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Three People Killed in Zimbabwe Clashes; U.S. Sanctions Turkish Ministers; Giuliania: Donald Trump`s Call to End Probe was Opinion and not a Directive; Trump Directs U.S. Trade Representatives to Consider Hiking Tariffs to 25 Percent on $200 Billion Worth of Chinese Goods; U.S. Bond Yields Hit 3 Percent for First Time Since June; Tech Sector Rises as Markets Fall; Tesla Earnings Fall Short of Expectations; Investors Wait for Tesla Earnings Call; Apple Shares Spike After Earnings; Swedish Authorities Hunt for Thieves Who Stole Royal Jewels. Aired 4p ET

Aired August 1, 2018 - 16:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Gained back the gains earlier in the start of NASDAQ having a good day while S&P was off - it was all about

techs and trade, we`re going to get to in just a moment. Come on, one, two, three - that`s what you call firm and solid. Gavels to bring trading to a

close on Wednesday. It is the first of August. Tonight, Tesla`s day of destiny, the most important earnings ever out in this hour.

Also, Apple hits an all-time high, and that`s good enough but it still gets overtaken by a Chinese rival, and bigger tariffs may be on the way. The US

is looking to up the ante on Beijing.

I`m Richard Quest, live in the world`s financial capital, New York City where of course, I mean business.

Tonight, this is the man of the hour. Elon Musk, the head of Tesla, most firmly in the hot seat. Tesla expected to report results in this hour, and

everyone agrees this could well be the most important earnings report in the company`s short history. The problem is, the company is burning through

cash at an alarming rate. Money is just being poured out into Tesla making the new models. Earnings may show that Elon Musk has blown through $700

million in just three months.

In fact, one estimate is putting the current burn rate of cash at over $7,400.00 a minute feeding the Tesla machine. Is this company too big to

fall or too important to fail. Let`s talk about this with Clare Sebastian who joins me. An extraordinary burn of cash for a company where we already

know that there have been issues of whether they have a liquidity problem.

CLARE SEBASTIAN, CORRESPONDENT, CNN: Yes, and I think this is going to be another serious dose of realism for Elon Musk. On the last call, he called

the questions about cash flow and about the Model 3 which is intrinsically linked to that. You call them boring and bone headed. Those boring and

boneheaded questions, Richard, haven`t gone away and ...

QUEST: What are all of those questions? What are the issues?

SEBASTIAN: So, Elon Musk has made the bold statement that he thinks that they will be profitable and cash flow positive by the third quarter, so the

next quarter. I think people are going to be looking to see how close he`s got especially since by the end of June, they reached that critical Model 3

target of 5,000 cars a week. People are going to be looking to see how sustainable that is and how expensive that was.

There have been reports that he`s been drafting in staff from all across the company including people up in hotels. I think the ramp up itself is

extremely expensive, not to mention servicing the existing debt, not to mention other investments like this factory in China that he wants to


So, I think people are already looking at exactly how much cash they are going to have.

QUEST: And then there`s this whole question of how popular the cars are and whether some Model 3 owners had been asking for their deposits back or


SEBASTIAN: Right, the problem there is that the really - well, it`s not really cheap, but the cheapest version at $35,000.00 isn`t available yet,

and that people have been waiting for that for a while and ...

QUEST: And they`re not available because of production problems or ...

SEBASTIAN: No, not available because they`ve decided to put the slightly more advanced cars with a few more features. I think they started about

49,000 on sale first, and only after those orders clear, they`re going to start delivering the $35,000.00 model. And I think you know, part of it is

the production ramp has been slower than people expected, to they`ve met all of these targets slower than people have expected.

QUEST: Not helped by his comments. I mean, that`s let`s not even dwell on the one over at Thailand where mountain rescuer - dive rescuer, let`s not

worry about that one, but his tenor and tone as regards criticism is what - has investors worried.

SEBASTIAN: It does because I think as much people believe that his vision is important, they want to invest in a company that wants to change the

world that might launch a rocket in space and put people in Mars and we think the entire global transportation system in a space of a week, they

want to invest in that, but he cannot have that if he doesn`t have the support of investors, and this prompted and open letter from Gene Munster

who is a top tech analyst after that Thai cave rescuer fiasco where he said, "You should take a Twitter sabbatical."

He clearly hasn`t. He`s been back at it today, but Gene Munster said ...

QUEST: What did he say today?

SEBASTIAN: So today, he`s been tweeting at David Einhorn who is the hedge fund manager who - at UCLA and said the report was that Einhorn wasn`t

going to renew his lease on his Tesla and he said, "Tragic. We`ll send Einhorn a box of short shorts to accompany him through this difficult time"

He`s clearly on the defensive still. He likes to defend himself against critics.

QUEST: Hold your horses. Stay tucked where you are. We had a slew of car earnings out today. Volkswagen shares were down after it said Europe`s new

emission tests pose the biggest threat to its business.


QUEST: And Ferrari shares were down, I mean, they were really down. Look, down over 10%. The company`s new CEO described the late Sergio Marchionne`s

goals as aspirational and Clare Sebastian, aspirational usually means we`re going to change the rules or we`re going to change with the goalposts.

SEBASTIAN: Right. Investors are clearly very on edge because it`s only a week and a half really that this new CEO, Louis Camilleri who has been in

the job and headlong into this first earnings call, the earnings weren`t that bad, but of course, not of that is really attributed to him.

