $700 million. Holmes and Theranos settled with the SEC. 

Then in June 2018, Holmes stepped down as CEO of Theranos, remaining with the company as a founder and the chair of the board. She was then charged with wire fraud by the Department of Justice.

By September, Theranos had officially shut down, and its investors lost the hundreds of millions they'd bet on the company. 

Here were the biggest investors in the embattled blood-testing company, per The Journal's review of a legal document made public in 2018

  • The Walton family, heirs to Walmart founder Sam Walton: $150 million
  • News Corporation and 21st Century Fox executive chairman Rupert Murdoch: $121 million
  • Education Secretary Betsy DeVos and her family: $100 million
  • The Cox family, a billionaire family from Atlanta: $100 million
  • Mexican businessman Carlos Slim: $30 million
  • Greek businessman Andreas Dracopoulos: $25 million
  • The Oppenheimer family, a South African family that once owned De Beers: $20 million
  • Former Bechtel Corp chairman Riley Bechtel: $6 million
  • Attorney Daniel Mosley: $6 million
  • Patriots owner Robert Kraft: $1 million
  • Venture funds: $70 million

The family members who invested with DeVos aren't happy about how things turned out.

"To say they’re highly disappointed in Theranos as a company and an investment is an understatement," Greg McNeilly, the chief operating officer of the DeVos family group told The Journal in May. 

This article was initially published in May 2018 and has been updated.

SEE ALSO: Theranos has laid off most of its remaining staff

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RBC's deputy chairman of investment banking explains why M&A has returned with a vengeance after going dormant last quarter

Fri, 03/15/2019 - 1:54pm

  • Larry Grafstein joined RBC Capital Markets last year from UBS as the deputy chairman of global investment banking.
  • Business Insider recently spoke with Grafstein about the surprising turnaround in the markets this year and how 2019 could be just as strong for mergers and acquisitions as the previous two years.
  • He also discussed how Republican tax reform may have stimulated more capital investment than people anticipated, what's worrying corporate execs, and why he decided to make the jump to RBC.

What if you got a glimpse into the future, and what you saw terrified you? You'd likely take action to improve your fate.

That may sound like Charles Dickens' "A Christmas Carol," but we're talking about the 2019 mergers-and-acquisitions market.

As Larry Grafstein, the deputy chairman of global investment banking at RBC Capital Markets, tells it, business leaders in December 2018 got a frightening peek at what the next financial crisis or recession might look like — and for some it startled them into a renewed sense of urgency.

After Federal Reserve Chairman Jerome Powell signaled last October that the Fed's tightening plan was full speed ahead, markets got jittery, feeling it was too much too soon for the American economy. And by December, after the Fed hiked rates further and signaled two more rate bumps for 2019, markets hit a free fall that left most indexes in correction territory.

M&A, which was scorching for most of 2018, also went cold — the $553 billion in global deal volume in Q4 was the lowest tally since the first quarter of 2014, according to Bloomberg data — and the malaise carried over into the new year.

That is, until the end of January, when Powell did a 180, surprising many by indicating that rate hikes were now on hold and that the Fed would be "patient" going forward.

The pivot quickly soothed volatile markets, and business leaders who may have been mulling selling a company or going public suddenly got another opportunity to do so in near-peak economic conditions.

"We think that it has actually on the margin made sellers more likely to sell, because they had a window into what a severe market correction might look like and feel like," Grafstein told Business Insider in a recent interview.

Grafstein and RBC are happy to capitalize on the resurrected dealmaking enthusiasm. The bank, which is 10 years into its US investment-banking push, poached Grafstein from UBS last summer and has brought on a slew of other veteran dealmakers since — including Asad Kazim, a top real-estate banker also from UBS, and Andrew Callaway, who was hired from Bank of America Merrill Lynch in January to run healthcare investment banking.

RBC has already landed a lead role on one of the largest megadeals of the year: the $66 billion merger of BB&T and SunTrust.

In a recent interview with Business Insider, Grafstein spoke more about the surprising turnaround in the investment-banking outlook for 2019, why that may spur action from unicorns and sellers, the biggest concern among executives and board members right now, how Republican tax reform may have stimulated more capital investment than people anticipated, and why the veteran dealmaker decided to make the jump to RBC.

Interview condensed and edited for clarity.

How is business going in 2019, and how did things rebound from the slowdown at the end of last year?

The fourth quarter of 2018, we had obviously a change in the markets, and it was both rapid and significant.

We saw particularly in December the indexes close to bear market, 20% off their highs. I think what was notable about that in 2018 was you couldn't help but have people concerned about the outlook for the economy in general, but obviously mergers in particular.

And yet, in January, we had a fairly rapid pivot by the Fed and a turnaround in the market. So as we look now at 2019 and the outlook as we sit here today in March, it feels like more of the same. In other words: strong equity valuations and high levels of M&A activity.

One of the notable things about the rapidity and severity of the market correction in the fourth quarter was that it gave people a glimpse of what might happen if we entered into a slowdown after many years of robust conditions. And that had a psychological impact, not just an economic impact.