And people look at Ferrari and they think that the stock prices has more than doubled in the last three years since Marchionne has been there and

they just aren`t sure yet that this guy can execute in the same way that his predecessor did.

QUEST: Good to see you - well, actually, I`ll say we`ll see you then. You`ve sharpened your pencils for when the results come out for Tesla.

Good. Elon Musk has a sartorial suggestion for investors shorting his company`s stock.

Yes, short shorts for short sellers. And as Clare was pointing out, Elon Musk was responding to a report about Greenlight Capital President, David

Einhorn giving up the lease on his Tesla. He says problems with the cars` touch screen and windows are getting worse. He also questioned Tesla`s

long-term health.

It was questions about Tesla`s financial health that set off Musk in the first place on the last earnings call.


UNIDENTIFIED MALE: So where specifically will you be in terms of capital requirements.

ELON MUSK, CEO, TESLA: Excuse me, next. Boring bonehead questions are not cool. Next.

UNIDENTIFIED MALE: Of the reservations that actually opened and made available to configure, could you let us know, like, what percentage have

actually taken steps to configure?

MUSK: We`re going to go to YouTube. Sorry. These questions are so dry. They`re killing me.


QUEST: So, this is who Elon Musk went to next. You might call a Galileo Russell a Tesla super fan. He runs a YouTube channel devoted to news about

Tesla and he is a shareholder, too and joins me now. You`ve got the privilege question and if rumor is right, you will get a question in this

earnings call, too. So, what will you want to know if you`re called upon?

GALILEO RUSSELL, TESLA RETAIL INVESTOR : Yes, well, I`m not sure if I`ll get the chance to ask a question this earnings call, but if I do, I`ve been

compiling a bunch of questions from the retail shareholders going on the call trying to represent what they`re wondering about.

A few of the things on the top of my mind that I put a lot of other shareholders be curious about would be more details surrounding the Chinese

gigafactory, the production location of the Model Y and the semi. Additionally, any updates on the fully autonomous coast to coast drive, and

so those are just a couple of things that we would be thinking about.

QUEST: Are you not interested or perhaps more interested in as other analysts might legitimately be in the exact financial performance of the

company, which if it is running out of cash, it would be a very serious problem indeed.

RUSSELL: Yes, I am very interested in the financial performance, but I as a bull, I am interpreting the same facts as the bears just very differently.

I actually believe Tesla should be spending significant amount of capital to allow the infrastructure to expand their manufacturing capacity and that

requires significant amount of capital investment, so I am of the school of thought that Tesla should be ramping up their spending as quickly as


I am expecting them to lose about $700 million the GAAP operating income basis this quarter just as they are investing in the Model 3, but I think a

lot - far too much attention gets paid to their cash flow. I think Tesla could raise capital if they really needed it, so I think these concerns

about bankruptcy and illiquidity are way over blown. The constraint on growth isn`t capital. It`s actually the ability to grow manufacturing

operation faster than 100%.

QUEST: Right, but the problem - Gali, Gali, the problem is it has been - and look, and we`re not talking about - let me be clear, we`re not talking

about the technological genius of the vehicle or whatever, but we`re talking about the grunt manufacturing of automobiles that mass market, they

don`t seem to be able to do at least not without spending a small fortune to make them.

RUSSELL: Yes, let`s talk about mass manufacturing of autos. You know, they are buying the robots upfront to build the production lines to produce

these cars. Every single time after Tesla has fully ramped the production of the vehicle, Model S and X, they`ve shown operating cash flow


I think we`re about to see the exact same thing with Model 3. This is just how the business are in works. They have to spend the money to build up the

production lines. I mean, if you look at Tesla`s production capacity, they are about to more than double this year from over 100,000. I mean ,they`re

getting in the ballpark of producing as many cars as companies like ...


RUSSELL: ... Jaguar, I mean the growth is just staggering here.

QUEST: And on Mr. Musk`s personal ability to offend, whether it be analysts or others, it`s not clever for a Chief Executive to annoy everybody in such

a way, is it?

RUSSELL: No, I don`t think it`s clever, but I will say that contrary to popular opinion, I believe Elon Musk is Tesla`s greatest strength and

biggest asset, not its biggest liability. He`s an incredible leader. I mean, his track record of building software companies that are incredibly

disruptive from the ground up, selling them successfully. I mean PayPal is now a multibillion dollar company, producing billions of dollars of

positive cash flow, disrupting payments.

Certainly, this guy has vision. What he`s doing with SpaceX, I think he`s an unbelievable CEO. He`s chirping a little too much on Twitter, but at the

end of the day, he is a phenomenal executer and I wouldn`t want to put my capital with anyone else in the world.

QUEST: You`ve made your position clear, Gali. Hopefully, you`ll come back here and talk to us more about it. Good to see you, sir. Thank you.

Apple is tonight, very close to being a market capital of one trillion dollars. The number to watch is the stock price. If it reaches $203.45,

then the company`s worth a trillion. Nearly got there today, rising by 4% off the back of strong earnings. A master of a different kind, which may

not please Apple, but maybe they won`t be concerned, I don`t know.

For the first time, Huawei has overtaken and it`s become the world`s second largest smart phone seller. Samsung remains supreme and for once, it got

narrowed with sales. It says, fewer iPhones sold more than 40% compared to the same time last year according to research firms rather than company


A US Senator asked the intelligence chiefs if Huawei phones would - if they would use Huawei phones?