The Fed keeping interest-rate increases modest and also saying it was not going to quantitatively tighten as much as maybe people expected created a baseline. But the psychology of seeing the markets turn, we think — talking to our clients — created a little bit of stimulation of people to say, "We don't necessarily want to miss a window to sell."

When you head into market conditions like that, which can last for longer than a few weeks, which happened this time, people say, "I don't want to get trapped." And so we think that it has actually on the margin made sellers more likely to sell, because they had a window into what a severe market correction might look like and feel like.

Now at the same time, valuations — which you always think about value corrections as being opportunities — the fact that we had a very brief correction in the public markets meant that we haven't really seen multiple compression in the private markets. Deals are still being done at close to peak multiples if not peak multiples.

But generally, it's safe to say on the margin, people that might've wanted to hold out for every last penny are now willing to pull the trigger and sell.

On the margin, people that might've wanted to hold out for every last penny are now willing to pull the trigger and sell. Getting into the psychology a little bit more: People get a glimpse of what could be a dismal future if we're heading into a recession, and then it pulls back. And that's contributing to people saying, "Well look, I've got a second opportunity now to take some action"?

Exactly. I think that affects obviously the M&A markets, and it affects also the equity markets. We're about to see a wave of major private companies, so-called unicorns, go public. And clearly, the experience of the market break in December coupled with the normalization in January, prior to what could be a volatile and turbulent election year in 2020, means that people understand this is a good window to consider issuing equity, or selling a company, or both.

Among the clients you talk to, was the Fed pivot unusual in terms of the reaction to it?

People are always monitoring interest rates. Treasurers in particular are always trying to issue debt opportunistically. And CEOs are focused, as you would expect, on confidence and the secular tailwinds in the economy. So you can't help notice when you have a market event like that — everyone pays attention.

On the other hand, everyone also understands that regardless of any given moment today in the stock market, we've had a prolonged period of historically low interest rates. Even though we've had some encouraging numbers for overall economic growth, there's still fragility in the global ecosystem. Some of that is driven obviously by concerns about trade with China, some of it concerns about European overall economic conditions.

For anyone with historical perspective, CEOs, finance people who have some experience, we know this is an unusually long time of benign conditions, and it's been driven by the Fed, which is why there's so much attention to whatever the Fed's doing. As a result, everyone is very watchful about things.

That said, one of the encouraging things, which I mentioned to you before, is that we've seen a positive trend in nonresidential fixed investment — in other words, capital investment for businesses. And that was clearly one of the theses of tax reform: to stimulate people to invest more in productivity-enhancing opportunities.

The ability to expense capital from a tax perspective for a few years under tax reform is really an incentive for people to think about putting projects in place. And, many times, major capital-investment projects take a while to plan and a while to execute, so the fact that that was one of the cornerstones, I think, of what the Republicans said they wanted to do with tax reform — so you have seen a positive reaction.

And there was a concern that maybe tax reform was maybe a one-time boost to that, but the fact that nonresidential fixed investment went up in the fourth quarter — just reported last month — shows that may be a positive sign.

Even though we've had some encouraging numbers for overall economic growth, there's still fragility in the global ecosystem. So coming off of a very strong 2017 and 2018, you don't think there's any reason 2019 can't live up to those standards?

Right, and I think if we were sitting here on December 20, we'd be feeling a lot different than March 20. A lot has happened in that period, but I think there's always a little bit of a pause for people to assess what the outlook is, but I think now clearly it's, "OK, conditions are still good." Clearly there's still risks out there — no one's oblivious to the risks — but conditions continue to be solid.

When you're talking to decision makers, executives, and board members, what's the biggest concern going forward?

I think it is the unpredictability of what might happen if things escalate with China. And that doesn't affect every single business, but clearly there's a knock-on effect, even for people that are domestically focused. This era of globalization has, for better or worse, led to very complex supply chains, and when you start having tariffs and trade tension, that can upset supply chains and requires a lot of reaction and improvisation. And it also creates a bit of uncertainty, which, people never like uncertainty.

Why was this the right opportunity and the right time for you to join RBC?

RBC is a full-service investment bank in the US, which has been, I think, the fastest-growing platform since the crisis. The company has been a leader in Canada not just for 10 years but for decades, in a very competitive banking market. There's major competition both from Canadian domestic banks and global banks within the Canadian market. RBC's always done very well there.

What we find as I talk to clients out there — and I knew this before I came — is that it is one of the banks that both leading private-equity investors and leading corporations want to have an institutional relationship with. Because it's stable, it's been here for a long period of time, and it's committed to this market.

I think if you look at the track record of how RBC Capital Markets has been built in the US the last nine or 10 years, it's been cautious but consistent. And I think that's a very good formula for growing in what is a volatile and challenging industry.

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American Airlines has suspended flights to Venezuela after the State Department warned US citizens should stay out of the country (AAL)

Fri, 03/15/2019 - 1:46pm

  • American Airlines suspended flights to and from Venezuela on Friday due to security concerns.
  • The announcement comes days after the US State Department issued a level four advisory instructing Americans to refrain from travel to the South American country.
  • "American will not operate to countries we don’t consider safe," the airline said.
  • Venezuela has descended into political and economic chaos in recent months.

American Airlines suspended flights to and from Venezuela on Friday. The announcement comes days after the US State Department issued a level four advisory instructing Americans to refrain from traveling to the South American country due to "crime, civil unrest, poor health infrastructure, and arbitrary arrest and detention of US citizens."

The Fort Worth, Texas-based airline usually operates two daily flights to Venezuela's capital, Caracas, and one daily flight to Maracaibo. 

In a statement to Business Insider, American Airlines said,

"American has temporarily suspended our operation into Caracas and Maracaibo. Our Corporate Security team has a collaborative partnership with union leaders and we will continue to do so to evaluate the situation in Venezuela. The safety and security of our team members and customers is always number one and American will not operate to countries we don’t consider safe."

On Friday, the airline's pilot union encouraged its members to refuse to make flights to Venezuela citing security concerns. 

Read more: Trump announces all Boeing 737 Max jets are immediately grounded following its 2nd crash in 5 months.

In addition to the travel advisory, the State Department has also shut down the US Embassy in Caracas and has withdrawn all diplomatic staff. 

The oil-rich South American nation has descended into political and economic chaos in recent months. There are reports of food, water, and power shortages as well as riots in protest of President Nicolas Maduro. Since January, the legitimacy of Maduro's presidency has come under challenge from opposition leader Juan Guaidó. The US and Europe have all recognized Guaidó as Venezuela's rightful leader. 

Other countries with level four travel advisories include Afghanistan, Iran, Iraq, Haiti, Somalia, Syria, Libya, and North Korea. 

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NOW WATCH: Elon Musk said Model 3s will come out of China by the end of 2019 — here's why that's hard to believe

The Tesla Model Y has staggering specs — but it isn't a major new design for Tesla (TSLA)

Fri, 03/15/2019 - 1:02am

  • Tesla revealed the Model Y crossover SUV on Thursday night.
  • The Model Y's specs are impressive, especially in Performance trim.
  • But the design, while distinctive in crossover SUV land, isn't a huge departure from what has become a familiar Tesla look.


LOS ANGELES — Tesla CEO Elon Musk revealed the Model Y SUV at the carmaker's design studio on Thursday night, to the cheers of a crowd of Tesla owners and special guests gathered inside.

Musk was in loose, easygoing form — he ditched his now-famous habit of wearing a cool new jacket for the vehicle reveal, opting instead for a basic black blazer, but he did don black-and-red Nike Jordans for the occasion.

Tesla's lineup — Model S, Model 3, Model X, and now Model Y — spells out "S3XY," and Musk offered plenty of jokes on that score as he reviewed Tesla's history, starting with the first Roadster and concluding with the Model Y unveiling. At times, the CEO, embattled through 2018, seemed to be engaging in an extended standup comedy routine. He boldly declared that in 10 years, Tesla will be driven on Mars, cracking himself up.

It was a good show, and it was topped off by the main event as the Model Y was driven out by Tesla design head Franz von Holzhausen.

In a dashing blue with blacked-out details such as badging and door handles for its debut, the Model Y is the car that Tesla urgently needs to be selling: a long-range all-electric crossover to capture the imagination of buyers increasingly besotted by these car/SUV mashups.

Great specs, familiar design

In Performance trim, the Model Y's specs are stunning. A zero-to-60 mph time of 3.5 seconds meets 300 miles of range, with a 150 mph top speed and $60,000 price tag. That trim level arrives in late 2020, while the slower, $39,000 Standard Range Model Y won't hit the market until 2021.

The numbers are actually cooler than the car, which isn't a major departure from Tesla's familiar design language. It's sleek, wearing its functionality well. But compared with the dazzling new Roadster, revealed in 2017, and the stately Model S and taut Model 3, the Model Y is a typical crossover. Von Holzhausen did some fine work with it, but crossovers are difficult to make thrilling.

That was to be expected — Tesla has to build this thing, and the design shares components with the Model 3 to ease the manufacturing burden. So yes, it's an upscaled Model 3, or a downsized and less complicated (No falcon wing doors!) Model X.

That said, it does have that distinctive, futuristic Tesla look and will stand out vividly from the Toyota RAV4's and Honda CR-V's when it does hit the streets.

The bottom line? It's an incredibly important vehicle for Tesla, and the details are exactly what the market was asking for. But is it "bringing sexy back, quite literally," as Musk said? Along with the rest of its family, yes. But on its own, I don't think it looks as good as it will probably drive.

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NOW WATCH: Elon Musk sent a $100K Tesla Roadster to space a year ago. It has now traveled farther than any other car in history.