TOM COTTON, US SENATOR, ARKANSAS, REPUBLICAN: I`d like to address this question to you, will you please raise your hand if you would use products

or services from Huawei or ZTE? None of you would. You obviously lead intelligence services, so that`s something of a bias question. Raise your

hand if you would recommend that private American citizens use Huawei or ZTE products or services? None of you again are raising your hand. Thank

you for that.


QUEST: Samuel Burke is in London. Now, the intelligence chiefs may not like them, but clearly, somebody is buying those phones, so who is buying them?

SAMUEL BURKE, BUSINESS AND TECHNOLOGY CORRESPONDENT, CNN: Well, people at the lower end of the market. They have huge volume there and I have to say,

even Americans are buying them. They are not completely banned in America, but they are not with any of the big carriers.

So, what`s really amazing here, people has been asking me, what did Huawei do to get here? It`s amazing that they were able to get to this point

without having the US market. Imagine if they had the US market, and the other thing that`s incredible here isn`t just that they have unseated Apple

from the number two slot, Richard. It`s that they are closing the gap very quickly with Samsung for the number one spot.

QUEST: Right, but do the phones offer any exception? I mean, is it a good phone at a good price?

BURKE: The answer is yes and it`s a really a good phone because of the camera. They are the leaders when it comes to cameras. The type of thing

that we see with the iPhone X where the foreground is in focus and the background is out of focus, that was something that Huawei had months and

months before iPhone X did and the prices are significantly lower than the iPhone, so they do very well in China, they do well in India. Amazing to

see how Xiaomi was so far up at one point and Huawei was able to go past them and then pass the traditional players.

QUEST: I guess, at the end of the day though, I mean, the sort of business snub value isn`t there, in sort of what phone one has in some people`s eyes

and if it`s not one of the elite brands or whatever ...

BURKE: That`s why Apple is worth about one trillion dollars and Huawei still isn`t, but it has a little bit of cache in China, but not the same

that Apple does to your point.

QUEST: Thank you, Samuel. I think I asked you earlier about when $203.45, when you think that will happen?

BURKE: I said tomorrow and I said we`ll see. Maybe tonight by "Quest Means Business" clearly I wasn`t right about that one, but I might be right by


QUEST: I wouldn`t put money on it. Thank you. Shares of Express Scripts fell as much as 7% while shares of Cigna rose. Now,. It is a deal that has

been done, but the reason for this market machinations is reports that Cigna is trying to take over Express Scripts the activist investor Carl

Icahn is trying to stop the two health companies from merging.

Both stocks reversed with their moves. Carl Icahn has built a sizeable stake. Paul La Monica is with me. Now, this is interesting because he

wasn`t an existing shareholder. He has got a stake in Cigna ...


QUEST: Reportedly, he`s got a stake in Cigna to stop this transaction. Why?

LA MONICA: It`s as simple as he thinks Cigna is paying too much for express scripts and this is pretty much the MO for Carl Icahn for much of his



LA MONICA: This isn`t about, "Oh, I think it`s bad for the healthcare industry, it`s bad for consumers." It`s, "I`m a capitalist. They`re paying

too much money. I see an opportunity here. I`m trying to stop it.

QUEST: If you`re not - as a sort of a bystander, if you`re not already in the stock, what difference does it make, Cigna is paying more other than

interfering and trying to change it.

LA MONICA: Well, there is that. He is interfering to try and change it, but he also obviously can make money if Cigna is able to not go ahead with the



LA MONICA: Presumably Cigna stopped, we already saw in the day, the stock went up on this news. Usually, when big mergers are this nature and there`s

some $150 billion, they are a little bit deluded to earnings at first. They will hurt profits in the short term and let`s be honest here, this is not a

guy who has made a career out of looking after the long term health of companies and shareholders.

QUEST: He would disagree of course ...

LA MONICA: He would probably disagree.

QUEST: He would (inaudible) ...


LA MONICA: Well, I would disagree with his disagreement.

QUEST: He would say that it is actions by people like him that ensure the long term security of companies and markets because it brings people back

to basic.

LA MONICA: I am going to say it`s short-term-ism. To be fair though, there are a lot of mergers that probably shouldn`t happen, and I am not

suggesting that this is one of those deals, but he is waiting until almost the last minute, because this one has been out there for a while, to try

and lock this one. So, it will be interesting to see what happens because then we also have Cigna reporting earnings tomorrow and I suspect that they

will be asked about this.

QUEST: Just quickly, Tesla. We`ve talked to Clare about Tesla, your thoughts.

LA MONICA: Yes, the numbers are out. They missed on earnings, which is usually the case, it was a bigger loss, but sales top forecast, last check,

Tesla wasn`t doing much after hours yet.

QUEST: It has changed.

LA MONICA: It hasn`t changed. There we go.

QUEST: It hasn`t changed. There we go. News just in for CNN, Tesla shares have seesawed, the company has reported losses that were worse than

expected. Tesla aimed to produce 6,000 Model 3s per week by the end of this month. We will analyze those numbers. Clare Sebastian will be back with us

to put more perspective on that in just a moment. It`s "Quest Means Business" live from New York.


QUEST: So now, let`s talk about Tesla shares which are seesawing after hours. The company`s reported losses that were worse than expected. Clare

Sebastian, tell us what the numbers are.