Elon Musk just unveiled Tesla's newest car, the Model Y SUV (TSLA)

Thu, 03/14/2019 - 11:55pm

  • Tesla unveiled on Thursday its latest vehicle, the Model Y crossover SUV, at its design studio in Hawthorne, California.
  • The Model Y is Tesla's second SUV, after the Model X. The vehicle will have a range of 300 miles per charge, the ability to accelerate from 0-60 mph in 3.5 seconds, and the capacity to seat seven people, CEO Elon Musk said. 
  • Tesla began allowing customers to reserve the vehicle for a $2,500 deposit after Thursday's event.
  • The three trims available to reserve start between $47,000 and $60,000. Musk said a standard-range trim would arrive in 2021 and start at $39,000.

Tesla unveiled on Thursday its latest vehicle, the Model Y crossover SUV, at its design studio in Hawthorne, California.

The Model Y is Tesla's second SUV, after the Model X. The vehicle will have a range of 300 miles per charge, the ability to accelerate from 0-60 mph in 3.5 seconds, and the capacity to seat seven people, CEO Elon Musk said. 

Read more: Tesla customers can pay up to $200,000 to reserve the electric Semi truck on the company's website

Tesla began allowing customers to reserve the vehicle for a $2,500 deposit after Thursday's event. Three trims are available to reserve: a long-range, rear-wheel-drive trim that starts at $47,000; a long-range, all-wheel-drive trim that starts at $51,000; and an all-wheel-drive performance trim that starts at $60,000.

Less range than the Model 3, but more cargo space

The long-range, rear-wheel-drive trim has the longest projected range of the three, at 300 miles, while the other two trims have projected ranges of 280 miles. The performance trim will be the fastest of the three, with a top speed of 150 mph and the ability to accelerate from 0-60 mph in 3.5 seconds, Tesla says.

Tesla's Model 3 sedan, which the automaker began delivering in 2017, has a top range of 325 miles and the ability to accelerate from 0-60 mph in 3.2 seconds, depending on the trim. The Model 3 starts at $35,000.

The Model 3 has 15 cubic feet of cargo space, while the Model Y will have 65 cubic feet of cargo space, Tesla says.

Production for the three available Model Y trims is expected to begin at the end of 2020, Tesla says. Musk said during the event that a standard-range trim will arrive in 2021 and start at $39,000.

During the unveiling event, Musk touted the Model Y's performance, functionality, and safety. 

"It has the functionality of an SUV, but it will ride like a sports car," Musk said.

Musk said he expects the Model Y will become the safest mid-size SUV.

"Of any mid-size SUV, it will be the one you want," he said.

The Model Y reveal comes amid financial, demand concerns

The Model Y's unveiling comes at a time when Tesla is facing mounting financial pressure and, according to some analysts, a demand problem.

In late February, Tesla announced it was closing most of its stores and moving to an online sales model. At the time, the company said the move would enable it to slash the prices for all of its cars by several percent and roll out the long-promised $35,000 Model 3 sooner than expected.

About a week later, though, Tesla backtracked and said that it would actually keep more stores open and increase the price of its vehicles back to their previous amount. These moves signal the company may be facing some significant headwinds, according to Goldman Sachs analysts. 

"In the US, we think the amount of information points to declines in demand for Tesla’s higher priced vehicle variants following the start of the phase-out of the Federal Tax credit; and we believe moves by the company to continue to improve its cost structure in order to deliver lower priced vehicles and tap remaining consumer demand corroborate this," Goldman Sachs said to clients in a note earlier this week.

What’s more, Goldman analysts said there is also the worry that the reveal of the Model Y could put further pressure on the Model 3 sales because people may opt to wait to purchase the SUV instead of opting for the lower-cost sedan. 

Have a Tesla news tip? Contact this reporter at mmatousek@businessinsider.com.

SEE ALSO: Uber will officially launch its $120 billion IPO in April

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NOW WATCH: Elon Musk said Model 3s will come out of China by the end of 2019 — here's why that's hard to believe

Goldman Sachs is cutting about 5% of sales and trading staff after senior equities leaders delivered a tough town hall talk (GS)

Thu, 03/14/2019 - 6:15pm

  • Goldman Sachs is cutting about 5% of the people in its sales and trading division, according to a person with knowledge of the matter. 
  • Each year, Goldman culls underperformers across the company, with the percentage dependent on the performance of the business and future growth prospects. 
  • At an equities town hall on Monday before the cuts were announced, a top equities exec told staff that he'd have zero tolerance for them if they didn't buy into the culture of renewed collaboration that new CEO David Solomon is trying to instill. 

Goldman Sachs is in the process of cutting roughly 5% of its sales and trading staff as new CEO David Solomon conducts a review of the business and looks for ways to improve collaboration between the divisions. 

The company notified staff in the securities division of the cuts this week, including those employees who deal with clients trading stocks, bonds, and currencies, according to a person with knowledge of the matter.

Staff in commodities were told earlier this month. Bloomberg reported that at least 10 commodities employees had been fired. 

Each year Goldman Sachs culls its underperforming staff to make way for new recruits and lateral hires. While the percentage each year can vary — the bank cut 10% of fixed-income staff several years ago — the target is generally 5%. Certain businesses within sales and trading likely suffered bigger or smaller cuts. 

At an equities town hall on Monday before the cuts were announced, Jeff Nedelman, one of four execs running the business, spoke directly and frankly with those gathered.

Nedelman, according to a person who heard his remarks, said there won't be any tolerance for a lack of cooperation or coordination with the firm. Nedelman mentioned the companywide philosophy "One Goldman Sachs," coined by Solomon to foster better collaboration, the person said. 

Also on Thursday, Goldman announced the dismissal of 65 people in a filing with New York state labor officials. Those employees have already been informed, meaning this week's layoffs will likely show up in future filings. 

Within the securities division, the equities business has suffered some recent high-profile departures. Jack Johnston, a top-performing salesman with large hedge-fund clients, left for rival JPMorgan Chase, people familiar with the matter told Business Insider. Johnston will cohead the US equity sales and trading business at JPMorgan, the people said.

It's the second senior defection in Goldman's equities division in the past week. Danielle Johnson, a managing director in the bank's client-relationship management group, was poached by Credit Suisse to co-run its Americas equities business, Bloomberg reported last Friday.

Goldman Sachs' equities business was ranked number one for years before giving way to Morgan Stanley after the financial crisis. And JPMorgan has been heavily investing in the business in recent years, poaching from Goldman and increasing competition among the three. 

Goldman Sachs reported $7.6 billion in equities revenues in 2018, a 15% increase from 2017. JPMorgan reported $6.9 billion, a 21% uptick from 2017, while Morgan Stanley pulled in $9 billion, a 12% increase. 

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Private-equity giant TPG says it fired a top executive after he was caught in the college-admissions scandal, and it's letting investors pull money from one of its funds

Thu, 03/14/2019 - 5:56pm

  • Private-equity firm TPG said it fired William "Bill" McGlashan, an executive caught in the college-admissions scandal.
  • TPG said he was terminated, but in a note to board members McGlashan said he resigned.
  • The firm is letting investors take out their money from the latest fund McGlashan was raising.

Private-equity company TPG said it fired William "Bill" McGlashan and would let investors pull money from the fund that he ran.

McGlashan was first placed on leave on Tuesday after he was among dozens of parents and coaches indicted by the FBI in an alleged scheme to get students into elite colleges.

McGlashan, who joined the firm in 2004, is the founder and managing partner of TPG Growth, which makes investments in growth equity and middle-market buyouts. He's also cofounder and CEO of the Rise Fund, an investment fund focused on companies trying to tackle social and environmental issues.

A TPG spokesperson said on Thursday that McGlashan was "terminated for cause" in a statement:

After reviewing the allegations of personal misconduct in the criminal complaint, we believe the behavior described to be inexcusable and antithetical to the values of our entire organization. As we stated in the previous announcement of Mr. McGlashan’s administrative leave, Jim Coulter will take over managing partner responsibilities for TPG Growth and Rise.

In an email to board members, McGlashan said he resigned.

The progress we have made is too important for you to be distracted by the issues I am facing personally ... I am deeply sorry this very difficult situation may interfere with the work to which I have devoted my life. As you can imagine, my primary concern at this point is for my family. I will also be focused on addressing the allegations that have been presented, and there are aspects of the story that have yet to emerge that I wish I could share. It is essential however that this process happens apart from The Rise Fund and TPG Growth.

TPG is seeking to raise up to $3.5 billion for the second Rise fund, according to documents from the New Jersey Division of Investment, which earmarked $125 million for the vehicle. The firm is allowing investors who already committed to the fund the chance to "reaffirm their commitment," a source familiar with the process said. Bloomberg first reported that investors could pull their money. 

Investors are reportedly wary of future funds: Bloomberg said that longtime investor New Mexico State Investment Council would more closely scrutinize TPG's next growth fund.

See more: Private-equity giant TPG is launching a new company that measures the social impact of a $228 billion investing market

According to court documents, McGlashan had discussions with an unnamed person who participated in the scheme, dubbed "CW-1" in the indictment; CW-1 created "a fake football profile using Photoshop software" so that McGlashan's son could be enlisted as a "purported football recruit."

TPG has more than $100 billion in assets, with the growth fund holding $13.2 billion in assets, according to the company's website.

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The beautifully simple method Archimedes used to find the first digits of pi

Thu, 03/14/2019 - 5:19pm

  • March 14 is Pi Day in the US, as the date matches the first three digits of the famous number.
  • On Pi Day 2015, Google announced that a researcher had uncovered the first 31 trillion digits of pi, using a cloud-based computer algorithm.
  • Ancient mathematicians like the Greek Archimedes used clever geometry tricks to come up with earlier estimates of π.

Happy Pi Day! It's March 14, or in American notation, 3/14, matching the first three digits of π. 

One of the fundamental constants of mathematics, π, is the ratio of a circle's circumference to its diameter. 

It's an example of an irrational number — π can never be written as a fraction of two whole numbers, and it does not have a terminating or repeating decimal expansion. The decimal expansion of π goes on forever, never showing any repeating pattern. Since π is irrational, all we can ever hope to do is get better and better decimal approximations.