SEBASTIAN: So $3.06 per share versus $2.92 expected. That`s the loss. $3.06 a share ...

QUEST: $3.06 versus ...

SEBASTIAN: $2.92 expected, so the loss is worse than expected, but there were some actually better news there and actually, we see the stock is up

by 1.3% in after hours trading and cash burn according to my initial analysis does seem to have slowed. They now have $2.2 billion of cash and

cash equivalents versus $2.7 billion at the end of the last quarter, which means they have burned through about half a billion, which is slightly less

than they did in the last quarter.

So, they are still burning through cash. That`s not good, but they are optimistic. They did sound up optimistic about the Model 3. They say they

achieved 5,000 a week multiple times during July and they are aiming still to produce 6,000 a week by the end of August. So, this is on target with

what they said before.

QUEST: But are they finding them easy to make them? I mean, you can make them if you are pushing a boulder up a hill. Did they say anything about

their production ramp up problems?

SEBASTIAN: They`ve said that they - I mean, they talk about the bottle necks that they`ve seen and they talked about how they want to get to

10,000 Model 3s per week, but they expect only some of their production lines will be ready to do that by the end of the year. So, I think there is

some measure to the way they are describing this.

QUEST: I mean, it`s all about the call now, isn`t it?


QUEST: Whether Elon Musk plays nice or decides to go rogue, because on the basis of the papers and the earnings, the company seems to have assuaged

the worst fears.

SEBASTIAN: Right, and they are still targeting. He still - Tesla expects to be profitable and cash flow positive in the next quarter, so in the last

earnings call, he snatched defeat from the jaws of victory, Richard, that was a beat, so let`s see if he can answer the questions this time ...

QUEST: Call is about any time now, isn`t it?

SEBASTIAN: It`s about an hour from now, yes.

QUEST: We`ll still talk to you.


QUEST: It will be (inaudible) telling us about it tomorrow. Over in Europe, most of the major markets closed down. The worst loss is in London,

disappointing tech earnings which took the FTSE quite a lot lower compared to this. It may have been - it of course achieved about a small gain, but

it was the FTSE that was the big loser.

Two of the world`s biggest drug makers say they are stockpiling medicines in case Britain falls out of the EU without a proper Brexit deal. Now,

Novartis and Sanofi are preparing for a no deal scenario, because in a no deal scenario, it will be more difficult just to import medication from

over the water, from the Europe where it should be - for the territory of the European Union.

Today, the British Foreign Secretary said that falling out of the union without a deal and no deal scenario is a real possibility.


JEREMY HUNT, BRITISH FOREIGN MINISTER: We are very concerned that as things stand at the moment, we are heading for no deal by accident, a no deal

situation which would have a profound impact on the relations between Britain and the EU countries for a generation.


QUEST: Antony Phillipson is the British Consul General in New York joins me here in the C-suite. That`s your boss speaking and he says by accident and

no deal is a possibility. Is he just scaremongering or ramping up the pressure on the other side?

ANTONY PHILLIPSON, BRITISH CONSUL GENERAL IN NEW YORK: I don`t think he`s doing either. I mean, we`ve been consistent and clear since the very

beginning of this negotiation that we want a deal with the EU. We are making progress on that deal with the EU, but we have a responsibility to

prepare for all scenarios which is why the government has always talked about the risks of a no deal and the need to prepare just in case.

But we are absolutely committed to doing that deal and delivering a strong comprehensive future partnership between the UK and the EU.

QUEST: There`s two components to this. Now, obviously there is the withdrawal, the divorce, the treaty part if you like that has to be done

under Article 50 and there`s the future statement. Now the FT has a report that the EU might be prepared to give the Prime Minister a watered down

statement but would get her over the line integrated and then afterwards, have to worry about it.

PHILLIPSON: So, I think I would just come back to what we have said our ambition is. You`re absolutely right though, there is the need to settle

the terms of withdrawal and we have reached a broad agreement with the EU on that at the backend of last year. Then we moved on to talk about the

implementation period and now, we are putting in place the sort of the negotiations of the future partnership with a view to bringing all of that

together in October.

We have made our proposals and the Prime Minister - the Chequers statement that the Cabinet is now committed to delivering and it`s in the white paper

that the Prime Minister published on the 12th of July, that is our starting point for the negotiations and we are waiting to engage with the EU on


QUEST: They`ve already rejected it.

PHILLIPSON: They haven`t rejected it. There was a discussion, a meeting between ...

QUEST: But Michele Vanier (ph) made it clear it`s a nonstarter, and I get it, it`s a negotiating starting point.

PHILLIPSON: Well, he is in a negotiation with us and he met Dominic Robb (ph) in Brussels last week and they agreed that they are going to keep sort

of meeting between the teams and they will meet again in the middle of August. It`s a negotiation.

QUEST: Do you - does Her Majesty`s government pretty much accept that its policy is a soft Brexit? A softer Brexit?

PHILLIPSON: Of course, it is. To leave the EU on the 29th of March, 2019 and then move into a future partnership with the EU that is based on a

comprehensive economic partnership ...


PHILLIPSON: ... based on a comprehensive economic partnership, based on a security relationship, based on future agreements in terms of sort of the


QUEST: Yes, but you can concentrate on ...


PHILLIPSON: ... put it in place.