Indeed, on Pi Day 2019, Google researchers announced that they had found the first 31 trillion or so digits of π, setting a new record.

So, how did the ancients, who did not have access to cloud-based supercomputers like the Google engineers, first approximate π?

How they found π

The Greek mathematician Archimedes developed one of the first somewhat-rigorous approaches to approximating π. Archimedes observed that polygons drawn inside and outside a circle would have perimeters somewhat close to the circumference of the circle.

As described in Jorg Arndt and Cristoph Haenel's book Pi Unleashed, Archimedes started with hexagons:

We start with a circle of diameter equal to one, so that, by definition, its circumference will equal π. Using some basic geometry and trigonometry, Archimedes observed that the length of each of the sides of the inscribed blue hexagon would be 1/2, and the lengths of the sides of the circumscribed red hexagon would be 1/√3. 

The perimeter of the inscribed blue hexagon has to be smaller than the circumference of the circle, since the hexagon fits entirely inside the circle. The six sides of the hexagon all have length 1/2, so this perimeter is 6 × 1/2 = 3.

Similarly, the circumference of the circle has to be less than the perimeter of the circumscribed red hexagon, and this perimeter is 6 × 1/√3, which is about 3.46.

This gives us the inequalities 3 < π < 3.46, already moving us closer to 3.14.

Read more: Fractals are math's trippiest concept, and they get even weirder when used to solve a puzzle involving the British coast

Archimedes, through some further clever geometry, figured out how to estimate the perimeters for polygons with twice as many sides. He went from a 6-sided polygon, to a 12-sided polygon, to a 24-sided polygon, to a 48-sided polygon, and ended up with a 96-sided polygon. This final estimate gave a range for π between 3.1408 and 3.1428, which is accurate to two places.

Archimedes' method of approximating π with polygons, and similar techniques developed in China and India, would be the dominant way mathematicians would approach the calculation of the digits π for centuries.

Today, mathematicians like the Google researchers use algorithms based on the idea of infinite series from calculus, and our ever-faster computers allow us to find trillions of digits of π. 

SEE ALSO: The Pi Day Google Doodle was made by the inventor of the Cronut — here's what to know about the day

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Apple's App Store fees are coming under increasing pressure from Spotify, Netflix, and regulators. Cutting them could lower its earnings by 10% next year. (AAPL)

Thu, 03/14/2019 - 5:17pm

  • Apple could lose billions of dollars in revenue and earnings if it's forced to cut the commissions it charges on sales through its app store, said analysts who cover the company.
  • App-store fees charged by Apple, Google, and others like Steam have come under increasing pressure.
  • Some developers have routed around them, and Spotify filed a competition complaint against Apple in Europe that focused in part on the iPhone maker's app-store fees.
  • Should Apple have to cut its average overall commission rate from the 27% it gets now to around 15%, it would lose out on about $8 billion in revenue next year and $1.25 a share in earnings, Nomura Instinet analyst Mark Kelley said.

Spotify's complaint against Apple over unfair competition could end up costing the iPhone maker billions of dollars.

The streaming music maker's allegations against Apple focus on the way Apple manages the App Store and the fees it charges developers who sell their apps and related items there. The complaint it filed with the European Commission on Wednesday increases the chances that Apple will have to lower its commission rates on app sales, warned financial analysts who cover the company.

If Apple is forced to reduce its rates, it's likely it would only have to cut them by a little, a move the company could easily swallow, said Mark Kelley, an analyst who covers the electronics giant for Nomura Instinet, in a research note on Thursday. But if Apple has to put in place a particularly large cut in its rates — which would require a "structural change" to its commission policies — the move could cost the company more than $8 billion in lost sales next year and about $1.25 a share in lost earnings, Kelley estimated.

"A structural change in Apple's take rate seems unlikely, but would prove more damaging" than a slight change in rates, he said.

App-store fees are coming under increasing scrutiny and pressure

Apple charges a 30% commission on most sales through its app store. For subscriptions charged through its store, Apple lowers its cut to 15% after the first year. Combining those two rates, the company on average gets a commission of about 27% on all the sales through the App Store, Kelley said. Google charges similar rates in its Google Play store and sees about the same overall commission rate, he said.

But the fees charged by Apple, Google, and other app store operators like Steam have been coming under increasing pressure. In recent years, both Netflix and Spotify stopped allowing customers to sign up for paid subscriptions inside their iPhone apps, instead encouraging new customers to sign up on their websites. Similarly, Epic Games has been routing around app stores with "Fortnite: Battle Royale," directing consumers on PCs and on Android smartphones to download the game from its website instead.

Read this: The uproar over how 'Fortnite' is being released for Android shows how much we have acquiesced to Apple's way of doing business

And now Spotify has filed a formal complaint with European regulators, asserting in part that the fees Apple charges are unfair and anticompetitive. While it had to pay a 30% fee to Apple on its subscriptions, Apple Music — the iPhone maker's rival subscription music service — has to pay no such fees, Spotify charged. To receive the same amount of revenue, Spotify says it would have to increase the cost of its subscription, which it argues harms consumers.