QUEST: You could have said that at the moment Article 50 was beginning. The reality is that that was in the detail. And we still do not know what that

final look like will be on the PM says no customs union, the PM says no single market, Northern Ireland still remains the intractable problem in

terms of no hard border as the backstop. So these issues seemingly are almost insoluble?

PHILLIPSON: I mean, they are insoluble. We are in a negotiation to resolve them. The white paper sets out how we would propose to operate a future

economic partnership that would mean we are not in the single market. We are not in the customs union, but we are going to have a common rulebook

for industrial goods and agri foods. We are going to have a regulatory arrangement between us in terms of services. There will be a need for

institutional governance and means of jurisdiction and dispute settlement. That is what we have proposed.

QUEST: Why is a common rulebook not just another way of adopting the EU`s mandate, if you like? The EU promulgates, the UK will follow on the basis

of a common rulebook. They are huge, the UK is not.

PHILLIPSON: Well, we are not going to be part of the EU, so we won`t be part of their rulebook. We will need a common rulebook between the two of

us to govern the economic relationship between the EU 27 and the UK, which is let`s not forget, we are still the fifth or sixth biggest economy in the

world. It`s not an insignificant economy. It`s not an insignificant sort of economic entity that the EU needs to arrange to manage its relationships.

QUEST: I`d asked you before this question, when you`re traveling in this country and you`re talking to American businesses, there is natural concern

over what the trading relationship will be like with the US and the UK, are you confident that this administration would give a free trade deal or that

it would do a speedy negotiation for free trade?

PHILLIPSON: So let met - I`ll be very quick because I want to say three things.

QUEST: Please.

PHILLIPSON: Here are the three things. One is, they want to know when they give you the future terms of engagement between the UK and the EU,

especially those who are invested already, they have their patterns of trade and investment between the UK and the 27. The second is they do want

to know what are the opportunities for the UK and US going our own way in the world and we`ve just launched this public consultation on the 20th of

July, it runs for 14 weeks which has got an extensive period of time, but that is explicitly designed in order to allow business to tell us what they

want from this relationship.

There`s no point of course because we don`t start from scratch. We`re already the biggest investors in each other`s country and that`s why I was

coming down here today. New figures have shown that total stock of FTI in the US is over $4 trillion and the UK is the number one source.

So, we have an existing relationship. We want to deepen and strengthen it. We will be able to deepen and strengthen it once we have left the EU, we

are committed to putting in place our presence to do that.

QUEST: And we will look forward to having you back many times between now and March the 29th of next year. Good to see you, sir.

PHILLIPSON: Thank you very much.

QUEST: Thank you very much indeed. We continue tonight. Much more on Tesla on "Quest Means Business" and you`ll meet the Professor entrepreneur whose

had enough of Elon Musk and says he is selling his Tesla.

Also, China`s economy is feeling the heat from Donald Trump`s trade war. Beijing says it won`t bend to blackmail and pressure over 25% tariff.


[16:30:00] RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Hello, I`m Richard Quest, there is more QUEST MEANS BUSINESS, quite a lot more in just a

moment. And China`s economy is filling the pressure as the trade war rhetoric rounds up.

And Elon Musk has sold custom flamethrowers. He sold $1,500 surfboards, and he`s telling investors on his latest set of items. As we continue, this is

Cnn, and here on this network, the facts always come first.

In Zimbabwe at least, three people have been killed in clashes with security forces after parliamentary elections were announced. The Electoral

Commission says the ruling ZANU-PF Party has won two-thirds of the vote. Results of the presidential election have not yet been released.

Farai Sevenzo describes the scene in the capital of Harare.


FARAI SEVENZO, JOURNALIST: For the first time in a long time, I have seen soldiers coming in to control protesters. And now we`ve always known that

the army of Zimbabwe being very much the longest shadow in Mugabe`s for last November.

But now they`re actively on the streets. The pictures I saw while driving around the city this afternoon were completely shocking because these are

men in uniform, in camouflage with all the weaponry of war, AK-47s backend, and they started trying to disperse this crowd of MDC supporters, firing

indiscriminately, shot out into the air.


QUEST: The Turkish Justice and Interior Ministers are now under U.S. sanctions and over the detention of an American pastor, only just seen his

picture. The White House says detaining Andrew Brunson is unfair and unjust. The two ministers have had their U.S. assets blocked and a ban from

financial dealings with any American.

Donald Trump`s Attorney Rudy Giuliani says U.S. President was just expressing an opinion when he tweeted that the Attorney General Jeff

Sessions should end the Russia investigation.

Giuliani said Mr. Trump did not give a presidential directive, explaining, he used the word "should" and not the word "must". China has already

responded to the possibility of higher tariffs Donald Trump has directed U.S. trade representatives to consider hiking the tariffs to 25 percent on

$200 billion worth of goods.

Cristina Alesci is here with me to put this into perspective. Now, these are the $200 billion worth of goods that are about to be tariffed in

September at 10 percent.

CRISTINA ALESCI, CNNMONEY CORRESPONDENT: That was the initial proposal and today, just now actually, was breaking my reporting from last night, the

U.S. trade representative coming out and saying the president has directed Lighthizer; the U.S. Trade Representative to consider increasing a proposal

to level an additional duty from 10 percent to 25 percent.

Yes, and $200 billion, why this is classic Trump. He`s frustrated by the lack of movement on talks with China, on trade talks with China. So he is

ratcheting up the pressure in the hopes of getting China to the table. But here`s the thing, that strategy hasn`t worked so far.

[16:35:00] So the first round of tariffs, what happened, it resulted in China retaliating with the same amount of tariffs on U.S. goods. What

happened in Europe, same thing. There was a pause on those auto tariffs, but yet no deal. There are still not a deal for the American worker, that

is a thing that Trump has been touting for a while.

QUEST: You would arguably say of course this will take time, and maybe more pressure --

ALESCI: Yes --

QUEST: But eventually, they will come to the table, they will do a deal and in a negotiation and it will be for greater benefit and it will have a much

greater economic effect.

ALESCI: But to your point, how much short-term pain will companies and consumers take for the benefit of the greater good. How long are these

negotiations going to go on? In the meantime, U.S. companies are reporting that tariffs are hurting their bottom line if they`re going to have to lay

people off, if they`re going to have to raise prices.

And if these $200 billion in tariffs go into effect, that is going to hit the consumer directly because there`s a lot of consumer goods on that list,

from clothing to appliances, to food. That`s immediately going to impact the consumer -- by the way, we cannot take politics out of the equation.

This is heading into the midterms. Do Republicans really want to see consumers paying more for goods heading into the midterms?

QUEST: OK, so with that all said, is there any evidence that anybody has -- they tried with South Koreans who did a deal on steel and aluminum. If any

of the other parties have negotiated. So for example, we knew that the EU was going to, and then they stopped because the tariffs came into force.

Is there any evidence that the tariffs have brought somebody to negotiate?

ALESCI: Not yet, but I don`t want to undermine the point that I talked to experts who say this is the time, the U.S. economy is strong, everyone else

is having issues, this is perhaps Mohamed El-Erian who has been a guest on this show has said that.

This is the time for the U.S. to press ahead and to, you know, use its leverage because we have such a strong roaring economy as the president

likes to point out, and others including China are having trouble, so mainly this is the time for the U.S. to use its leverage.

But again, there are consequences to that. And also you have to take into consideration that the president is only looking at tariffs and thinking

that the U.S. has the leverage. China can retaliate in other ways, right? On any normal -- or in any normal business cycle, China will go in and

audit U.S. factories will perhaps slow down the process for getting approvals in that country, right?

If this trade war ratchets up --

QUEST: Yes --

ALESCI: We may see some of that activity, and companies are not going to be happy about that. That`s going to impact --

QUEST: Right --

ALESCI: Their operations on the ground.

QUEST: Thank you for good reporting, excellent. Keep a watch on this.

ALESCI: I will for you.

QUEST: It`s clear the trade war with the United States is having a real impact on the Chinese economy. New manufacturing numbers, PMI slid to an

eight-month low and was blamed by the potential impact of trade war.

Central Bank is already intervening, trying to boost liquidity and encourage more lending, and the fears have reached the top of the Chinese

government Xi Jinping met with 25 of the most senior leaders and admitted that trade war poses a threat.

Paul Donovan is with me in London, the chief economist at UBS Global Wealth Management. Good to see you, Paul, as always. The --


How concerned are you now that these trade wars with the EU even though auto is off for the time being now with more with China, they are going to

start having some real economic impact.

PAUL DONOVAN, CHIEF ECONOMIST, UBS GLOBAL WEALTH MANAGEMENT: Well, let`s get the terms right first. We don`t have a trade war, that`s clear. A trade

war takes place when trade in real terms is falling as a share of the world economy.

That`s not happening. Global trade is stable, possibly even rising a little bit as a share of the world economy. The U.S. consumer is being taxed on

goods partially made in China, yes, absolutely, but we`re not in a full scale trade war.

So what we`re seeing here is worries about the future. Worries about what happens if things get worse, rather than things actually getting worse

right now. The Chinese are providing a bit of a boost to domestic --

QUEST: Right --

DONOVAN: Demand, that was always going to be on the cards.

QUEST: Paul, I applaud your sophistry, some might arguably say pageantry on the quest -- you know, whether we are at a trade war or not. But you know

what I mean, sir, you know how in the journal lease(ph) for which I take refuge.

At the end of the day, if the Trump administration whacks 25 percent tariff on this $200 billion, it will have an effect or not.

DONOVAN: It will have an effect, absolutely. It will cause the U.S. economy to slow for real -- I mean, don`t -- you know, we`ve got to call a spade a

spade. This is a 25 percent sales tax on the U.S. consumer, that`s what we`re talking about here.

[16:40:00] It will partially affect China. Remember, most of these goods aren`t made in China, they`re made in China a bit. Some of these goods were

actually made in the United States and shipped via China which is going to cause additional problems.

So the impact on the U.S. consumer is larger than the impact --

QUEST: Right --

DONOVAN: China directly. It is worth bearing in mind there will be a lack. So this is relevant with the midterm elections. Look at what happened with

washing machines. You`ve got the tariffs slapped on in January, it`s not until May-June that you actually see the prices changing.

Takes time for this to filter through, so if we get the tariffs now, the consumer may not realize that Mr. Trump --

QUEST: Right --

DONOVAN: Is hooking(ph) up taxes ahead of the midterms.

QUEST: Let`s turn to bonds at the moment. The U.S. Treasury hit 3, and suddenly then fell back. But it comes at a time when Japan has effectively

capped the rate on the 10, although the market is pushing that new higher rate.

And we have, you know, the question of tightening by the Fed, the ECB not deciding what it`s going to do, and the Bank of England would like to, but

probably can`t.