Spotify's complaint comes amid growing scrutiny of the business models of Apple and other tech giants. Just last week, Sen. Elizabeth Warren said that she would seek to bar such companies from both operating a platform or marketplace and offering apps or services on that marketplace that compete with those from third parties.

"With growing calls from more robust regulation, we continue to view app store pricing as an area that could see more pressure," Ben Schachter, an analyst with Macquarie Research, said in a note late Wednesday.

App-store fees are important to Apple

Apple is particularly susceptible to potential changes in app-store fee rates. The company is banking much of its future on growth in its services business. Not only has that segment been growing faster than Apple's overall hardware business, it's more profitable too. 

Apple's App Store commissions make up the biggest component of its services business, accounting for about 30% of its total revenue, Kelley estimated. Consumers spent around $47 billion on apps and other items in its store last year, and the iPhone maker pulled in about $12.6 billion in revenue from those sales, Kelley estimated. Both of those figures are about double the comparable ones for Google.

A slight reduction in Apple's App Store rates won't hurt the company very much, Kelley said. If its overall commission rate falls to about 25%, Apple's store revenue next year would be about $1.4 billion less than it would be otherwise, while its earnings per share would be about 20 cents lower, he said. But those hits would represent less than 1% of the company's expected overall revenue next year and only about 1.5% of its expected per-share earnings. 

But bigger cuts in its commission rates would lead to much sharper reductions in Apple's expected sales and profits, Kelley said. If its commission rate drops to 20% overall, Apple would take a $5 billion hit to its total sales next year and would see its earnings per share cut by 75 cents, or about 6%, he said. If its fee rate falls to 15%, Apple's overall revenue in 2020 would be cut by 3%, or $8 billion, and its earnings per share would be reduced $1.25, or nearly 10%.

Schachter thinks there's a chance it could fall even further than that, suggesting Apple's commission rate might drop to just 12%. That would cut its earnings before interest and taxes by 15% next year, he said.

"Pressure on [the] app distribution model [is] building," Schachter said.

Got tip about Apple or other tech companies? Contact this reporter via email at twolverton@businessinsider.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.

SEE ALSO: Here's why Apple's coming streaming video service won't rescue it from plunging iPhone sales

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Tesla's in the 3rd version of 'hell' with its Model 3. And launching an SUV could make even things worse. (TSLA)

Thu, 03/14/2019 - 5:01pm

  • Tesla has gone from one iteration of hell to another, one particularly bearish analyst told Markets Insider this week.
  • The electric-vehicle manufacturer is now in a "demand hell." That's after Tesla went through what CEO Elon Musk dubbed "production hell" and "delivery logistics hell."
  • A handful of Wall Street analysts have sounded the alarm over demand as a core problem for Tesla now, and one that's more fundamental than production and means of delivery.
  • On Thursday, Tesla will unveil its Model Y SUV, a car that could spur a new wave of demand.
  • Watch Tesla trade in real time.

How many versions of hell can one car go through?

Tesla has gone through what CEO Elon Musk dubbed "production hell" and "delivery logistics hell" over the past two years with the Model 3. Now, there's a new version of hell on the lips of at least one Wall Street analyst: "demand hell."

Gordon Johnson, an analyst at New York-based Vertical Group, told Markets Insider by phone on Wednesday that vehicle demand is a major issue for Tesla right now, as competition heats up across the electric-vehicle market once dominated by Tesla alone.

"Tesla has a demand problem," Johnson said in a phone interview Wednesday. "The demand problem is the Model 3 is not a mass-market car. It's a luxury car."

"Elon Musk has talked about production hell, delivery hell. I think what they're in now is demand hell," Johnson said, referring to disappointing Model 3 sales and waning demand in the US and China alike. In late February, Tesla unveiled its long-awaited $35,000 Model 3.

Demand appears to have been at least partially driven by the US federal tax credit for electric vehicles. Goldman said the price after the $7,500 credit would have been comparable to a well-appointed Toyota Camry.

As my colleague Arjun Reddy reported, customers placed 450,000 deposits for the Model 3 well ahead of its launch, starting in 2016. He wrote recently:

Demand now appears to be flagging with many of those deposits refunded as the tax credit is now being phased out. Many customers have also became frustrated with the extended wait for the $35,000 Model 3, canceling their orders. Currently, there is no backlog for Model 3 delivery in the US, with an estimated delivery time for the $35,000 vehicle ranging from six to eight weeks, according to Tesla's website.

Elon Musk has said that "demand for Model 3 is insanely high" but that the "inhibitor is affordability."

To be clear, Johnson is the biggest Tesla bear on Wall Street, according to analysts surveyed by Bloomberg, with a $72 price target on the stock that implies about a 75% drop from current levels.

But he's not the only one sounding the alarm on demand for new Tesla Model 3s. On Tuesday, Morgan Stanley slashed its price target on the stock for a second time in two months amid a host of issues, including demand for their vehicles.