DONOVAN: Well, I think the Bank of England probably will.

QUEST: All right --

DONOVAN: You know, the markets certainly thinks that they will, well, because they should frankly. You know, I think the Canadian has worked out,

but you`ve got wages growing at a perfectly respectable pace, you`ve got credit growing at a rate which isn`t alarming yet but which is urging in

the direction of alarming.

And the U.K. economy is jogging along, we`ve got a great deal of spare capacity, so probably it`s prudent to move towards a slightly less negative

real interest rates. And I say this through gritted teeth as a mortgage payer who will see his mortgage costs going up if Carney does raise rates


If we look at the ECB, the ECB has been pretty clear, they`re not going to do anything until December, then they`re going to scale back. You know,

what we`re seeing here is the grand dual(ph) normalization.

Because you know what? The world is sort of normal, as normal as it`s going to get.

QUEST: And as you look at that normality, there`s always the opportunity for maverick moments for example, Elon Musk for example, Apple results, all

these extraneous marking movements which have their effects as well. What are you concerned about?

DONOVAN: So what we`re seeing absolutely I think is risk has -- takes off. You know, the underlying economic fundamental defined. If economists were

allowed to run everything, it would be absolutely perfect. But unfortunately, as you know, Richard, that`s not the case.

And what we have there for is quite a lot of noise, and you know, every time there`s a presidential tweet, you guys comment on it, and that adds

risk and uncertainty. If you commented every time I did a tweet, there`ll be a lot less risk and uncertainty and the world will be a better place.

QUEST: I should stop doing that -- well, maybe not, every tweet from Paul. Good to see you, sir, thank you as always.

DONOVAN: Good to see you, Richard.

QUEST: Paul Donovan, who we always love having on QUEST MEANS BUSINESS. As we continue on the markets, the Dow Jones, have a look at the number, well,

that`s an interesting day, isn`t it? All the morning enthusiasm on the back of Apple evaporated on trade worries as the big Dow components.

The usual suspects, CAT, Boeing and 3T -- 3M and the like. Remember Apple is only 5 percent of the Dow. So if all the other major Dow components are

down, that`s the results of the day. As we -- that`s the Fed announcement, the Fed kept rates on hold and tech was higher.

As we continue, we`ll be back with QUEST MEANS BUSINESS more in just a moment.


QUEST: Just as shares are moving higher after hours, losses in the last quarter were wider than the market had to expect. However, the company is

upbeat about car production and profits, it`s planning to turn out 6,000 Model 3s each week by the end of this month.

Elon Musk`s behavior is taking its toll on the share price. The stock dipped briefly after the last earnings call when he dismissed questions as

boring and when he called one of the rescue divers in Thailand in an extremely offensive terms.

Scott Galloway is done with Elon Musk`s antics ways, says he is. He says he`s putting is Tesla up for sale, a 2018 year model SUV. You`re really

selling it?

SCOTT GALLOWAY, AUTHOR & ENTREPRENEUR: You know, I`m committed now especially when Cnn had to retweet, they kind of called my bluff and I was

on another network yesterday and they showed the same tweet. So I`m kind of -- I`m putting my electric powered midlife crisis where my mouth is.

I`m sick of complaining and when a CES says something like this, there`s enough options in the marketplace right beside it, I`m going to buy another


QUEST: What`s wrong with it?

GALLOWAY: What`s wrong with the car?

QUEST: I mean, are you selling it because of the car or because of --


QUEST: The boss?

GALLOWAY: I just don`t -- I just don`t need to endorse the actions of the CEO who slanders someone who I think is trying to help other people. I

thought it was a ridiculous statement, I think CES has to be held accountable.

I think unfortunately, the U.S., we no longer worship at the altar of kindness and character, we worship at the altar of tech billionaires, and I

think this guy should be held in the same standard as any other CEO --

QUEST: But he is a visionary, you agree he is a visionary, he`s created an extraordinary product on -- and let`s say the Space X and again, an amazing

product, an amazing achievement.

GALLOWAY: So as the question, you see the Thomas Edison of our generation who is going to change the world or should he be held accountable for

slanderous comments, I think the answer is yes. I agree with you, I think he`s going to change the world, I think we`re better off for having him,

but at the same time I don`t think that means we shouldn`t hold him to task and force him to act like a CEO.

Look, Richard, it`s such to be a grown up. When you`re a CEO, you don`t go on Twitter and you don`t start slandering other people. And there`s enough

cars out there where if someone is upset about it as I was, like I said --

QUEST: Right, but you`re looking for the renaissance man, aren`t you? You`re looking for the Benjamin Franklin, you`re looking for the man who

invents something by tea time and have done poetry and philosophy by dinner.

GALLOWAY: We`re not talking about poetry, we`re talking about not accusing someone of doing something pretty terrible. This cave divers` Wikipedia

page, for the rest of his life is going to have that slander on it. This is the kind of -- the kind of insult that no matter how ridiculous it is, a

little of it sticks, because it is such an ugly slam made.

QUEST: In terms of Apple, I need to talk Apple --


QUEST: And the results. I mean, they blew it out of the park, they`re making more money from selling the same amount of phones and services is

through the roof.

GALLOWAY: Yes, most of the tech earnings have been -- it beat on the top line and missed on the bottom line, a beat on the bottom line, a miss on

the top line. Apple beat on the top end of the bottom line. We were talking during the break, I think this is more of an indicator, just how well the

top 1 percent is doing globally.