"At a high level, a number of recent events at the company are raising questions in the minds of investors … including statements by Elon Musk and changes in key senior management … now the decision to close stores and moves to continue to reduce headcount," a team of analysts led by Adam Jonas wrote in a note to investors.

On Wednesday, Goldman Sachs analyst David Tamberrino told investors that the Model Y SUV crossover, set for release on Thursday, could "further weigh on Model 3 demand as consumers decide to wait a little longer to purchase a Tesla crossover vehicle."

Longtime Tesla bull Gene Munster estimated the Model Y could double Tesla's total addressable market.

"The Model Y is important because entering the SUV/cross over market effectively doubles Tesla's addressable market, but we caution it will likely take two years before the $39k model will be available," he said.

Here's a brief history of the hells Tesla has endured, in the words of CEO Elon Musk, and how analysts view it now.

'Production hell'

In July, 2017, Elon Musk said at a press conference that Tesla would suffer manufacturing challenges as Model 3 production was underway.

"We're going to go through at least six months of production hell," he said.

Musk said the anticipated Model 3 production hell would be "less hellish than the hells the company endured with its previous three vehicles, the original Roadster, the Model S sedan, and the Model X SUV," Business Insider's Matthew DeBord reported.

Tesla shares were trading around $297 per share, or a little more than 1% below current levels.



'Delivery logistics hell'

A little over one year later, in September 2018, Musk said in a tweet responding to a customer complaint that the company had moved from "production hell" and was in "delivery logistics hell."

"Sorry, we've gone from production hell to delivery logistics hell, but this problem is far more tractable," Musk said in a tweet. "We're making rapid progress. Should be solved shortly."

That response about vehicle delivery issues came one month after he posted his infamous "funding secured" tweet — and just before he settled fraud charges with the Securities and Exchange Commission and stepped down as chairman of Tesla's board.

The chief executive had indicated, prior to his "delivery logistics hell" tweet, that Tesla customers may face a longer response time due to increased delivery volume in North America.

That day, when Musk tweeted about this new hellscape, Tesla shares closed at $294.84 per share, or just over 1% higher than current levels.



'Demand hell'

Now, ahead of Tesla's Model Y crossover SUV unveiling on Thursday, analysts are sounding the alarm on demand issues surrounding the electric automaker.

The most bearish Tesla analyst on Wall Street, Vertical Group's Gordon Johnson, told Markets Insider this week that it's yet another iteration of "hell" for the company.

Demand is waning in the US and China, Johnson said, as competition heats up across the electric vehicle market that was once essentially occupied by Tesla alone.

When reached for comment, Tesla referred Markets Insider to comments from Musk on the company's latest earnings call. 

"It's important to appreciate, the demand for Model 3 is insanely high," Musk said. "The inhibitor is affordability. It's just like people literally don't have the money to buy the car. It's got nothing to do with desire. They just don't have enough money in their bank account. If the car can be made more affordable, the demand is extraordinary."

Tesla shares have fallen nearly 13% so far this year.



See the rest of the story at Business Insider

The government's grounding of all Boeing 737 Max jets is a reminder that the US still doesn't have a leader for its top air safety agency (BA)

Thu, 03/14/2019 - 4:59pm

  • The US's air-safety agency has been thrust into the spotlight this week after being one of the last to ground Boeing's 737 Max aircraft.
  • President Donald Trump has not appointed anyone to lead the agency, which is being led by an acting administrator. 
  • Of 712 appointed positions requiring Senate approval, only 429 have been confirmed under the Trump administration. 

Of the 144 executive branch positions that have yet to receive a nominee from President Donald Trump, one was front and center this week.

On Tuesday, the US found itself alone in allowing the Boeing 737 Max 8, a plane now involved in two deadly crashes in five months, to continue to fly in its airspace. It was Trump who made the declaration that the US would also ground the plane.

Amid all the news surrounding air travel this week after the Ethiopian Airlines disaster, the country still has no administrator for its top air-safety agency, the Federal Aviation Administration (FAA).

Read more: Boeing's software update to the 737 Max 8 was reportedly delayed more than a month because of the government shutdown

Michael Huerta, the agency's former administrator that was appointed by President Barack Obama and confirmed by the Senate in June 2013, left the post in January 2018. Since then, Daniel Elwell, the FAA's deputy administrator, has served as acting administrator.

Trump, who has previously bragged about keeping key cabinet posts empty, at one point touted the idea of nominating his personal pilot John Dunkin to lead the FAA. According to Axios at the time, Dunkin rose to the top of the pile after he told Trump there would be fewer delays on the tarmac if a pilot ran the FAA.

The White House declined a request for comment. 

The FAA is tasked with providing "the safest, most efficient aerospace system in the world," according to its website. The agency is expected to receive $73 billion of the federal government's budget for 2019 and has more than 30,000 employees.

SEE ALSO: Boeing says it encouraged the FAA to temporarily ban its 737 Max planes

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