Apple is not tech company, it`s a luxury brand, and it`s great to have the best luxury brand in the world. How do you signal your worth, your

potential worth as a mate? Your IOS, $270 to produce $630, I think average price, this is the highest margin product --

QUEST: Seven-twenty four I think was the --

GALLOWAY: Seven-twenty four?

QUEST: Seven-twenty four was the average on this last quarter or apparently, I think you remember --

GALLOWAY: Think about those margins, I was on the board of Gateway Computer, we used to operate on 6 percent operating margins. This company

has pulled off the impossible in the history business. It has the margins of a Ferrari with the production volumes of a Toyota which results in

profits` quarter that double the profits, double the amount that Amazon has registered in its entire history as a company --

QUEST: All right --

GALLOWAY: Back water --

[16:50:00] QUEST: All right, that said, but it has done so at the time as losing its position as the second larger volume phone maker to Huawei which

of course it is not available necessarily as in -- and the great numbers in the U.S., but huge in the rest of the world which is now number two besides

-- behind Samsung.

I`m guessing you will tell me that Apple doesn`t care.

GALLOWAY: Yes, Gap probably sells more handbags and Louis Vuitton, you rather beat Vuitton. I mean, Apple has always gotten grief and not going

after a mass strategy, but the market is bifurcated into two things. The mass strategy where you can get a phone for free from Android where they

basically turn you into the product and take the data and feed it into a supernova business model of advertising.

While a luxury phone that communicates your part of the innovation class. You live in a city and that you can afford to be the -- have the best

phone, you`re a story teller, you`re Richard Quest and you will pay a ridiculous amount of margin for that.

And by -- they`ve never pursued market share, they`ve just pursued profits, and you know what? It`s working.

QUEST: Are you guilty of the same thing?

GALLOWAY: Oh, are you kidding?

QUEST: You`ve got --

GALLOWAY: Come on --

QUEST: You`re worse, you`re worse because you`ve got that and the Tesla.

GALLOWAY: I`m in the midst of my third midlife crisis. But you know what? I hate my life less and less every day, Richard.

QUEST: Because of the phone?

GALLOWAY: Because of the phone. Good to see you.

QUEST: Good to see you as always. When we return, if you can`t earn it, steal it. Thieves have stolen priceless royal jewels and then escaped by

speed boat. It`s cracking tales will happen after the break.


QUEST: Swedish authorities are hunting for a group of robbers who made away with royal treasure. As Anna Stewart now reports, it`s the latest on the

most brazing of thefts.


ANNA STEWART, CNN CORRESPONDENT (voice-over): It was a daring day time heist that could have been written by Hollywood. Priceless royal jewels

stolen from a cathedral in Strangnas, Sweden to thieves making their get- away on a speedboat.

While police have launched a massive manhunt for those responsible, so far it has no success. Authorities are appealing for public help and have

released this photo of the 17th century jewels which originally belonged to former Swedish monarchs Karl IX and Kristina.

Police say that thieves smashed the security display case and made off with the two crowns and one of the orbs, no one was hurt. The cathedral have

been opened to the public from 10 O`clock in the morning, the robbery happened just before lunch.

[16:55:00] (on camera): According to local press reports, one witness saw two people running away from the cathedral towards a waiting boat,

prompting police to search both on land and sea to find the perpetrators. The dean of the parish says while the jewels are valuable, it`s the

cultural significance to Sweden`s history which is more important.

The heist has echoes of a daring robbery and been certainly this year when thieves mingled with businesses to an exhibition before brazenly making off

with gems from the Qatari royal collection. In that case, the jewels were never recovered. Anna Stewart, Cnn, London.


QUEST: Fascinating. Now, you want to keep on top of the day`s business headlines, you can do so in 90 seconds with our daily briefing podcast,

updated twice a day, it`s before and after the bell rings on Wall Street, and you do it by asking Alexa or Google home device.

But we call it the CnnMoney flash briefing. Just ask for the CnnMoney flash briefing and I promise you the dulcet tones will be yours. On a very busy

day, we will wrap it all after the break and we`ll have our profitable moment.


QUEST: Tonight`s profitable moment, are you a tortoise or a hare? How do you react when your feet held to the fire. We`ve got two great examples of

it tonight. Elon Musk on the one side -- the company has grown very fast, there have been lots of controversy, lots of comments, lots of questions

about the cash bird and whether or not he is able to withstand the pressure of Tesla, Space X and all the other things.

And then on the other side, you have Tim Cook of Apple took over from Steve Jobs, everybody said it was all going to be a disaster go horribly wrong,

and it nearly did, wearables didn`t do very well, the watch was OK, put it all together and people said that Cook wasn`t Jobs and we will tell.

Looks different now though, doesn`t it? Because Tim Cook did the slow, wild work of moving forward, and now Apple is the most valuable company in the

world and probably this week, will go over a trillion dollars in corp. value, and more importantly as the results show, it`s solid, solid cash-

producing machine.

Which is what Elon Musk wants to become. But if only he could get out of his own way and actually run the company with the brilliance that he has. A

tortoise or a hare? And that`s QUEST MEANS BUSINESS for tonight, I am Richard Quest in New York -- whatever you`re up to in the hours ahead, I

hope it`s profitable. We do it again tomorrow.